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A non-essential business? There’s no such thing

They are all essential to somebody.
Any enterprise that creates jobs, pays wages, generates profits and pays taxes is an essential part of the system. Image: Moneyweb

Under lockdown, South Africa has had to come to terms with a new concept – the idea of an ‘essential business’. These are the companies that the government has allowed to keep operating during this period.

In a broad sense, the way that essential businesses have been defined seems reasonable. The government has clearly applied its mind to what is required to keep a country going.

Healthcare services are obviously necessary. Grocery stores need to stay open so that people can get food. The media must be able to keep the country informed. Financial services need to facilitate payments and keep capital markets functioning.

In order to slow the spread of Covid-19, it makes sense to limit activity to companies in these sectors. However, does that really mean that all other businesses aren’t ‘essential’?

Recognising reality

In a recent webcast, Jerry Gundlach, founder and chair of US investment firm DoubleLine Capital, posed exactly this question.

“There is no such thing as a non-essential business,” Gundlach argued. “They are all essential to their owners, and those businesses are interconnected to one another.”

This is something South Africa is going to have to grapple with in a very real sense when the lockdown is over. It is a reality that will be recognised in two ways.

The first is that every business exists because it is supplying something to somebody. Your local hairdresser might seem the furthest thing from ‘essential’, but it wouldn’t exist if customers didn’t feel they needed it.

In fact, after weeks of South Africans having to go without a visit to the hairdresser, any salon that is able to open its doors again is likely to be inundated with clientele. It will quite possibly be a boom time not only for them, but also for beauty parlours, spas and wellness centres.

This will be a demonstration of just how ‘essential’ these businesses are.

Links in the chain

Examples like this, where companies and individuals are able to respond to a pent-up demand, could well be a good news story post-lockdown. However, there will be others that are far less positive.

Many businesses that are supplying parts or services within larger supply chains are going to struggle to survive. Even if they do, they may start operating at reduced capacity after the lockdown.

This will have knock-on effects. Any supply chain only runs as well as its least efficient component, and this could mean major disruptions to many parts of the economy as capacity is re-established. This could take years.

Read: Banks are taking applications for Oppenheimer donation

Put another way, every business in a supply chain is ‘essential’ to keeping it functioning in a productive manner. Unfortunately, the lockdown is going to prove how true this is.

Bread and butter

The second reality, which the country is already having to face up to, is that every business is ‘essential’ to its owners and the people who work there. Companies provide jobs and livelihoods to millions of South Africans.

Some businesses are already accepting that they cannot survive for 21 days without any cash flow. People are already being retrenched. This is going to make life extremely hard for many South Africans, some of whom would have felt they were in secure jobs just a few weeks ago.

What can’t be ignored is that companies that create jobs and pay wages are an ‘essential’ part of any social system. By generating profits and paying taxes, they are also an ‘essential’ contributor to the country’s greater wellbeing.

If South Africa loses large numbers of businesses due to the need to respond to the threat of Covid-19, the country will be significantly worse off.

This is an unpleasant reality, but perhaps it will also be a necessary shock. It will be very obvious when South Africa emerges from lockdown just how ‘essential’ business is. In a country where attitudes towards business are often antagonistic, this will hopefully be eye-opening.

The country will not recover and will certainly not prosper unless we recognise just how ‘essential’ every business is.

Encouragingly, a lot of money and effort has been pledged to supporting as many businesses as possible through this period. Hopefully the same focus can be brought to creating a more enabling environment for them once it is over.

Listen to Melitta Ngalonkulu’s interview with Kim Polley of Instinctif Partners Africa: 

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We can’t do the math yet. However I spend some time in South Korea (many years ago) and there they believed to support different businesses (grocery, restaurant, supply). To ensure each business has the opportunity to make a living. Big or small. So support chain stores, they employ plenty of people, but support the shop around the corner too, we are all entrepreneurs is some form or way.

All businesses are an essential part of the economic system because every entrepreneur, no matter how small his contribution, plays a role in the growth of the Gross Domestic Product. When GDP growth stops or contracts, and the level of the national debt stays the same or keeps on growing, then the situation becomes unsustainable and unstable. Every citizen will pay the price for lockdown.

The successful operation of that non-essential business is not only crucial to the owner or the employees but also to the individuals who lent it money for investment in capital goods or working capital. Lockdown also declares that the repayment of capital and interest is a non-essential part of the economy. Lockdown implies that the pensioner who depends on a bank deposit for an interest income should write it off if the bank lent it out to a non-essential business. The pensioner will pick up the bill.

The competitive nature of the free market ensures maximum efficiency. It enforces the delivery of the best products at the lowest prices. These businesses do not have the profit margins to compensate for periods of lockdown. Lockdown will cause increased bankruptcies, less competition and higher prices for the consumer. The consumer will pick up the bill.

Lockdown will impact on the financial system because banks did not model for lockdown when they determined the solvency of their business client. Bad debts will increase, the shares of banks will decrease, pension funds will shrink, which means the consumer will pick up the bill.

Countries in emerging markets who, like South Africa, had high debt levels with huge state guarantees to bankrupt SOEs and bankrupt municipalities, a public wage bill that is out of control, a shrinking tax base due to socialist policies and rising social unrest, will be pushed over the cliff into hyperinflation. The economic consequences of lockdown may be the last straw to break the camel’s back. The cost of hyperinflation will have a devastating effect on consumers.

The invoice for lockdown is in the mail, and it has the address of every citizen on it.

I fear that the economic impact will be worse the the virus for many people…

If a business was non essential it would not even open its doors.

If this lock-down goes past 3 weeks, we will be without a lot of essential businesses. A dark day looms for us all.

CR should have sent out the hygiene and distance warning and business should have carried on as normal.

Hopefully the GDP loss of 21 days is smaller than an estimate of between 200k to 700k dead if no lock is implemented. People dieing has an emotional impact on society. One can work out the cost of every life saved due to the lock down. I am sure economists have models.

With respect. Lockdown will save relatively few lives. Lockdown will not cure anybody, nor will it stop the spread of the disease. It will only flatten the curve, or prolong the period of infection. The lives that may be saved are those who may not have access to ventilators under normal circumstances. 80% of people will contract the virus and 4% of those patients, who have pre-existing medical conditions, will die. Lockdown won’t change these statistics.

The lives that may be saved by lockdown measures are those patients who will die within 12 months from their pre-existing medical condition. 30% of South African children are malnourished as it is. The impact of lockdown on the economy will worsen their situation. Economists have models, but it is no substitute for common sense.

Well said. More will die and millions more will suffer for years after the virus has passed pandemic

Excuse me for not quoting exact numbers. But before the lockdown we were at something like a hundred ( probably a lot more ) and after the 21 days we going to be at a few thousand ( definitely a lot more ) What was the use of the lockdown economically for small business ? This virus will continue for many months if not years still.

It’s also amazing that all these people who are so concerned about the deaths from covid19 don’t make a peep when a factor of many more people die daily in SA from crime, TB, aids, car accidents, starvation, etc.

What will these beading hearts have to say when the masses of poor have nothing to eat and start looting?

Gosh! Cannot believe the thinking in some of these comments!

The ONLY way to deal with a spreading epidemic is an AGGRESSIVE lock down and isolation.

There is NO debate to be had on that issue.

Those results were in a LONG time ago.

When China realised the real gravity of what they were dealing with in Wuhan, they pretty much IMMEDIATELY resorted to lock down on a Draconian scale.

And it worked! For them… Taiwan… Korea… everywhere that grasps the importance of acting FAST.

But for the fools that believed there was no need to act with military urgency (you know, the Clown in USA, and his best buddy in London), the outcome is being CATASTROPHICALLY different.

They didn’t even have a plan to start with. Running out of PPE and ventilators, and now having to compete for limited supplies (at top $ nogal) with every other fool that woke up too late.

How come Germany and Taiwan were NOT caught out?

That’s where the lessons are!

Ps Bill Gates delivered a famous warning about dealing with a pandemic. He was IGNORED.

The Corona virus is actually a super-mild pandemic (death rate 1-3%).

A pandemic with a REALLY dangerous death-rate will yet strike in the future. Chicken Pox, for example, has a death-rate of 30% for the non-immunized.

Epidemics are nature’s way of decimating crowded populations.

Seems we need a bit of a change in that regard, eh?

BEFORE the BIG ONE comes!

In a perfect world you are talking sense. This is Africa…

What about the biggest clown of all in Beijing. You know the leader of Chinese Communist Party. Those who denied the existence of the virus, who persecuted the doctors who were starting to warn of the threat. Who have made doctors disappear and one who conveniently died. They denied the scale, denied human to human transmission, allowed 5 million people to leave Wuhan during the Chinese new year before the desperate lock down.

They continue to lie about the real figures and have expelled all foreign journalists, closed their borders to foreigners and just closed all cinema’s across the country.

China is an example of everything that should not be done in such a crisis.

one word – Sweden

@Bacchis

A more ignorant comment I have yet to come across!

No doubt that China did the things you say (ignored the warnings etc), and it’s a VERY BIG “but”, when they truly realised the enormity of what they were dealing, and the consequences of NOT acknowledging the problem) they got their act together REAL FAST.

Your bias is blind to who has actually been successful at defeating the problem.

It’s certainly NOT your “hero” in the USA.

Give credit ALSO where it’s PROPERLY due.

It was also Chinese Medics that discovered the correlation of hydroxy quinone with a beneficial effect on the virus. They were the first to actively apply this as a plausible remedy.

This discovery wasn’t an accident. It was the result of a meticulous, detailed examination of all patient records actively searching for this correlation.

Thanks to the intelligent, and well-thought-out TOTAL PLAN they had – and the aggressive implementation of it, the problem in China is virtually over.

Can certainly resurface, but they ready for that.

For China, its now just a waiting game until they have a vaccine.

For your heroes, they have been caught with their pants down. In every single way you care to name.

If it wasn’t for China now supplying them with virtually all the medical equipment, PPE, Pharmaceuticals, as also the CERTAIN REGIMEN of how to properly deal this pandemic, they would be a LOT further up the creek than they are now.

It doesn’t help your case one bit to try and excuse “The Clowns” by blaming China!

How come Germany, Korea, Taiwan don’t have a problem?

That’s where the answer is. And where you too must look.

@Sensei

Sweden unfortunately, is not a one-word answer.

Sweden has a peculiar national character which does aid in slowing (not stopping) epidemic spreading.

More than half of households consist of just ONE person!

Very educated and connected workers. Working from home or remotely is already done, or an easy transition.

NONE of these factors remotely applicable to SA.

Finally, there is no real anti-lockdown consensus in Sweden.

The Swedish jury is still very much divided as to whether they can continue without a lock down. The business community is against it (exact same here!), but their own epidemiologists are becoming increasingly outspoken that this could be essential.

Time will tell.

In the meantime, you can look at the varying results for the success of the lock down strategy amongst the US states.

It’s total chaos. And no wonder Dr Fauci (pretty much the leading epidemiologist in US, if not world) is tearing his hair out at the lack of supportive leadership from Trump.

I had a look at the url you provided, but didn’t find this explaining much as to exactly WHY and HOW Sweden should not go into lock down.

I get that there is an opportunity-cost involved, and that there’s always a trade-off involved, but this academic just spoke in vague terms,and didn’t actually persuasively lay the case for why it was imperative NOT to have a lock down.

I’m a great fan of the concept of “Opportunity Costs”. Try to use it all the time. But it’s seldom black and white answers because many times one lacks all the facts, and one has to fill these gaps in with personal assumptions. And that’s where the options differ. Often greatly.

But you will know that already!

Opportunity-cost is such an important concept.

Should be taught non-stop from PRIMARY SCHOOL! Five year old kids grasp it very well.

12 Have died to date, about two or three weeks since the first one. One taxi can kill 12 in an instant……….55 die each day in SA.

In Checkers, Plett, Coke is for sale and calculators are behind tape with an apologetic notice about covid. Go figure. We pay tax in this country to do business. No business, no tax?

Countries like Sweden, Norway and the Netherlands which follow measures to protect the elderly and the vulnerable while allowing enough contact to acquire herd immunity will come out winners. With intact economies. We are not just destroying our fragile economy, we are losing our hard won personal freedoms. Irrational rules are made and changed by diktat and people embrace it, instead of fearing for their very lives.

End of comments.

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