How much could Covid-19 impact the SA economy?

You have to look down the supply chain.
The pandemic could bankrupt more people than it kills. Image: Shutterstock

In declaring a national state of disaster on Sunday evening, President Cyril Ramaphosa made it clear how seriously the government views the threat of the coronavirus. He also acknowledged that this is not simply a question of the nation’s health:

“In addition to the impact that this pandemic will have on [the] health and well-being of our people, and the impact it will have on the day-to-day life of our society, Covid-19 will also have a significant and potentially lasting impact on our economy,” Ramaphosa said.

Given the already weak state of South Africa’s economy, this is something the country can ill-afford. The president however noted that cabinet is putting together a “package of interventions to mitigate the impact”.

“This package, which will consist of various fiscal and other measures, will be concluded following consultation with business, labour and other relevant institutions,” said Ramaphosa. 

The impact

The specifics of what this will include will be important, because there is no question that the potential for disruption is significant. The turmoil in financial markets last week clearly showed how worried investors are about the impact of the coronavirus at a global level. The Dow Jones Industrial Average entered bear market territory after falling more than 20% from its peak.

Read: The six days that broke Wall Street’s longest-ever bull market

By Friday’s close, the FTSE/JSE All Share Index was down 22.6% for the year to date. Bond yields had shot up from 8.25% at the start of the year to almost 10%.

How long, and how deep?

There is, however, still a lot of discussion about how lasting the impacts of Covid-19 will be.

“With economic activity disrupted and capital markets dislocated, investors have been debating if Covid-19, known colloquially as the coronavirus, could derail the global cycle,” Chetan Ahya, global chief economist at Morgan Stanley, noted last week. “Given the sharp drops in global asset markets recently, the coronavirus could deliver a sizeable impact to global growth in the first half of the year. However some clear perspective on the outlook for the full year is warranted.”

At the start of the year, Morgan Stanley had a positive view on the world economy, and was expecting a potential rebound in growth.

“The outbreak of Covid-19 has certainly changed that near-term narrative,” said Ahya. “Considering the weak starting point for global growth and still nascent recovery, this untimely disruption to economic activity will likely slow global growth this quarter.”

The important question is whether the shock will extend beyond that.

“This has gone well beyond the virus itself,” noted Clyde Rossouw, co-head of quality at Ninety One (previously Investec Asset Management). “This is about a seizing up of world economic activity, disruptions to supply chains, and disruptions to world financial markets.”

Quarter by quarter

How long this disruption lasts will be significant.

If the virus is contained by the end of March and the impact on global production is limited to the first quarter, then Morgan Stanley believes that the world economy would take a short-term knock, but would recover strongly over the rest of the year. However, if new cases continue to rise into April and May, then the effects start to amplify.

This could start to affect the profitability and cash flows of growing numbers of companies, which is particularly serious for those with high levels of debt who may struggle to make payment.

“If the dislocations in asset markets also persist into the second quarter, a sharp tightening in financial conditions may mark a tipping point, exacerbating the impact on growth via weaker corporate confidence, falling capital expenditures and cutbacks in hiring,” Ahya noted.

Should the virus and its impacts not be contained by the third quarter, Morgan Stanley believes, that would most likely lead to a global recession.

Local risks

South Africa cannot escape these global forces, and businesses could be heavily disrupted if the number of local cases grows. 

“The impacts on South Africa could be very significant,” said Jeremy Gardiner, a director at Ninety One.

“We’re struggling to grow as it is. East London, for instance, survives on [automotive] factory jobs,” he said. “But if one person in a factory goes down you have to close the factory. You can’t work from home and make cars.”

Another sector that could feel sizeable impacts is tourism. Ramaphosa halted travel from a list of high-risk countries, including the UK, Germany, China and the USA, which account for a large part of South Africa’s tourists. At the same time, some other countries are restricting all international travel.

“For every eight tourists, one permanent job is created in South Africa,” Gardiner pointed out. “But it looks like some countries are going to go into lockdown – they are going to stop travelling. So what happens to our tourism?”

As this means people will be flying less, both locally and abroad, this has implications for SAA as the business practitioners try to find a way to save it. 

Anecdotally, already many local hospitality companies are receiving cancellations for the coming months. The biggest impact will be on smaller tourism operators, guest houses and restaurants that don’t have big balance sheets that could sustain them through a period of low cash flows.

Making ends meet

The same is true of many small businesses across a number of sectors that are already feeling the impacts of lower orders and supply chain disruptions.

“Global supply chains are under threat,” Gardiner pointed out. “China is the workshop of the world. If China can’t produce, that means that nobody gets those products, and if they can’t sell products, what happens to their revenues?”

Businesses with a lot of debt that aren’t generating enough cash to meet repayments are going to be hardest hit. The shutdown in Italy illustrates how seriously this impact could be felt across sectors should South Africa have to restrict movement to the same extent.

Read: Italy’s nightmare offers a chilling preview of what’s coming

As economic development specialist Omar Hassan wrote in The UK Independent last week, the coronavirus may bankrupt more people than it kills. This is why the government and policy response is so important.

As Rossouw pointed out, the good news is that there is a growing sense of urgency, and a realisation that these issues need to be considered and dealt with.

“When people ignore them, that’s when we’re in trouble,” he noted.

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OK so this will be remembered as the 2020 financial crises.

In SA we have now been firmly dumped into great Depression with negative growth for the foreseeable future.

The 2 largest earners of Forex will dry up ( Tourism + Mining) leaving us with a ever growing fiscal debt and the inevitable downgrades.

The impact on what little employment we have will be immense!!!

Many small businesses will also go to the wall as the next inevitable closure of stores, theaters, bars and restaurants loom !!!

Brace yourselves – this is going to be very rough!!!!

Great depression?! That escalated quickly. You’re clearly not a follower of economics/history.

Observe closely !!!!!

On the bright side, the price of gold is through the roof. Supermarkets are also going through boom times with all the panic buying. And when the crisis starts to taper off, the price of flights will be discounted sharply as airlines try to recover from this period.

Yip … it’s an ill wind that blows nobody any good …

We did brace ourselves – because the ANC made it very rough, and now this!!!!

Looks like this virus could be around until herd immunity emerges, ie when 60% of the population have had it and recovered from it.

This is not the end of March or even the next quarter. This spells global recession with multiple business failures.

Meantime, those who dodge the bullet may be those who manage to just stay at home for the next 3 months without going out anywhere.

….and move all their assets into cash or gold

Report from Japan indicate re infection occurring.

70 year old from Princess cruise tested positive on 14th Feb, recovered by 4 march and tested negative.

took Public transport home. After fever of 39 went to hospital, tested positive for covid 19 a second time.

I would look into this report more deeply. A doctor interviewed on NBC this morning indicated that once you get it and recover, you have a much stronger immunity to it. The high rate of infection is due to the fact that this is a NOVEL coronavirus, ie, brand new to the scene. Hence nobody has built up immunity to it.

“….and move all their assets into cash or gold” Not to be smug, but I told everyone in many posts to do this years ago.

The gold price has been volatile recently, no?

Heard immunity may also be even further off than that.
Too many cases of people getting it again after being cured suggest that this may not even be an option.

We can all just come to work in hazmat suits.

Now you are going to see how a policy decision made on ‘making a few more extra-dollars’ on tourism is going to hit this country so hard that those extra Judas dollars are not going to matter. Its just a few days ago that a Minister was lamenting what a terrible thing it was to contemplate even shutting the border, because of the adverse impact that kind of move would have on Tourism. Really? These kind of numskull decisions that prioritizes a couple more dollars over the health of millions of South African’s, many of whom are living with co-morbid factors that are just going to lead them to being killed, and I mean killed by Corona –

Now the people who will be making a roaring business will be those with Funeral Parlours, and the Minister will be no where near the epicenter of Covid-19. Those would be in the tourism of a different kind, couriering people to heaven because of these transaction based decision making by our government. Its no use to build a coop after the hyena or jackal eat all your chickens and eggs? (Ho aha serobe, Phiri kampo phokoje e se e jele).

Bagesuge,

On the point of Judas Dollars, well written and agreed. But they (the Government) are not the only people making bad (more like terrible) decisions about this.

A lot of these infections are from people who went on holiday (not even business which is bad enough) with their family to Italy and other parts whilst knowing there was a problem already there and it does not stop there, I know of people as of today that are still insisting on going on holiday in the next few weeks. Excuses such as we already spent too much on the holiday or it is not in that part of the world whilst not considering that you are going through a most super infectious airport full of people from those infected areas you are not going to and probably catching connecting flights with them on a germ catcher aircraft.

These decisions are being made by seemingly intelligent people, there has to something here, all that is needed is to pause this for a little while not stop it altogether.

Fortunately China seems to have the situation under control, the new epicentre is Europe.

Same country that brought us bird flu, swine flu, SARS etc etc…

Because thy insist on eating wild animals bought in uncontrolled markets, even in the 21st century.

Sav.ages

Try educating yourself and not relying on FB and the other lame stream media.

Swine flu came from Varacruz, Mexico.

Do you know that the following diseases come from the consumption of cattle: anthrax, brucellosis, cryptosporidiosis, dermatophilosis, Escherichia coli, giardiasis, leptospirosis, listeriosis, pseudocowpox, Q fever, rabies, ringworm, salmonellosis, tuberculosis, and vesicular stomatitis?

And name one of those diseases that cost $5 Trillion+ (and counting) economic loss to the entire world?

If you are in public health, please change career to flower arranging or something innocuous…

Firstly you seem unable to differentiate Mexico from Asia. Do you know that those are on different continents?

Secondly- enough with the cultural imperialism. There are plenty of products consumed in a ‘Western approved’ diet that have the potential to cause (and do cause) disease.

Calling someone a savage isn’t helping anything.

The urgency was in Jan 2020 when the epidemic was clear and travel bans needed to be in place and preemptive action had to be taken. But we left the borders open, did nothing and hoped for the best.

Since WHO, SA & most of the world dragged their feet, now they grapple a virus on the exponential rise with community spread. Too late and no manpower to take control of individual clusters.

Here is how it should have been done.

https://www.nbcnews.com/health/health-news/what-taiwan-can-teach-world-fighting-coronavirus-n1153826

It will probably have at least as much impact on the economy as Zuma and the Guptas, most likely a lot more

It is Mercedes Benz thats in East London, Volkswagen is in Uitenhage and BMW is in Pretoria.

I would support these drastic measures if they were implemented to curtail an ebola outbreak. It would even make sense to disrupt normal life, close schools and ban gatherings if the aim was to stop the spread of drug-resistant TB. What benefit could there be in curtailing the Covid-19 virus if they shut schools?

Like with the flu virus or the TB bacteria, it is only a matter of time before everybody comes into contact with the coronavirus. For how long will the schools remain closed? Until there are no more new cases of infection? Well, we have been treating TB forever and it is more prevalent now than ever before. The coronavirus, like the flu virus, will be with us for eternity. Do we plan to close schools and churches for eternity?

This is an overreaction, a knee-jerk reaction. We should live clean, eat a healthy diet, exercise, don’t smoke, wash our hands whenever we enter a building and use hand-sanitizer in public spaces. Our sports events, church gatherings, art events, gyms and schools give meaning to life. It does not make sense to ban these activities if you do not know in advance under what circumstances you are going to allow it again. There is always some deadly virus or bacteria somewhere.

For the first time ever I don’t agree with you. It’s about trying to flatten the curve. Thats all. No health system in the world will cope with the flood or people needing high and intensive care all at the same time.
It’s an under-reaction, which is unfortunately too late. (but better than the Trump or Boris reactions)

I accept you point on flattening the curve. If the current protocol is successful in easing the load on the health care services, then it makes sense to ban certain activities. Over the longer term, the virus will be unstoppable and life should continue as normal.

“There is always some deadly virus or bacteria somewhere.” There is a deadly virus in Luthuli HGouse which has destroyed the SA economy….

ALL mass gatherings need to be halted. This is how the virus spreads. The more people that get sick, the more deaths there are likely to be, plus the healthcare system is overwhelmed with cases.

The quarantining and self-isolation model combined with mass testing has proven to work in both China and South Korea who have quickly arrested the number of cases. There is no need to question, it must be done and speed is of the essence.

The sooner we disrupt the normal and strangle this thing down, the sooner we can get back to normal!

At least SAA haw a good reson to close down now : No passengers !

SAA should be declared a State of Disaster

Maybe soon ESKOM will have spare capacity.

And the potential closures should coincide with a mass maintenance drive. Yet somehow, I doubt that will happen.

Eskom should be declared a State of Disaster …

“East London, for instance, survives on BMW and Volkswagen factory jobs” I think you have the wrong town. As far as I am aware, BMW is produced in Pretoria and VW in Uitenhage. MBSA is based in East London. But then the Gautengers think East London is a suburb of PE so maybe that’s where the confusion comes in. It’s only 300 km from PE!

So it is a suburb ne!!!

Business that will take the hit first: airlines, restaurants, clubs, malls, retail outside of essential shopping, all ticketed events, factories and farms and anywhere else with large numbers of employees, and any shop that depends on foot traffic to trade. The second line will be the service providers for those businesses, employees and right at the end: government revenue.

small technical correction:

epicentre: the point on the earth’s surface directly above the centre of an earthquake. Best to confine usage to geological disturbances.

centre: the middle of something.

Actually its a commonly used term in outbreak terminology. Im an epidemiologist…

“Centre” is good. “Origin” would be a scientifically correct term.

With a respiratory disease, what we are facing is a ventilator crisis more than a health crisis.
At some point there will be more people in desperate need and not enough ventilators.
Medical staff will get make that decision on an ad hoc basis.
Of course slowing the spread of Covid makes sense.

SA = dead man limping.

My dear Doctor – It is actually a corpse in the horizontal position and the shadow looks like it is someone limping!!!!

I have a couple of colleagues who will be leaving for holidays to the east this week and next week. I asked one if they were not scared of contracting this virus, they just shrugged it off and said there were low infection numbers. The holiday destinations? Singapore, Thailand, Bali, Maldives……I wish them all the best.

Yes, see my reply to BageSuge above.

Maybe the psychologist’s on this blog can help out here. I cannot work this one out. The cost seems to be the major decider but maybe just an excuse, possibly it is that once people have something set in their minds especially a holiday that they have been living in their minds for months that they will not change their plans even if very possible danger is involved.

Strange. Because there were only 13 confirmed cases in the Maldives versus thousands in Europe. Most of the South Africans who contracted COVID-19 got it from Europe or the US.

Bias much?

Maldives population vs Europe population?

What % of SA cases are traceable to travel vs local transfer?

I find it selfish that people regard their holiday as a millennial right and want to slot back into gym, work, shoprite upon return. Screw this : you go on holiday, budget 4 weeks isolation

It would’nt cost us much … JZ and the Guptas already ransacked the country.

Growth is already at a all time low.

Debt is high … guess we go into further debt with an unproductive economy …
future generation / unborn will have a heavy load in the future

The commentators on Moneyweb and no doubt many other financial and social media platforms have been telling you for years what to de Dear Cyril.

Fire and jail your corrupt cadres and rethink the entire BBEE program. removing incompetent ANC appointees in SOE’s.

Thank you …

Easy stimulus model for the government – expedite EWC, the NHI and private pension funds bailout of ESKOM. That’ll be the cure for the COV-19 Black Swan Event

Good Day. I agree with Sensei this is not a bubonic plague, ebola, Spanish influenza airborne hybrid with 90% contraction rate and 75% mortality. It is just new and unfortunately as with anything like this we have to sort through what is real and what is not. Filtering as it were. For sure there are reports and articles with agendas, scribes for hire. I have stated this before a government will never let a good crisis go to waste, it allows them to implement all sorts that would have otherwise been impossible in ‘normal’ times. Funny enough few if any are withdrawn after the crisis.

Having said that, i also agree with flattening the curve. We cannot afford to overwhelm the medical system. Panic will do that, a simple analogy might be like a young couple with their first child, every time he/ she sneezes they are in the emergency room – totally unnecessarily, by the time they reach their 3rd child it needs to cough up a lung to go to the GP. So unfortunately a lot of people will panic with a fever and because of the hype which makes it sound like we are all going to die, they will flood emergency rooms with nothing more than common colds, flu, stomach bugs, allergic reactions etc etc when in fact it is not worthy of the medical staff time – so many unnecessary tests. Humans get bored and tire of government crap quickly, probably none more so than in SA, lest i have missed something and people start dying at 10 times the flu rate – SA will get gatvol of all the new draconian measures as will the rest of the world (in my world they already are). It is nonsense where one employee in a factory gets sick and they close the factory.

Practice common sense – so far no child under the age of 9 years has died, which is a fantastic sign. Yes over 70 particularly over 80 are much much higher risk, but still within the bounds of normality if higher than flu. My point, everyone of factory working and office going age, are outside of the high risk category, as such they go home like they would with the flu, when they are better non infectious they return to work so on and so forth. Schools to close ridiculous unless the kids are living with gramps and grandma, limit those visits for sure that will flatten the curve. Guess what people are recovering about half of those infected so far are free and clear, this obviously has several months before this will be advertised and circulated by the main stream and cases will go a lot higher as we are exponential at the moment, but a point will come when the recoveries match or exceed exponentially the new cases. Never before in history has such an over reaction been made on what in some countries is a dozen cases in countries and no deaths yet they shut borders, close schools, varsities etc etc.

Human nature is prone to panic in stressful situations – when this covid-19 broke it was just another flu like virus, the people did not really flinch, looking at prima facie early eveidence there was no reason to – but the daily lambasting by the print and their electronic sisters, plus the governments hammering this home as Ebola on steroids, started a sell of slowly at first, it was lets be honest ripe for a decent 10-15% hair cut. The MBS and Saudi decided to chop the US shales producers down to size and sabre rattle the Russians – there is always that line in the sand which when exceeded, in the late 90s Asian LTCM crisis, the tech crisis, the 2008, 9/11 etc when crossed – forces margin calls and forced liquidation – literally. if you do not sell the bank holding your account will sell on your behalf to cover the margin calls. it is self reinforcing.

People panic i said that but none more so, than when their own governments appear to have lost control and are panicking themselves. The last weeks rate cut by the FED caused its own crash, as it was seen as weakness – then God alone knows why but last night the Fed decided to show the whole world that they are like a deer in the head lights and went balls deep dropping a whole 1% to near or at zero – expecting i assume another 2000 point rally this morning – BOOM – no such thing, and we open limit down, stops triggered. They will have to allow commercial paper lending by big corporates it is worth more than US treasuries in the long run and at least will feed into the public, bank lending never does it is stored over night at the fed or feed massive proprietary trading positions.

Hedge funds are on forced calls now liquidating everything anything to raise capital (they have lost as a group billion hundreds of billions). Bridgewater the mouth Ray Dalio stating at Davos cash is trash i think he said, is down 27% i think and liquidating all of his gold holdings, i saw earlier at $1470 now back up a bit but this was 1700 2 weeks ago – fundamentals and reason have no place in an environment such as this – this will like all previous crashes burn itself out, exhaust itself it runs out of energy, trillions gone literally – there will be one massive bounce, then likely a retest of the lows causing another panic, but a higher low, then i think back off to the races – maybe 6mths from now.

As for the perpetual dollar bears, are you watching the flight to quality and US treasuries, capital is fleeing europe all into USD.

I see this comment has been blocked:

“And what I still cannot understand is why Donald Trump or his lawyers, hasn’t instituted a class action against the Chinese government for this mismanagement of their health system in the live animal markets in Wuhan Province.
China should be sued for three trillion dollars.”

I really would like to know in what way this goes against your caveat – While Moneyweb encourages discussion and community engagement on its articles, note that our company, article authors and commentors may be held liable for defamatory comments. Such comments and those showing any discrimination will be deleted and repeat offenders may be banned. There’s a fine line between slander and freedom of speech.

It is entirely valid in the context of global economics where catastrophes like this are traced back to the perpetrators who are held financially liable in an international court.

It defames no one, nor does it discriminate, nor slander. You really are getting more and more tedious in this aspect and sooner or later I’m cancelling my subscription. Not that you’ll miss my lousy R65 but it will at least removes the irritating hassle of copying my comments and checking your “moderation”.

Actually, China’s management of the outbreak has been exceptional, considering a population of nearly 1.4 billion people.

I’m no lawyer, but intuition tells me that your comment is totally ludicrous wrt anyone “suing China”

As for trump and his arrogant, blathering, bumbling approach, propped up by his band of sycophantic yes-men, well, perhaps every American should be suing their own government then??? The so called Land of the Free has just shown us all how NOT to do it.

I am not sure people comprehend how wide these circles go

So you are a citrus farmer
So your harvest is getting ready

Call from CPT cold store : don’t ship, we cannot receive because we are backed up and all the reefers are stuck overseas

The impact on the economy is as follows :

* as of today – 30-40 percent of the jse market cap.
* possible loss of life on a major scale
* the most contagious disease to date can affect thousands
* most disruptive event to the supply chain on a global level
* a government that has a poor record on managing a crisis
* possible shortages of food and medicine on a grand scale
* the X factor’s which represent still the unknown

and

U want the rand value –

pick any number between 1 and 9 and then add 12 zero’s

Considering the undoubted impact – not only on Sefrica but the rest of the globe – this could end up making jacob look like a Sunday School teacher!!

End of comments.

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