We are just into our second week of what has been an unprecedented period for us and the world. There’s no historic journal that we can peruse for clues as to how one deals with the entire global economy close to complete shutdown for a designated period. How does one jump-start it? And just how soon? In the case of Covid-19, it’s a life or death equation.
These are the pertinent questions as our economy struggles under the weight of the shutdown of industry, which has economists forecasting a GDP contraction in our current quarter of as much as 30%. That’s a terrifying number if you consider that we live in a country with one of the highest unemployment levels in the world.
Huddled up in the comfort and safety of my own home, like many of us over the past week, it may seem insensitive to consider the health of our economy in times when so many have fallen ill and the death toll is climbing. But we have to consider the long-term ramifications of the lockdown, which may have to be extended here, as it has in so many places elsewhere, on the world we will awaken to after we win the war.
On a global scale, perhaps we will all fall into line with a UK Imperial College study that envisions some form of social distancing until a vaccine or treatment is available, which is some way off. When restrictions are eased, we’ll probably have to take a new approach to public health until a vaccine is found.
But while we expect an easing of restrictions that by and large all South Africans have tried their best to adhere to, our economy is taking significant strain. In the time that we’ve been indoors, Moody’s Investors Service cut our last hold on an investment-grade rating to “junk”. As a result of persistently low GDP growth, bailouts of state-owned enterprises and deterioration in our public finances over recent years, Fitch Ratings further downgraded the country into subinvestment grade.
In response, the rand weakened and is now trading ever closer to R20/dollar. While it is true that all other emerging market currencies have come under similar pressures, I say this to answer defensive politicians: we’ve been hit particularly hard by a worrying growth outlook and in turn a continuing deterioration of our fiscal state.
With most of us are confined to our homes, there seems little we can do to offset a double-digit percentage contraction in our economy over the next three months and possibly longer. Sadly, poverty, which is not a headline grabber as much as Covid-19, may prove to be a bigger killer — as it has for many a millennia.
Where possible, we should allow economic activity to happen as its net benefits are positive in the fight against the disease. We need to assess the economy from top to bottom and see where we can safely operate parts of it.
We can include export industries because we need foreign currency urgently to improve exchange rates so investors can enable the government to continue raising money and functioning. In the case of our mining sector, where the leap towards mechanised mining has been made, such mines should be enabled to extract the ore. We have also put in unnecessary export bans on goods already produced such as wine.
There’s an urgent need to get money flowing into the informal sector, where economic activity is often hand-to-mouth. A disruption in economic activity rapidly leads to poverty and then hunger. Social unrest is then but a small step away.
This isn’t a uniquely SA risk. In Italy and Spain, two of Europe’s worst-affected countries, there have been reports of civil disobedience from people who have been subjected to lockdown for weeks. When people get hungry, they can rapidly turn against the enforcement measures that may be there for their greater good.
We need to be realistic in this endeavour as it will prove difficult to manage it safely. We must urgently focus on this question of reopening the economy without overwhelming health systems already under significant pressure.
If we don’t have this conversation right now and make the necessary trade-offs, this necessary economic pause could well become something much larger to contend with when we finally arrive at that point where we have to restart commerce.
This column was first in Business Day.
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