From A+ crisis to zombie apocalypse

SA is not ready for Covid-19.
Global is not good. Local is not lekker either. Image: Shutterstock

We are not ready for this. We haven’t even found the cure for our own ailing SOEs and now here is a virus named “corona”, nogal.

Had you said “corona” to me a few months ago, I would have thought you were talking about beer. Now we all know, we’re talking about the big brother of pandemics.

What I find ironic, if not entirely enlightening, is the definition and meaning of the word. Corona, according to some online dictionary, is a circle of light that can sometimes be seen around the moon at night.

Thanks corona, for picking up where Eskom has left off, with pretty much the same nett effect of leaving us in the dark.

Various news platforms have been describing this total viral onslaught as anywhere between the end of the world as we know it and not quite the zombie apocalypse.

This is an A-grade crisis.

Worldwide markets are stumbling. Indexes fluctuate by the equivalent of hundreds of billions of dollars daily. Investors are panicking, policymakers are at a loss. And while measures are put in place to contain the spread of the virus the domino effect is likely to be as dire as the final outcomes are uncertain.

From the woman in the street to the trader on Wall Street; all of us are already experiencing the cumulative impact on the global economy and the world’s financial markets. And until we have more clarity on the eventual outcome of this pandemic and its impact on economic activities, financial markets will remain unstable.

Global is not good. Local is not lekker either

Of course, South Africa is not spared. While the virus was still in the realms of unlikelihood at the end of 2019, it has become a real, present and growing danger, costing money, perhaps livelihoods, if not (yet) lives.

Measures have been put in place, events cancelled, travelling postponed, and markets ruined. Schools have closed although the lessons we need to learn may just be beginning.

Lessons from crises past

Talking of which, while it is impossible to accurately predict what the impact on the SA economy will be, we do have previous crises to learn from.

But first and foremost, however, we need to acknowledge that our economy was on the way to ICU long before corona came along, no thanks to a dysfunctional and destructive government. It is, as the saying goes, what it is.

Based on what we know about our economy BC (before corona), and “superimposing” our previous experience of other crises over our estimates, we can form a picture of what can be expected over the next few quarters. Please note, these are rough estimates and will be affected by several variables.

Here goes:

  • Corona or no corona, we expected weak growth for the first quarter of 2020. But corona being the reality, growth in Q1 is now almost certainly going to be negative. The effect of the crisis became more pronounced at the tail-end of the quarter: expect something like -2%.
  • Based on previous experience, Q2 is likely to be the most affected quarter. A huge contraction of around 6%, or more, can be expected.
  • After a horrible Q2, Q3 should look much better, partly due to the base effect of Q2. We expect Q3 growth of around 0%. Q4 is similarly expected to be even better and our model suggests approximately 0.5% growth for Q4.
  • Should these quarterly estimates prove to be correct, growth of approximately -1.8% or even worse can be expected for the year.

Note again, these estimates are based on our BC estimates adjusted for our experience during previous crises. Remember; the important part is not the actual estimates but rather the expected pattern.

What is clear is that it will serve no purpose to complain about economic growth for 2020, because there won’t be any. And the weaker economic expansion will result in several economic variables deteriorating, like fiscal debt-, fiscal deficit- and current account deficit ratios relative to GDP.

Dialling ‘p’ for policy support

A deterioration in these variables will inevitably only hasten a downgrade. So, what can we expect by way of policy support?

The Sarb cut the repo rate by 1% on Thursday and we do not anticipate a significant negative reaction, like a sharp fall in the exchange rate, due to such a large reduction in interest rates.

The fact that monetary policy is available to support the economy during times like these, attests to the sensible way monetary policy was conducted in the past. Despite calls from all and sundry, the Sarb kept monetary policy relatively tight. And now that we need monetary policy support, the Sarb has dry ammunition available. Unfortunately, monetary policy support is unlikely to provide much support to the economy, although some peripheral benefits are likely.

What we really need is significant fiscal policy support. We need the state to cut taxes and even increase spending to support the economy. Unfortunately, this option is not available.

The reason for this is as clear: For years the fiscal accounts have been mismanaged. State debt has reached unsustainable levels and even before corona the deficit was budgeted to reach nearly 7% of GDP. Now, with a weaker GDP, even lower taxes and more pressure on spending, a significantly higher fiscal deficit is more likely. The inevitable result will be state debt that will rise even more, which will make it even more difficult to reign in future spending.

Analysts and economists repeatedly warned government to mend their sinful ways before. Government should have taken the difficult decisions to address the deterioration on the fiscal accounts when we had the opportunity. But instead of acting responsibly, the ruling party has been blundering forth, driven by idiotic ideology, mismanagement, cadre deployment and driving state finances into the ground.

We have no dry fiscal ammunition left.

Ready, unsteady …

How individuals and businesses position themselves in the current environment is important. Be aware of developments, identify your risks and manage them. One way of managing risk is to ensure that your portfolio is properly diversified – including a significant diversification abroad.

Finally, there remain many attractive investment opportunities in SA. A weak currency, juicy yields and a liquid market are all attractive characteristics of the SA financial markets.

But make no mistake. We were in deep trouble before this latest crisis. The virus will only make things worse and there is not much we can do about it. Instead of putting the country first when we had the opportunity, our political leaders were more concerned about their own political agendas.

That is why we are not ready for this mess.

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COMMENTS   27

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The government needs to be setting up feeding stations for millions of people who will lose their jobs. Just think of how many are in the hospitality industry who will be laid off. And extrapolate that to other industries. Hungry people are angry people. The management of this is something the ANC cannot get wrong.

Crime will reach an all time high.

Ek dink nie daar was enige land voorbereid nie en hierdie artikel is net meer van dieselfde. Dawie wat stel jy voor, julle almal wys vinger maar geen samewerkende oplossings nie. Hoeveel van die persone wat hier kommentaar lewer slaap honger. Kyk eerder wat se bydraes julle in julle gemeenskappe kan lewer. Fokus op oplossings of positiewe idees wat mense kan help om bo die gemors uit te styg. Vat daai witbrood onder julle arms en breek n stukkie af vir die mense om julle!

…including cyber crime. Be extra vigilant online.

What has the ANC ever got right?

Worrying.

I wonder to what extent spending patterns will change during the virus outbreak. How would the current CPI basket compare to it and what would the effect on inflation be?

Why the reference to a zombie apocalypse? Excessive and incongruent with the message of your argument.

Not excessive, have you been outside of your sheltered, gated house and into the townships recently?

Corona or not the cadres still put party above country.
The level of desperation just increases not the level of corruption.

There is NO policy support.

A good time for Eskom to get their maintenance sorted !

LOL – Those okes cannot work from home !!

Yeah, but if they get covid and don’t make it, 2 birds with one stone.

Since SA is behind the curve on dealing with Corona, here are some deeper impacts facing the nation if we go epidemic.

A long term to semi permanent travel ban on South Africans.
A foreign tourism sector basically wiped out
Negative foreign investment until the pandemic gets reigned in.
A money printing and prescribed assets policy probably on the way.

Lower demand for our resources, weaker rand, job losses
Unemployment jumping 10% or more. Bye bye casual labor.
Consumers under strain as medical/funeral costs explode.
Rising social problems related to growing poverty.

As article mentioned, monetary policy won’t do much and we’ve shot all our fiscal policy bullets. Probably best to have most of your assets abroad if the worst is still to come.

The following statement was made (not exhaustive) by Brenthurst Health (BizNews 18 March 2020), which I find totally ‘’ misleading’’ hence my view as expressed below. Maybe they should volunteer more specific information with regards to their ‘’investments in high-Income funds’’ to back up their statement?
Brenthurst cautious asset approach protected investors – Magnus Heystek

The safety of high-income funds
Brenthurst clients who invested in high-income funds suffered no losses at all while investors in offshore equities were protected to a certain extent by the sharp drop in the rand from levels around R14/$ at the beginning of the year to R16,70/$ on the 16th March.

I beg to differ, as the aforementioned statement is not true: We should remember that pensioners especially are reliant and forced into these type of short term investments – it can be disastrous for them due to additional type of risk that they accrue due to the intrinsic value that they loose on their capital investment – time value of money is eroded by time decay as well.
1. I have tested a One Million Dollar Equity investment, over a One Year period typical (March 2019 against March 2020)
2. The USD/ZAR exchange interest rate was 14.50 (March 2019) and the conversion (Cross border foreign exchange transaction) was done: US $ 1.000.000 @ 14.50 = ZAR 14.500.00 (ZAR cost to purchase US $ 1 Mio)
3. Initial Investment – 22 March 2019 End Value 22 March 2020
Value USD 1.000.000 Value USD 579.826
Share Price US $ 9.87 Share Price US $ 5.72

Share Bought 101 Change (US $) 420.169
Change (%) 42
4. Investment of US $ 1.000.000 (that was made on 22 March 2019) now repatriated (cross border foreign exchange transaction) at USD/ZAR 17.60
5. Total US $ amount repatriated = US $ 579.826 converted at USD/ZAR 17.60 = ZAR 10.204.937
6. Cost of Investment ZAR 14.500.00 – Amount repatriated ZAR 10.204.937 Hence a loss of
ZAR 4.295.063
7. Therefore a loss of ZAR 4.295.063 (29.602 %) was made on the investment – the 21.32 % gain on the exchange rate weakening wasn’t enough to offset the 42 % loss on the US$ equity investment.
Source JSE Share Price Calculator.

And they are exhibiting the same response to corona virus, dilly darling instead of taking tough measures. unfortunately, rather than a collapsed economy this will result in a collapsed healthcare system and probably many many dead.

Agree … president is wasting time …. he was suppose to give a speech this evening… he is still having a meeting. We need a leader who can make the executive decision … consultations only mean he does not know what to do.

Put the country and its people first… each day we delay … we will end up like Italy!

This virus merely supports the fact that this government is/has not been ready for anything. The majority of the ministers in government are nothing more than talking heads who love their own voices have numerous plans which they are incapable of executing due to a lack competence and intellegence

18 November 2019: Magnus Heystek: RSA Titanic is in groot k#k – don’t let those patriotic swimsuits fool you. Sela

Perhaps Corona will cull our population a little bit? Over population and things like that? We have no proper birth control, perhaps Corona is a blessing in disguise?

local will destroy south africa…way too much corruption and
general criminal culture.

The incompetence of leadership will be exposed under these trying circumstances. The HIV status of many will be fertile ground for the spread of coronavirus and the mortality rate will climb. The public health .systems will collapse under these circumstances as poorly trained staff and insufficient resources strain. Many will look to their leaders for help..the silence will be deafening.

This is the hype & panic that the press wishes for, well hopefully nothing happens but if it does it will happen to YOU THE PRESS & THEIR FAMILIES ALSO!

You can say what you like about economists but Dawie’s a good one.

Ramaphosa should ask China for help , it is them who caused this virus in the first place with their funny eating habits

So if MOODYS downgrades SA finally to junk on (coming Friday?) no-one would really notice…

A month ago, Fin Min Mboweni’s 2020 national Budget was aimed at a large extent to stave off a Moody’s downgrade.

Now it hardly matters….as most world economies downgraded themselves.

End of comments.

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