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Counting the economic cost of South Africa’s lockdown

Government’s initial response was justified, but its strategy has morphed.
‘Economic destruction costs lives’ – Allan Gray chief investment officer Andrew Lapping. Image: Supplied

As South Africans, we want our country to prosper and the quality of life for all those living within our borders to improve.

Millions live in total poverty and rely on family or intermittent work to get by. Life is tough, and often short, as malnutrition and hardship take their toll. The most effective way to lift people out of poverty and improve quality of life is through education and economic growth.

I am concerned that our government’s lockdown approach and the subsequent economic hardship inflicted on our people will cost more lives than it can save. I realise this is a controversial statement in a context where people are very fearful and understandably concerned about their health and the wellbeing of their families. An effective government must make difficult decisions that involve trade-offs and cost-benefit analysis.

I am not saying we should trade lives for economic growth; I am saying we must consider how we can save as many lives as possible and give better lives to as many South Africans as possible with our limited resources.

Initial intent

President Cyril Ramaphosa’s initial lockdown decision was justified to buy time in order to gather our health resources and prepare our hospitals. It was never meant to be a strategy to eliminate the Covid-19 virus – that is an impossibility.The idea behind lockdown is that the same number of people get ill, but the infections are spread over a longer time in an effort not to overwhelm the health system.

Our government’s lockdown strategy has morphed into something else entirely.

As new information emerges, it seems the virus mortality rate is substantially less than many feared, and many of the more alarmist predictions that led to lockdowns across the globe have proven to be flawed. The government must absorb this information, particularly given the youthful South African population.

There are two important questions:

  • How many Covid-19 fatalities can be avoided through the lockdown?
  • What is the economic, and therefore human, cost of the lockdown?

I will not go into detail on the potential number of lives saved by the lockdown. There is a great deal of information available that indicates the lives saved by this strategy will be minimal unless the lockdown means the number of infections can be suppressed until a vaccine becomes available.

Data indicates that the mortality rate for those below 70 years of age is less than 0.2%; only 2.9% of South Africa’s population is older than 70. Furthermore, lockdowns – or a lack thereof – seem to make little difference to the total number of cases a country experiences. It sounds tragic and defeatist, but it is not possible to make the virus disappear through lockdown, particularly in a country like SA.

Economic and human costs are two sides of the same coin.

Studies indicate that mortality rates double with job losses.

A smaller economy means fewer resources to allocate to healthcare and education in future.

National Treasury thinks up to seven million people could lose their jobs. This could lead to tens of thousands of additional deaths.

The stimulus package outlined by the government is R500 billion. The South African Revenue Service (Sars) thinks tax collection could fall by more than R250 billion this year as a result of the shutdown.

Given government reallocations, this means an additional debt of approximately R500 billion in a single year. The economic damage will linger, tax collections are unlikely to recover to previous levels for years to come.

The R50 billion interest bill on this additional debt burden means R50 billion less to spend on education, healthcare or other services – not just in 2020, but in perpetuity.

An extreme worst-case scenario for South Africa is 150 000 Covid-19 deaths (most models indicate worst-case scenarios of 50 000). This is based on 50% of people contracting the virus with a 0.5% fatality rate. (A more likely worst case is a 0.2% mortality rate of 50% of the population, which is 60 000). This is a huge number of deaths and a great tragedy. Let’s assume the lockdown manages to reduce the number of fatalities by 50% by suppressing the illness until a vaccine is discovered – this would be an incredible success; 75 000 lives would be saved.

The direct cost per life saved in this scenario is R6.6 million, while indirect costs will be far greater.

I know this puts a price on human life, but unfortunately this is what government has to do every day when allocating resources.

At the other end of the spectrum, if the disease can’t be stopped and a vaccine is not discovered, then almost no lives will be saved from Covid-19, but we will have destroyed the economy, increased government debt by R500 billion, and lost a great number of lives through higher mortality not related to the pandemic. SA’s 2020 budget called for healthcare spending of R229 billion and police expenditure of R221 billion; small amounts in comparison.

Mortality rate

Sadly, because SA is a poor country, we have a very high mortality rate, and therefore low life expectancy. More than 400 000 South Africans die from natural causes each year, including 37 000 from tuberculosis and 32 000 from diabetes. In addition, 15 000 die in road accidents and 21 000 are murdered. These deaths are equally tragic and perhaps even more so as they are often preventable.

Unlike Europe, SA has a limited social security net and an informal economy.

Many people have no savings and have lost their livelihood with the lockdown. Hunger is an immediate reality.

Malnourished children are disadvantaged for the remainder of their lives due to stunting. The government provides a child grant, but there are millions of immigrant children who have no access to this grant.

Just as economic growth and prosperity save lives, economic destruction and poverty cost lives.

So why am I writing this now? Because every week the lockdown continues, the economic cost compounds.

Since the lockdown came into effect [more than six weeks ago, on Friday, March 27], I have urged government to consider the full picture, including the human and economic costs of their decisions, and I have provided them with balanced data.

I have detailed how this data indicates that the lockdown strategy is tragically flawed. We can no longer afford to blame ‘the virus’, when the vast majority of the job losses and suffering is the consequence of a strategy that has not fully accounted for the human cost of the lockdown on the economy.

I hope that in making this commentary I am contributing to a heightened awareness of the issues, not emotion, underpinning this discourse. 

The above comments represent my personal opinions and I understand that many people may strongly disagree with my views. 

Andrew Lapping is chief investment officer at Allan Gray – this is an opinion piece he wrote last week.

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Logic so clear our Government has no chance of understanding it.

Perfect comment.
I second.

Give this man a Bell’s.

These figures just put in perspective the enormity of Tax money lost through ANC corruption and utter incompetence.

The job losses, impoverishment and subsequent hunger and malnutrition caused by the lockdown will lead to much more deaths of our population. The mortality rate of this virus impacts not only the over seventies greatly but any aged individual suffering underlying medical conditions including malnutrition. The more people that are malnutrition-ed and hungry the more the death rate will go up. Start ending the lockdown now. The government will be judged harshly by their present actions.

Spot on in every respect, but I will add a few more points, some of which are speculative, others perhaps less so:

(i) Socialists/equity authoritarians don’t have a good history of voluntarily returning civil liberties once taken. They also don’t seem to have much regard for evidence, favouring instead ideology.

(ii) Lockdown has little to do with COVID, as professed. COVID has unmasked pre-existing authoritarian tendencies within the ANC while seeking to maintain the guise of a representative democracy.

(iii) SA needs to borrow money and can only do so if the country is seen to do the “right thing” – which in this instance refers to recommendations by so-called authorities as the WHO who have been proven to be demonstrably corrupt and subject to Chinese political interference.

(iv) The ANC has begun to see (and enjoy) the immense power in curtailing citizen’s civil liberties. Once they realise that the best way to do so is through technology, they will work together with their political ally (and #1 technocracy is the world, China) to start monitoring its citizens.

(v) Down the track, once they have honed their authoritarian tendencies under CCP tutorlage, they will be well-equipped to suppress civil unrest, assembly, mobilisation and resistance ala apartheid.

I’d rather not be doom and gloom but I give SA a 15% chance of avoiding a Zimbabwe style situation within 10 years.

I say 10 years because the ANC can’t do anything with precision or speed, unless it involves mass looting. This COVID lockdown will be the straw that breaks the camel’s back, no doubt.

If you are skilled or have a trade, you must look at alternatives before it is too late. Of course, haters are going to hate.

I’m currently reading The Private Life of Chairman Mao, by Li Zishui. An eye opener about the communist mindset. For them it is always about the ideology. It doesn’t matter that communism and socialism has failed every single time, there job is to force the ideology onto society (in the process getting their snouts firmly in the trough). The ANC and their bed mates, the SACP and the Unions, have been trying to drag SA down that rabbit hole, since they took over. It was tough going because of a fairly independent press and courts. Now Covid-19 gave them the power they need to take one huge step forward. It also gave them the opportunity to lay their hands on R500 billion to pave the way (it is interesting to note that just about the whole amount is earmarked for unproductive spend – grants, money for business that is already folding, BEE, etc). The money gives them the opportunity to buy the goodwill of the masses. It will, however, do nothing to resolve the huge economic mess confronting us. When, inevitably, the money runs out and the economy implodes, it will become time to unleash the dogs (the EFF comes to mind) to force the people of SA down the rabbit hole. By then they will not be able to democratically remain in power, so they will do it by any means, which is when the real suffering begins. Our only hope is that enough people will see where this is heading and stand up against tyranny way before the only remedy will be violence.

Well said TheOwl.

If I can add…the loss of state revenue (as a result of lockdown) will soon be put forward as a ‘valid reason’ to expropriate everyone’s retirement funds through “prescribed assets” sooner than later. There’s about R3-4 trillion ‘readily available’ to be invested into government socialist experiments.

This lockdown could also be a move by ANC to impoverish more people, making them more dependent on the state, so to ensure handout recipients keep on voting ANC.

Weirdly, or wickedly, I think perhaps we could be better off without the ANC and with Chinese control instead(?) Look at their rise of economic power. But on other hand, this is China’s soft approach of gaining global dominance….they won’t care about Saffas’ plight of any colour. Interting to realise there’s now Chinese “community policing stations” in SA. Perhaps, one day they would give better service than the SAPS *lol*

The brilliant Animal Farm tells the future far more succinctly. Once I read it a few years back I made my plans to leave SA. And mercifully I am OUT.

The recent commentaries from both the CIOs of Allan Gray and Coronation speak volumes of their very deep understanding of the precarious situation we find ourselves in.

Many including the “leadership” don’t want this lockdown to end. Covid-19 has made it possible to ask for free stuff so why would anyone want it to stop.

People in the townships are better off than ever before and money is being thrown around like there is no tomorrow.

The gravy train is running again.

Also you have a command council most of whom believe in the tokoloshe. It causes death not economic hardship. The thought is laughable.

So lockdown, no cigarettes and alcohol etc. are all measures similar to putting your bed on a few bricks in the hope you will escape the clutches of the beast.

As far as I know, economists love accuracy and certainty and yet the statement “the quality of life for all those living within our borders to improve”.

Do the economists know how many live within our borders?

I know for sure that the Govt don’t as the number one illegal immigrants could be between 5m and 10m from all parts of Africa and a surprisingly increasing number from Pakistan and India.

So if you can’t manage what you can’t measure how will we manage such a vast number of illegal immigrants let alone genuine citizens or legal residents?

I also find that “the money” or money managers just want to ignore the ignore the consequences of the virus as if life does not matter. Have a conscience and listen to what epidemiologists are telling us.

We could all follow your advice if it was possible for an epidemiologist to put food on my table. I must sell my labour if I want to buy food. So, my empty stomach motivates me to listen to the economists and to ignore the epidemiologists.

What saves lives is the spread of wealth.

Rather concentrate on the spread of wealth rather that just your own business and livelyhoods.

The extent of poverty was high before lockdown so how will lifting lockdown suddenly solve the typical poverty related deaths.

There are time that wealth and money just has to be spread.
Do think of giving more loans as the banks are far too conservative to onward loan.

Give food via food stamps and then think of ingenoeous ways of spreading wealth.

The ANC destroyed the only “Wealth spreader” known to man. Only one wealth-spreader was ever invented and this is the right to sell you labour to the highest bidder.

When the Tripartite Alliance destroyed the jobs market, they demolished the wealth spreader. The labour unions demolished the wealth spreader and sold the parts as scrap metal.

According to Berkeley, the six best policies to reduce economic inequality are:

Increase the minimum wage.
Expand the Earned Income Tax.
Build assets for working families.
Invest in education.
Make the tax code more progressive.
End residential segregation.

This is not communism or socialism, but social capitalism.

Your points number 1, 2 and 5 makes point 3 impossible to reach. Your point 6 can only be reached if point 3 is reached. Therefore, the combination of your recommendations will ensure that point 6 will never be attained.

It is the nature of all men to act in their own self-interest. This is what you are doing by proposing these ideas. If you want a free man to act according to your needs, then you have to INCENTIVISE him. The general trend of your post removes all the incentives for entrepreneurs to solve your problems. The only way you can get people to act against their own self-interests is with the use of force – the firing squad, the gulag, communism and fascism.

It is clear then, that you should prepare yourself for a substantial worsening of your position. I suggest you align your self-interest with those of the free-market entrepreneurs. Then, and only then, will you reach your goals in a sustainable manner.

You talk like monopolist banker that got bailed out by society (the very people you now want to marginalize) in 2008 without the creative destruction.

The extremes of socialism and capitalism never work.

Yes incentivise but without the regulatory mechanism there is just ever increasing poverty.

If you are so ‘sensei’ then explain that to me!

For a pragmatist you are really not very pragmatic and manage to miss the point completely. To spread wealth, there needs to be wealth. The lockdown prevents millions from creating (and spreading) their wealth. Lifting the lockdown will not suddenly solve poverty, but maintaining the lockdown will cause many additional poverty related deaths and wipe out our ability to combat poverty through economic growth and job creation.

You cannot tell me that the well informed and educated “business man” CR does not understand this logic?
There is another agenda here to keep us supressed as well as the fact that more than likely he’s not in charge…
Catastrophic and dreadful for all citizens I’m afraid.

Agree 200% with this article!

In short:

Out of 57 million SA population, we have about 10,000 infections (at present) and 200 C19-related deaths.
Scale it up to the writer’s extreme scenario of 150,000 deaths.

That is 0,26% of entire population!

Versus what % economic damage will SA see? 8-12% drop in GDP? (This economic decline rate is 30 to 50X multiples of the estimated deaths…where we sit now with 200.)

By the time SA gets 150,000 C-19 deaths, our economy would shrink to say -30,000%

I don’t understand where you and Andrew get your mortality figures? I feel like I’m missing something?? Basic maths says in SA the mortality rate is 5% (one of the lowest I’ve seen globally) – 200 deaths divided by 200 deaths + 4300 recoveries = roughly 5%??? Even if you assume twice the number of people got it and we never knew about it, that’s still a 2.5% total mortality rate??? The same equation in the US shows 27% mortality, globally 20% and China where it “ran its course” 5%. Where do we get these tiny mortality figures? Do you have data that shows mortality by age group? Otherwise you’re ALL arguing based on a poor understanding of mortality. Please help me understand

Dear South Africans.

Beware of the distractions in our daily goings-on!

If we stop to see the woods from the trees here. The greatest catastrophe that is currently unfolding is that of our constitutional rights…

For eg. Is SA led by the useless and incompetent? Or competent criminals?
Me thinks, both!

The ruling Socialist/Communist party “purports” to want to help the poor. So my question is– “How do you keep helping the poor by making the remaining working people poorer?????” They are Morale Narcissists

Accurate data whereby infection hotspots can be identified and only that area locked down, is urgently needed. This is the policy of the Western Cape government – the only one that makes any sense!

Having read all this Justified Doom and Gloom , I have discovered a Solution to all of it : Its Called AUSTRALIA :

End of comments.

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