This is a two-part article looking at the implications of the Covid-19 pandemic. Part II looks at how almost every job is now at risk and the South African industries that have been hardest hit.
While listening to an international economic podcast on the consequences of this global pandemic and how governments are responding, I was prompted to think about how the first two months of lockdown revealed South Africa’s weakness – the shutting down of economic activity has led to its collapse.
This is a long-term if not permanent danger for the country’s future.
The economy will not return to its pre-crisis level because it was already defined by slow growth, rating downgrades, and a recession. Furthermore, South Africa and its people still face many months of second- and third-wave economic impacts that will linger, probably for 24 months or more.
Two factors informed this view.
Firstly, the shutdown that led to an abrupt stop in demand affected the interconnected relationships that are the heartbeat of the economy – the links between companies and their suppliers, between workers and employers, between importers and exporters; the links in the movement of goods and people; and eventually the link between the whole system and the consumer.
The collapse in economic activity led to a collapse in demand.
The latter stimulates supply, and every spent rand contributes to the creation of income, to production, to more demand, and eventually to the economy.
The naked truth
Secondly, South Africa has had 10 unproductive years of inept leadership and a weakened economy built on a house of cards that has now collapsed. The pandemic is like payback time for all the years of bad decisions and poor leadership.
In short, Covid-19 has exposed the weaknesses and there is nothing to use as shield.
It may be that the entire world economy is in crisis as a result of the pandemic. However, some countries will bounce back more quickly than others. They had economic good times – not by chance, but due to competent leadership and distinct policies that balanced the idea of an open economy with a national developmental programme that was responsive to a changing global economy. In turn, this has created a safety net that will catch their fall and enable them to bounce back.
Economy in freefall
South Africa has no safety net. The economy is freefalling into oblivion and the longer the lockdown continues, the longer the economic misery will persist.
Furthermore, there is a real risk of complete ruin for many small- and medium-sized businesses, caused by delays in accessing the allocated financial assistance. Diverse industries continue to lose income. At a government level, provincial and national budgets have been modified to respond to the crisis and we know the unintended outcomes of this action will be evident in a few years.
These, to me, are factors that will interrupt any chance of recovery and although I want to believe they will not materialise, we know that’s unlikely.
The worst outcome will be the impact on South Africans employed in smaller businesses and those in the informal economy.
Many will likely never find jobs again or have a way of generating income, because the wiping out of economic inactivity has given rise to ripples that will entrench prevailing socio-economic conditions.
Capacity to recover hollowed out
This is the gravest implication of the pandemic: in severing the interconnectedness and complex relationships that fuel and maintain the economy it has hollowed out its capacity to recover.
The emergence of businesses and jobs in place of those wiped out by the pandemic is going to be difficult and will take years to recreate or build.
The state’s response to the crisis, while commendable for its good intentions in some respects, has been found wanting in its long-term approach and has at times appeared random.
While the global economy of 2020 is shaken and unsettled, South Africa’s economy of 2020 is torn to shreds.
When citizens are unable to find jobs, create businesses and kindle demand because they have nothing to spend, will it be utopian to tell business and politicians that South Africa’s recovery pivots on plans that take climate change, distributive justice and the idea of a regenerative economy seriously?
A country divided
Is South Africa too divided to make American political scientist Robert Putnam’s notion of social capital work in the post-Covid-19 future? The concept suggests that a society that adopts reciprocity and cooperation built on trust for the benefit of the collective, rather than individuals, can produce high levels of economic and civic success.
The country is at the point where its leadership needs to stop lying to itself.
The government would have us believe that an already-weak economy pre-Covid-19 can be resuscitated with a cash injection, when in truth so much more is needed.
It will take much more than the R500 billion pledged thus far. Where will the needed cash come from? And what about all those pre-existing economic conditions; funding is needed, but so too is direction.
Turning to the International Monetary Fund (IMF) implies an acknowledgement that South Africa is ready to be told what to do.
Have we reached that point?
Are we ready to accept the conditions that will come with such a loan?