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Economic devastation: It’s not the virus, but the lockdown, stupid!

There are no easy answers, but focusing this much on a single problem has destroyed much of our children’s future – at least 3m people are going to be joining the unemployment queue.
SA’s policy response of using a bazooka when a surgical instrument was required is making matters far worse. Image: Shutterstock

What a month ago was seen as a catastrophic impact on the economy (GDP decline of about 5%) would now amount to a dream outcome.

The devastation of the severe and prolonged lockdown on the economy – despite Minister of Trade and Industry Ebrahim Patel describing estimates of disastrous economic impact as mere thumb-sucking – will manifest in a substantially larger shrinkage of GDP.

This is the view of some of the ‘thumb-suckers’ who work in Patel’s own Department of Trade and Industry, with other ‘thumb-suckers’ employed by National Treasury and the South African Revenue Service (Sars).

They are part of a joint research project, Towards Inclusive Economic Development (Tied), which also involves the Department of Monitoring, Planning, and Evaluation, the United Nations University World Institute for Development Economics Research, the Delegation of the European Union to South Africa, the International Food Policy Research Institute, and some universities.

Tied describes its work as “cutting edge”, aimed at greater institutional and individual capacities, improved database management, data analysis and evidence-based economic policy advice.

And for those who argue that the economic damage is the result of the virus and not the lockdown, the official document clearly states that the decline in GDP that is forecast is due to the lockdown.

A quick lockdown of 21 days would have seen GDP decline about 5.4%, and a short lockdown would result in a 12.1% decline. The short lockdown foresees an end within eight weeks (which is where SA is right now).

A prolonged lockdown might imply a decline in GDP of 16.1%, according to Tied.

Countries with hard lockdown will suffer most economic damage

Some first quarter data from around the world presents an interesting way of looking at the impact of the lockdown thus far across various countries.

We compared the GDP growth from a year ago to the GDP change this year to see what impact the virus and lockdowns have had. We recorded the difference in GDP change and compared that to a simple policy response.

Country Change in GDP trend  Containment policy
China -13.2 Mixed by province
Spain -6.3 Major lockdown
Philippines -6 Major lockdown
Italy -5 Major lockdown
Euro Area -4.6 Mixed by state
Malaysia -3.9 Lockdown
United Kingdom -3.6 Major lockdown
Germany -3.3 Mild lockdown
Norway -3.2 Mild lockdown
Vietnam -3.1 No lockdown
Japan -3 Social distancing
United States -2.3 Mixed by state
Indonesia -2.1 Social distancing
Sweden -0.9 Social distancing
Taiwan -0.4 No lockdown
South Korea -0.3 No lockdown

Source: Macrobond and The Economist

The biggest change in GDP trend (difference between first-quarter growth in 2019 and 2020) was China, which saw a total decline in GDP trend of 13.2%. China got the virus first and was in lockdown far earlier than most.

The following is important:

  • Countries with a hard lockdown that kept only essential services and providers open saw an average decline of 5.2% in GDP trend.
  • Those with a lockdown that allowed many other sectors (other than restaurants, bars and so on) to operate, saw an average change in GDP trend of 3.4% less than before.
  • Countries and regions with a mixed response saw a similar decline to those with a milder lockdown, with an average change in growth of 3.4% less.
  • The countries that implemented only social distancing and kept the number of people down to less than 50 at events, had a GDP growth rate of 2% less.
  • Countries with only track and trace with small area closure, such as Taiwan, had, on average, 0.9% less growth in GDP than before.

Thus far the evidence is simply that GDP in hard lockdown countries (like South Africa) seems to have sunk substantially more than either those with a milder lockdown or those that only practised social distancing.

We have to agree with the Tied data and with other economists who have indicated that their growth forecasts are down due to the lockdown and the virus.

There is no doubt that the fear instilled by numerous governments and international bodies like the World Health Organisation has suppressed demand, travel and trade, resulting in a lower growth trajectory of the world economy.

But more important: the policy response of a hard lockdown has worsened the decline in economic growth.

A one-dimensional view that everything should make way for a health response rather than a balanced holistic approach will have outcomes that will also have negative implications for public health.

Per capita GDP will take years to reach the 2014 level again

GDP growth is needed to help people recover from this crisis.

To illustrate this: if South African GDP declined by 6.4%, the per capita GDP would reach its previous (2014) level only in 2031 (assuming an average annual growth rate of 2.5% after a strong recovery of 4% in 2021).

If GDP declines by 16.1%, which is now far more likely, per capita GDP only reaches the 2014 level in 2045.

South Africa’s lockdown started a few days later than most other lockdowns and the Q1 GDP trend will be impacted upon negatively. Q2 will however be the most impacted in terms of GDP. If the peak of the virus is only to be reached in July and August, large sectors and/or regions remain on a lockdown level of some sort then Q3 will also be impacted.

A 20% GDP decline in 2020 will take GDP per capita down to a level last seen in 1967!

A long legacy

South Africans will be much poorer, and poverty will increase. Our policy response of using a bazooka when a surgical instrument was required, makes matters far worse for a lot longer.

University funding, social grants and hospital services will see massive cutbacks. Even basic education would see more children in a class than now.

Point is: the lockdown has added to the economic decline, and the impact is nowhere close to over.

The current economic response of pouring money at the economy helps in the short term but sadly leaves our children to pay off the debt.

It will linger, and will be with South Africans for decades.

There are no easy answers but just focusing this much on a single problem and the response to it has destroyed much of our children future as the unemployment queue will be at least three million longer in the next while.

No country can afford the lockdowns – least of all South Africa with its massive unemployment problem.

When Queen Nandi died in 1827, King Shaka introduced a year-long mourning for his mother during which time no crops were to be planted and no milk consumed. There are tales of misery caused by his policies and cruelty bestowed on those who were found to be in breach of the mourning orders.

The mourning over lockdown may last much longer than a year.

Johannes Wessels is director of the Enterprise Observatory of SA and Mike Schüssler is chief economist at economist.co.za.

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COMMENTS   29

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Africans are resilient. They have been enjoying a “better life for all” and “inspired leadership” for years. They will overcome.

Stupid if you tell me.

Sure, if resilience includes surviving without enough food to eat.

This article is spot on. The lockdown is entirely self inflicted damage.

You can get the health system ready and keep the economy. Think about it

Some Africans like Patel and many before him from his party really DO overcome; today they’re mostly already retired on lucrative gov pensions and were fortunate to have slid into obscurity despite the financial cost to the country of their foolhardy policies….
But the masses of ordinary folk in SA are the ones who will never overcome the disastrous fallout of the policies. Think here for instance of the first trade and industry minister under Mandela ….and consider how far Eskom, for one, has fallen.

When the Revamped budget comes out in June, Finance minister Mboweni has a LAST chance to address outrageous government spending.
For instance, his earlier projected saving on the public sector wage bill is 100 % outdated since the virus hit and the lockdown began – this is the single biggest adjustment required to bring SAs financial capabilities post-lockdown in line with what will be doable for public servants going forward….

@AT-overcome like Zim and Zambia and Moz and Angola and Sudan and Tanzania of course. Get a brain and stop watching Malema propaganda.

Indeed so .They go from beggars to mastery of begging

Sure like the past 26 years which was just amazing economically.

It is also easier for someone who has nothing to lose and everything to gain to see the ‘positive’ side of this catastrophe. Those who worked all their lives to build something are now losing everything so a regime can play ‘Who’s the boss’. SA will never recover..mark my words!

Yeah.
I saw a comment somewhere remarking that there are echoes of whats happening today and the Xhosa cattle killings commanded by Noquwase.
Blind faith nearly wiped them out.

there is a worrying probability that SA history is about to repeat.
As little trust as I have in the ANC this is a price too dear.
So a big part of me still hopes I am wrong and articles like this one is wrong.

Aye that was the blunt and truthful but much maligned Helen Zille who made the comparison.

SA and “hope”; it is common in much of the 3rd world. Our leaders steal and bumble, we hope they won’t. It has not yet worked so unlikely to do so going forward.

Read R W Johnson’s book ” How long will South Africa survive?”
The intellectual capacity he mentions has not changed one iota. SA will pay a very high price for the lockdown that was chosen for us by these so-called leaders. But they all sit with fat salaries courtesy of taxpayer. They are in for one hell of a surprise with VAT and Tax collections. Many people will never ever work again for something that will be as bad as the pandemics of 1957 and 1968/9. World carried on normally – I was alive by the way

Of all tyrannies, a tyranny sincerely exercised for the good of its victims may be the most oppressive. It would be better to live under robber barons than under omnipotent moral busybodies. The robber baron’s cruelty may sometimes sleep, his cupidity may at some point be satiated; but those who torment us for our own good will torment us without end for they do so with the approval of their own conscience. They may be more likely to go to Heaven yet at the same time likelier to make a Hell of earth. This very kindness stings with intolerable insult. To be “cured” against one’s will and cured of states which we may not regard as disease is to be put on a level of those who have not yet reached the age of reason or those who never will; to be classed with infants, imbeciles, and domestic animals.”

CS Lewis

Our lockdown was never necessary, but at last the government found something it is good at…ruining the economy.

I’ve said it before , but our government is simply doing what the world is doing. We are following the pack , I am baffled that this “lockdown strategy” is the preferred method to fight the virus by world leaders across the globe.

Be that as it may , SA needed strong leadership , someone brave enough to try something different. Sweden did just that. Yes , they have “higher” death rates , but they are just literally ahead of the curve (as everyone else is trying to force the flattening of the curve)

In time the death rates across all countries will be similar , lockdown or no lockdown.

The difference in sunny SA is. We have much more deaths caused by numerous factors , even if we had the highest death rates in the world , it will be a very small number compared to the carnage we face daily. Yet , no national emergency is deployed to fight crime or severe poverty.

The more I think about this , the angrier/sadder I become. When the majority of already poor people don’t have money for food , what’s then ? There will be blood on the streets.

It will be some time for the fat lady to sing about the results of this adventure. In the meantime the politicians will feast on the economic corps they created. A better life for all ( riding the gravy train ).

“A better life for all ( riding the gravy train )”

Correction – Pravin Gupta is working on a gravy plane for the cANCer elite.

Africans of all colours are resilient. They will overcome but at a cost. Few enjoy this better life and inspired leadership, the majority is unemployed and hungry.

Controlling the spread of the virus by switching between lockdown levels is a luxury reserved for countries with disciplined people that can self isolate when required. In addition most countries don’t have halve their populations spending large portions of the day in line to receive grants or food or cramped into public transport. This is where the virus spreads the most.

So if lockdown does not work anyway why do it? If level 4 an 5 has the same “stay at home” message. What benefit will be derived from moving back to level 5?

NOTHING.

It will have the same effect as putting your bed on a few bricks to escape the clutches of the tokoloshe. Some swear by it.

Theres an agenda behind this virus, but i don’t know what.its like all the governments are ‘conspiring’ together with a secret plan.

I wonder what is going to happen to all the golf courses in SA post the lock down? Could it be that there is a correlation between GDP growth and the number of golf rounds?

Explain golf course ? you mean the greens now rough, the fairways now out of bounds, the rough now open natural forest and yep that R5,000 driver has just become a R5 ornament at the local fair.
In future we will all reflect back on this similarly to those unfortunates who go into hospital to have skin imperfection of sorts removed and when leaving they find themselves the victim of some surgical procedure that broke the medical aid provider and you requiring continuous medical support for the rest of your Miss Corona free years.
Question for the handicap committee, do we all go back to a 18 or 36 when we eventually clear the T-box enough for a practice swing ?!

Blood, sweat and no beers

Economists and financial experts are all telling the nation the same story day after day: what lies ahead is a massive downturn, resulting in a catastrophic number of job losses. All that differs is the extent of the calamity – some say this, others that. Does it add any value to keep dwelling on this? Everyone knows by now that economically we’re going to be in a serious mess, whatever the exact extent thereof may turn out to be. Perhaps the stage has been reached where studies must now be done not so much on the resultant disaster, but on what it will take to recover: how will we rebuild what has been damaged or destroyed? It can be safely accepted that there will be no Marshall plan inpired by the world community to get South Africa back on its feet. We’ll have to do it ourselves. Any re-building ideas?

Rebuilding ideas — just one. Get rid of ANC,SACP, Cosatu, EFF.
Beyond that I got nothin

How?

Could have done with a functioning opposition …
If only the FF+ didnt have a string of far-right social media trolls, they could have stood in for the weak DA. The FF+ has become increasingly attractive as they are known for their accounting skills, ability to plan properly and aversion to theft and corruption.
These attributes are especially needed at local government level.

@Louise — How is the billion dollar question, ennit?
With our political system so warped to protect incumbents against any threat of political reform.
Yet at the same time with our hyper-politicized atmosphere its pointless to do any reform without first pushing through political reform.
Which requires the incumbents.
And thats where I am stumped as well.

Agree with your assessment re: FF+, both pro and con.

Hurting the economy of millions, costing RSA billions for a few hundred. The deaths of those is sad to be sure. The future hunger & deprivation of millions for much longer than the lock down is tragic.

The general consensus is that we are in for a major economic depression. The poor are beginning to starve, feedback from locals is that they are not getting any food parcels in the townships. The crime levels and break ins are starting to go up in our region. The have nots will look to the haves for help, be it willing or unwilling. The Govt and security forces will not be able to control this , and will probably look on with a fake impression of concern, for a situation which could have been considerably reduced with a clean and responsible administration over the past few decades.

End of comments.

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