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Economic lockdown: Who are the winners and losers?

Some sectors are better off than others, but the impact on individuals will be felt in various ways.
Job losses, salary cuts, incentive share schemes ‘underwater’, pension funds seeking to limit losses … it’s not a pretty picture. Image: Moneyweb

The Covid-19 pandemic and subsequent economic and social lockdowns have had a negative impact on the world economy, the extent of which has not been seen since the Great Depression.

The global economy is expected to decline by 3% in 2020 according to the International Monetary Fund (IMF). Advanced economies are likely to be hardest hit and are expected to contract by 6.1% according to the IMF.

Conversely, it is anticipated that emerging markets will decline by 1%. In Finance Minister Tito Mboweni’s June 24 supplementary budget speech he painted a gloomy picture of a struggling economy that will be tested to its limit to maintain fiscal stability.

Among the more concerning statistics:

  • The budget deficit for 2020 is expected to be 15.7%, increasing from a forecast of 6.8% in the February 2020 budget speech;
  • This large budget deficit will result in the deterioration of SA’s debt-to-GDP ratio from 63.5% to 81.8%;
  • South Africa’s economy is expected to contract 7.2%; and
  • A R300 billion revenue collection shortfall is expected.

These figures are purely financial and relate to the gap between revenue collection and expenditure.

Statistics SA recently released the unemployment rate for the first quarter of 2020 according to the quarterly labour force survey. This figure has breached the 30% barrier and is recorded as 30.1%. The largest cause for concern is that the first quarter was only affected by the lockdown for a few days. The rate is expected to rise when the unemployment statistics for the second quarter are released.

The effects of the impact on the global and local economy have been felt on stock markets across the world and the JSE is no different. The graph below illustrates how the aggregate indices on the JSE performed in the first six months of 2020.

JSE index performance – January to June 2020

Source: 21st Century

The graph illustrates that, universally, all industries felt the negative impact of the Level 5 Lockdown period in March and April. The AltX experienced the shallowest decline over this period, but has not returned to the levels it was at at the end of 2019. Conversely, the deepest contraction on the JSE has been within the financial sector, which has not recovered from the decline it experienced in March and April.

Analysing the JSE sectors at a deeper level indicates that there have been winners and losers over this period, albeit that there have been more losers. The following graph illustrates how the various JSE sectors have performed over the first six months of 2020.

JSE sector performance – January to June 2020

Source: 21st Century

The graph indicates that banks, property, retailers and the travel and leisure industries have suffered the deepest decline in their share prices.

Conversely, mining and technology are the only two sectors that have experienced an increase (year to date) in their aggregate share price.

These share price indicators provide a yardstick to measure how well each sector is performing, and this is directly linked to how employees have been affected within these industries.

According to Stats SA, formal employment declined within all reported sectors other than mining, trade and private households. The expectation is that this negative employment outlook will deteriorate in the second quarter as the true effect of the lockdown is tabled.

The theme of negative performance on the stock exchange has further reaching consequences for employees beyond the initial employment concerns. The negative impact has also resulted in numerous companies having to implement salary reductions as a means of cost cutting over this period.

Pension funds and other financial instruments are presently navigating an economic minefield as they seek to guard against or limit losses in the present environment.

Impact on incentive schemes

Share-based long-term incentive schemes will also be affected by the negative performance on the JSE. Typically, long-term incentive share schemes either offer full shares (holder receives full value of shares) or appreciation shares (holder only benefits from the difference between the value of the share and price at which it was issued). Full shares still hold benefit for the holder as long as the share exists as the cost of the share was zero. Conversely, the economic headwinds experienced in 2020 so far have put pressure on many appreciation share schemes as a result of factors outside of the control of the company (the effects of Covid-19 on the economy). This has put many of these share schemes ‘underwater’ (they do not have a positive yield for the holder).

The data from the JSE suggests that apart from mining and technology, other industries’ share price indices are below the levels that they were at on January 1.

The other sectors of the JSE may have individual winners, but the sectoral view is that their indices are below where they were at the start of the year. This negative impact on companies has cascaded from corporate level to employee level as jobs have been lost and salaries have been reduced as a means of ensuring the survival of the company.

Given the reliance of South Africans on their monthly income and SA’s historically poor household savings, the loss of jobs and reductions of incomes have been particularly painful for SA citizens. There have been very few economic winners in 2020 and unfortunately the long list of economic losers looks set to grow as we await the economic data from the second quarter, which will include the full lockdown period.

Bryden Morton is executive director and Chris Blair CEO at 21st Century.

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South Africa’s economy will contract by 12 to 18% at least.

That will be permanent. The ANC’s plans to pull SA out of the hole that the ANC dug will keep the economy on the downward trajectory.

There’s no getting out of this one without bailouts from Russia or China. I’m expecting China since they are looking for new slaves since things with the Mongolians aren’t working out so well anymore.

South Africa’s economy has to change. For economic growth we need a new inclusive economy. We cannot expect to go back fo pre-COVID 19 economic norms and expect prosperity . 100 years ago the Spanish flu changed the way the world behaved, now COVID 19 is doing the same, let us respond wisely or lest we see communities, nations or countries perish.

Growth = inclusion. Period. Adopt free market policies, ditch investment destroying ones like NHI, minimum wage, EWC and other nonsensical populist rhetoric. Sell and privatize as many SOEs as we can and HALVE the gov wage bill.

If we do these simple things we could easily get back to GEAR growth levels of 5 perc with falling unemployment, a strengthening currency, a budget surplus and a prosperous economy with a real future for everyone.

It really is a simple formula.

It is simple and would 100% work but just remember we have 300 or so of our most idiotic who sat at the last ANC conference and between them decided how economic policy for SA should be rolled out. It that is not a recipe for economic suicide and failure then I don’t know what is.

Inclusion = Growth….
The order of things is very key. Get that right 1st, you can achieve wonders.

Boombang:

Instead of generalities like “inclusive”, please go specific for the older folk in the room.

Let’s take a major employer such as the automotive industry. Spell out for me what must change, and how, to transform the automotive sector to a better one. Better in this case is economically better not just other more inclusive. I can build a greener house but that does not make it a better house.

I am really not baiting you – please explain because after THAT document yesterday I am no longer inclined to want to help transform anything since I am apparently white therefore wrong AND for some weird reason also wealthy. I suppose some people can’t win : PW Botha thought I was communist liberal white trash…

Yes but the ANC is a hijacked party led by thugs who use BEE as an excuse to get ‘inclusivity’ but just get perpetual corruption and wasting of resources.

We need a new economic and monetary system and structural reform that is not race based.

Does anyone have concrete numbers on Spanish flue from 100 years back strictly for the African continent or better for good old South Africa ? Exactly and there lies the problem on any going forward theory on economy development.
Example did the then Transvaal now Gauteng the mini-economic powerhouse of the Continent also turn into epicentre of the Spanish flue ?
Watch South Africa climb to top 5 in the world by early August with over half a million cases.

You obviously don’t understand exponential growth. We will be well over half a million by early August. In fact , if we are below 1m in a month I’d be very surprised

Agreed, my 1 Million mark is set for ± 22nd August
Keep in mind population splits
Western Cape population = ± 50% of Gauteng
WC peaked and is now down to 2% daily increase
GP is currently in spike mode at 7.5% daily increase
The concern being media focus is on total cases and GP carries few other growth factors over WC
While the top 20 countries are sitting at below 2% average for the last 15 days running
The champion and top of this list being SA at over 5% for the daily increase for the last 30 days
So exponentially we are ok, Corona policy-wise we will prove a total failure

Winners and losers. Easy

Winners are black market cigarette guys and whoever they are paying off to keep their business model in place

Losers are everyone else

Business Rescue Practitioners look like winners to me. Pity there aren’t any listed ones !

Corrupt looters are wiñners

The former president of South Korea is starting a 22 years sentence for a 2016 coviction for corruption while in office…. Some people should start getting worried. Just an observation.

Why people gamble on the stock markets befuddles me.

Some of these are our gambles.

Bullion Performance YTD
Gold Bullion 43.38%
Silver Bullion 25.60%

Some Crypto Performances YTD
Aave 1998.32%
Kyber Network 789.29%
Crypto.com 313.93%
Zilliqa 306.44%
DigiByte 293.07%
Cardano 252.79%
ICON 221.35%
VeChain Thor 215.59%
ChainLink 213.69%
Hedera 201.10%
Synthetix 191.36%
Theta Token 165.98%
OMG Network 140.26%
0x 112.57%
Compound 101.50%
Augur 100.59%
Zcash 95.97%
Bitcoin SV 90.55%
Dogecoin 85.69%
Stellar 85.58%
OKB 85.03%
Tezos 83.18%
Ethereum 82.31%
Dash 65.84%
IOTA 50.78%
Leo Token 48.88%
Huobi Token 48.57%

I’ve Google Maps searched and can’t find any of those countries !

You’re kidding right?
You do know these are assets, not countries?

Myricals: at least you are honest. You called them gambles.

Nothing on that list generates any cashflow, they are all speculative bets. IMO…

Every single one of our cryptoassets generate income in DeFi;
so we generate capital growth & cash flow;

Even our gold bullion generates income as we hold them in deposits that facilitate global finance transactions.

There is no investment out there that is not a gamble;
even relatively low risk assets like property;
if the returns are guaranteed, the continued existence of the issuer is not;
fixed fiat currency returns are in effect, negative yields after inflation & tax.

The financial services industry has no clue of the Tsunami of Demise heading their way.

That said, NO risk; NO gain

Every single one of our cryptoassets generate income in DeFi;
so we generate capital growth & cash flow;

The Auditor General audits the provincial metros and lo and behold the entire TAX shortfall is contained in the combined numbers of ‘irregular, misappropriated, missing funds.”

So I, to coin a phrase, ‘Put it to you’ that it is illegal to aide and abet criminal organizations or to knowingly contribute to criminal activities in any way including financially. It is also criminal to give money to someone knowing that money will be used in criminal activities.

You decide whether it is legal or not to pay rates and taxes.

It is difficult to avoid rates & taxes as they will repossess your property & sell it on auction to recover arrears no matter how much you protest that ratepayers are contributing to crime.

However, Income Tax and Death Taxes are 100% legally avoidable, hence, anyone who pays these taxes is voluntarily aiding & abetting organised crime.

I would rather legally avoid income tax and death taxes than not pay rates & taxes with the real risk of losing your home/investment properties.

Of course, with proper estate planning comes the ability to convert your residence into an income producing property which in turn allows for tax deductibility of all property expenses including rates.

Most of the tech companies eg amazon made no revenue or profits for plenty of years.

People love to gamble – get rich quick

End of comments.

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