We have to pull together to confront Covid-19. Business is mobilising. Important objectives are to ensure we can continue getting goods and services to consumers and to increase supply of goods that are particularly needed now such as hand sanitiser, personal protection equipment for frontline staff and medicines. Where supply chains have been disrupted due to global containment measures, we are looking to ramp up local manufacturing and find new sources for inputs. This will work – there is no need for panic buying.
Business must come together on three main issues: defending the economy, working with labour to cushion the impact on workers, and supporting the public health effort. BLSA, under our apex body Business Unity South Africa, is working alongside its members to develop capabilities and responses and ensuring alignment with government’s efforts. Yesterday, I spent two hours in meetings with the president and other political and business leaders working out how we can best act together. There will be announcements early this week of important interventions.
One of the greatest challenges is the impact on small companies that have seen business evaporate because of Covid-19, including tourism and hospitality businesses. Around the world, we have seen hotels offering their rooms to hospitals to accommodate workers or patient spill overs. Restaurants have repurposed themselves into take-out and delivery services. Hospitality workers are being rehired to help farmers boost food production. These are just some examples of how businesses can help themselves and others by innovating in response to the crisis in identifying needs and repurposing to meet them.
Of course, overall, the economy is in for an extremely difficult period and many businesses are going to suffer. Business can pull together to assist where possible in solidarity with those companies experiencing distress. But already around the world we have seen dramatic interventions by governments and monetary authorities, reminiscent of war times. The UK, EU and US have announced unprecedented amounts of money to directly support businesses and workers through loans and payment holidays. The Internal Revenue Service in the US has announced a 90-day tax payment holiday while the government is preparing to give $1,000 to every citizen. Guarantee funds are being set up to support banks to manage clients in debt distress.
I wrote last week that we in SA are not well positioned economically for this crisis. Our economic immune system is weak. We have had several years of negative per capita growth and budget deficits were already set to reach record levels. We are facing the consequences for failures to reform the economy earlier to boost growth. The scope for a strong government response is limited by that history. We also do not have the luxury of record low interest rates seen in developed markets that effectively enable government to borrow at near zero interest rates. Quite the opposite – yields on government debt spiked last week, meaning government’s costs of borrowing are increasing.
While President Cyril Ramaphosa and his team have been impressive in moving decisively to take measures to protect the public health, it is now time for similar decisiveness on the economic front. The Reserve Bank has already acted sharply with a one percentage point interest rate cut last week and is also supporting financial markets with liquidity, enabling banks to weather the storm. But I am reminded of the five percentage points of cuts that were made in the year following the bankruptcy of Lehman Brothers as one indication of how much more can be done.
While the scope is limited, we need government to intervene with a package of economic urgent care. The Unemployment Insurance Fund, which has a considerable surplus, is an obvious tool to bring into service to support vulnerable workers. Government’s disaster recovery budgets must also be put into service. Money earmarked for dysfunctional state-owned enterprises should be redirected to the Covid-19 battle.
Another potential source of support is global financial assistance. The financial crisis was managed through coordinated global action under the auspices of the G8, and similar coordinated action is needed now, particularly to support emerging economies by the G20 (of which SA is a member). Less-developed economies have access to emergency concessionary funding from the International Monetary Fund, but as a middle-income country, South Africa does not. The Covid-19 crisis and the associated economic crisis is global and countries will have to work together to escape it. Global economic diplomacy is now important.
Business will work with government to do all it can to support efforts to tackle the virus and protect our economy and the jobs, goods and services it provides.
I shared further thoughts last week on how the virus has caught SA in a perfect storm, with Eskom’s loadshedding consistently undermining any growth and business and consumer confidence at historically low levels. With every passing day that we don’t get on top of Covid-19, it will further slow activity in an already struggling economy.
Last week BLSA attended a Nedlac special executive council meeting on the impact of the virus where we made commitments to curb the spread. Read my thoughts on what needs to be done and business’ response in this Business Report column.
Just a few months ago I attended the annual World Economic Forum in Davos, where there was little consideration that the world would plunge into a full-blown health crisis in just a few weeks. All forecast models are being reviewed to consider the short- to long-term effect on global supply chains, among other factors.
Our most immediate concern is the effective management of the domestic spread of the disease. We need to urgently prepare for it and, in this regard, we must applaud the efforts of the government in keeping as tight as possible control on any potential fallout.
Given the already dire state of our economy, it’s important for government to focus on structural reforms that will put the country on a sustainable growth path, as I wrote in Business Day.
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