President Cyril Ramaphosa has arguably delivered the gold standard in leadership when it comes to South Africa’s response to the Covid-19 pandemic. He has acted rapidly and decisively, following international best practice.
The socio-economic ramifications of the timely response to the crisis now need to be dealt with. The choices that are being made now and the political outcomes that will follow are critical to determining South Africa’s future.
South Africa’s response to the pandemic
South Africa has implemented the strategy described in Tomas Pueyo’s article The Hammer and the Dance. An initial “Hammer” strategy of lockdown for 3-7 weeks brings the number of new infections down to levels that can be dealt with by the medical community. This gives the country time to increase testing and healthcare infrastructure. Once infections are reduced to a low level, a “Dance” strategy can begin where social distancing measures are released or tightened to keep infections below the level that would overwhelm hospitals.
Source: Tomas Pueyo, The Hammer and the Dance
South Africa implemented the “Hammer” lockdown in a timely manner. This has proved effective in slowing the spread of the virus, and “flattening the curve”. We have bought some time and eased the burden on healthcare facilities.
On Monday, April 13, professor Salim Abdool Karim, chair of the Ministerial Advisory Group on Covid-19, together with Health Minister Zweli Mkhize showed how South Africa has managed to achieve a far lower trajectory of infection growth compared to other countries that did not fully implement the “Hammer” strategy of a full lockdown.
Source: Professor Salim Abdool Karim, Ministerial Advisory Group on Covid-19, Tulio De’ Oliviera & KZN CoV Big Data Consortium
Karim still warned though that even though the initial “Hammer” lockdown strategy appears to be succeeding, “Our population will be at high risk after the lockdown. We cannot escape this epidemic.”
Once lockdown ends, the “Dance” strategy will take over. This will involve several interventions:
- Door-to-door testing, isolation and contact tracing of new cases.
- Identifying hotspots and intervention strategies such as localised lockdowns.
- Increased medical care, like expanding hospital bed numbers and field hospitals.
- Expanding burial capacity and regulating funerals.
- Managing psychological and social impacts.
- Ongoing vigilance of the virus.
How long will the crisis last?
For South Africa, a 3-7-week duration for the “Hammer” lockdown period may be optimistic. It is likely SA will be in rolling lockdowns until the end of winter. The medical care response will be additionally burdened as the winter flu season intermingles with the Covid-19 epidemic.
Boston Consulting Group projects South Africa’s new cases to only peak in the first week of June. They expect South Africa to require a longer lockdown until July or August due to factors such as low in-patient bed/population ratio. Karim also noted that poor healthcare access combined with the high disease burden from HIV positive patients not on antiretrovirals and tuberculosis patients may increase the severity of peak infections.
Source: Boston Consulting Group, John Hopkins University (Coronavirus Resource Center)
South Africa’s ability to enter the “Dance” phase is dependent upon rapid ramping of testing capacity. Kamy Chetty, CEO of the National Health Laboratory Service South Africa hopes to be able to process 36 000 by the end of April. Overall testing, however, is still below the target of 15,000 per day.
This “Dance” process will last a long time: At least until a vaccine is available. Annelies Wilder-Smith, professor of emerging infectious diseases at the London School of Hygiene and Tropical Medicine expects it will likely take at least eighteen months to secure a vaccine given the combined time required for its development, trials, and manufacture.
The “Hammer and Dance” containment strategies may reduce infections and save lives, but the longer it goes on for, the deeper and longer the recession. Eighteen months of such disruptions will cause a devastating amount of economic damage for South Africa.
Source: Ricardo Hausmann, Pierre-Olivier Gourinchas, Richard Baldwin
South Africa may struggle to sustain the lockdown long enough to keep the spread of new infections under control. As Ricardo Hausmann from the Harvard Kennedy School put it: “At the limit, people will have to decide between a 10% chance of dying from the virus and a 100% chance of starving to death”.
The US and the rest of the developed world are providing massive, localised, stimulus packages to mitigate the effect of the shock and reduce the intensity and length of the economic downturn.
South Africa, however, was fiscally weak before the Covid-19 crisis began. National Treasury already expected a budget deficit of 6.8% before the Covid-19 shock. SA cannot use government spending to help the economy in the same way as the US and other developed markets.
The lockdown and crisis are making the government’s funding problems far worse. The drastic drop in economic activity will cause tax revenues to decline. The crisis will require far more healthcare spending. This will leave very little capacity for the government to spend much on economic relief. Price Waterhouse Coopers estimated that the budget deficit could expand to between 7.6% to 9.6%, while GDP will contract between 8.4% to as much as 20.4% this year.
The global environment during the pandemic
South Africa is on its own during this crisis. There will be little help coming from the rest of the world. Globalisation was already contracting before the Covid-19 crisis. Now, with the pandemic, the world is spiralling further into self-isolation and self-interest, as countries understandably marshal their own resources for the benefit of their own people.
Before the crisis, Brexit, US-China trade wars, and other disputes were already undermining global institutions. Cooperation among states was declining as these trade fights undermined trust and communication between countries. The EU, G20, UN, US, WHO and WTO were already weakened.
We now see even greater US-China friction, with narrative-fights over the source of the virus, and serious concerns being raised about China’s suppression of information relating to Covid-19, and its statistics pertaining to infections and deaths. The ongoing trade battles over Huawei and other disputes have become even harder to resolve.
With every country suffering simultaneous outbreaks, all nations need the same supplies at the same time. This leads to fights over access to masks, medicines and ventilators. Countries have halted exports of medical supplies. Borders are closed. Politicians from countries with slow responses to the virus are blaming other countries for sharing dishonest data. The friction between nations is rising.
Nationalism is increasing. Even once economies begin to recover after the crisis, there will be greater competition between nations as they build domestic resilience to future supply shocks. We are likely to see more tariffs, tighter border controls and resource competition as businesses and nations diversify and localise supply chains.
Many emerging economies besides South Africa are now at risk of failure. Developed nations are concentrating all their resources to combat their own crisis at home. They lack the will and resources to help developing economies. Failed states may result. Refugee crises would be an even bigger problem now due Covid-19 health risks. Closed borders and a lack of foreign aid may create a humanitarian catastrophe. Where governments fail, the resulting power vacuum may invite dangerous non-state actors (e.g. ISIS) into power.
In this global environment, South Africa will receive little sympathy or aid from the rest of the world. To prevent irreversible long-term damage to the economy, South Africa is going to have to borrow money to pay for fiscal support. The downgrade to junk status, the loss of foreign tourist spending, and reduced export demand which has reduced foreign currency income has severely impacted our creditworthiness and dramatically raised the cost of borrowing. South Africa’s options are limited.
South Africa’s choices
In an online InnerCirk’l Talk webinar I hosted on Thursday, April 9, our panellists Mark Semonian and Mark Oppenheimer discussed various choices facing South Africa.
That leaves either going to the International Monetary Fund (IMF) for a bailout, or confiscating wealth through a combination of expropriation, prescribed assets, capital controls and nationalisation.
Semonian then described the war within the ANC over which direction to go. Finance Minister Tito Mboweni favours the neoliberal, which will most likely result in seeking a bailout from the IMF. The tripartite alliance led by Ace Magashule from the ANC, together with the SACP and Cosatu, on the other hand, are very much about the redistribution of assets. Semonian is not yet clear where Ramaphosa stands in the spectrum between a neoliberal and confiscatory direction.
The IMF, in exchange for large scale funding, will require state-owned enterprises to cut jobs. They will insist on limitations on spending, cleaning up corruption, and ending ideas about expropriation. It is something that many of the ANC may not accept. South Africa is on a precipice. The ANC could go either direction. If it goes the neoliberal way, it will likely mean further stability. However, there is always the risk of Ramaphosa being pushed out of office at a later date if the party decides his policies are not working for the country. The ANC would then embark upon a confiscation of wealth. The country could then spiral in another direction and many things that South Africans held sacred such as property or rights could be lost.
Mark Oppenheimer referred to the book, The Road to Serfdom by Friedrich Hayek. The book describes how during times of crisis, such as a war, we surrender ourselves to central planners. They seem to have all the solutions, they tell us what to do, direct factories to produce certain things that are needed. While that may be useful during a crisis. After the crisis is over, the planners remain and keep regulating and restricting people’s rights. This eventually ends up in authoritarian societies such as we have seen in countries such as China, Russia and Cambodia.
He warned that this is the time when political actors will use the opportunity to centralise their power and that there will be moves towards nationalising assets and total state control.
Oppenheimer urged South Africans to take up the mantle of active citizenship. During this time, we cannot just be passive citizens. We need to participate, to take a role and influence the direction going forward. He recommended that where there are concerns about changes in regulations, citizens should push more and more online petitions for certain agendas. Civil society organisations that have the ear of government should play a bigger role going forward.
He gave the example where the Institute of Race Relations put out a policy paper looking at different scenarios going forward and have offered several solutions. He feels it is important that South Africans identify those organisations that have been doing a good job securing South Africa’s future and support them either through lending their ideas, time, or money.
He reminded businesses too, that they need to stand up and protect themselves and South Africa. Now is the time to push back on what is unreasonable and offer solutions as well.
South Africa has so far succeeded at flattening the curve through quick and decisive action. We have gained some time and likely reduced peak infections.
To maintain a strategy that mitigates the effects of the virus will be very challenging given South Africa’s socio-economic realities. The required economic damage will be severe, and South Africa lacks the resources and funds to counteract it. Funds will need to be acquired to pay for it. The country is at a precipice. The choices the country makes in the next few months will determine our entire future.
Citizens and businesses cannot just throw their hands in the air and simply react to government actions. It is time to be proactive and make a difference. For it is only by all stakeholders in South Africa uniting and working together, that we can move forward to stable and bright post-pandemic world.