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Surviving lockdown

How will the economy look in 21 days?
There is no precedent for a nationwide lockdown. Image: Shutterstock

This week the South African government faced an impossible choice: risk a national health disaster by not taking firm steps to prevent the spread of Covid-19, or risk the severe economic impact of a national lockdown.

Ultimately it chose the latter, and the move has largely been welcomed. As Marius Oosthuizen from the Gordon Institute of Business Science argues, the seriousness of the situation demanded it.

“To put things into perspective, if South Africa’s 59 million people were to do nothing at this point, the country would require over 500 000 critical-care hospital beds – we currently only have about 5 500 of these, of which 88% are already occupied,” Oosthuizen notes.

“Fortunately, with the restricted movement being imposed through the lockdown, this number drastically decreases by 70%.

“This is the only way the country is able to reduce the chances of unmanageable widespread societal infection.”

Read: Lockdown decision: Ramaphosa was bold, decisive and presidential

For Isaah Mhlanga, chief economist at Alexander Forbes, the move also acknowledges what has worked elsewhere.

Lessons learnt

“If you look at what we have seen in South Korea and China, for instance, they managed to reduce the pace of infections because they took drastic measures,” he says.

“You could say that ideally South Africa should have taken this decision the day the first infection was discovered, but that would have been viewed as too drastic.”

Now, however, he believes that the right move has been made, even though the consequences will inevitably be severe.

“Unfortunately the very act of trying to slow down the spread of Covid-19 necessarily means that economic activity is going to be curtailed,” says Mhlanga.

“So we cannot save GDP,” he adds. “What I think they tried to do is to save lives, and cushion the impact on employment.”

While nobody can be certain just how much of a knock the economy will take, there is no doubt that it will be significant.

Slowdown

“After the financial crisis of 2007 and 2008, we had a contraction in growth of about 1.5%,” Mhlanga points out. “If you use that as a benchmark, you are likely to see a contraction that is far larger than that for this particular crisis, which means 2% or even 3% is plausible.

“The 2008 crisis was a financial shock that translated into the real economy,” he points out. “This time around, you have a healthcare issue which disrupts the real economy first, and then the financial markets, which means there will be second-round effects.”

Johann Els, chief economist at the Old Mutual Investment Group, also expects a material slowdown. He is now forecasting that South Africa’s GDP will contract by 2% this year.

“While we hope to come out more strongly than this, the reality is a stark one in the short term,” he says. “The efforts so far taken by the South African government have to be applauded, but we need to face up to the fact that there will be severe economic effects.”

The other side

The critical question, however, is what happens after the lockdown is lifted. How quickly can the business environment realistically return to normal after such an episode?

Els believes “the economic impact is going to be severe, but short-lived” and suggests that this will be true for the local economy and the world more generally.

He is forecasting global growth in 2021 of 4.5% from -1.2% this year, and for South Africa to rebound to 1.8% growth next year.

“It is still not nearly enough to create the jobs and stimulate the higher levels of investment we need, but several green shoots are emerging,” says Els. “We have a president showing he is willing to make tough decisions and is being supported by a committed cabinet.”

However, others are less optimistic about the chances of a swift recovery. This is because there is no precedent for a nationwide lockdown, and its effects could still be felt for some time even after it is over.

Lasting impacts?

For instance, there will inevitably be supply chain issues across the economy as some smaller suppliers and logistics companies may not survive. Those that do may also take time to ramp up production again.

Read: All small businesses may apply for coronavirus debt relief funding

Doing business internationally might also remain constrained, because South Africa can’t simply open up its borders again without the risk of the virus re-entering the country. If that happened, the 21-day lockdown would have been entirely in vain, and so some level of restrictions will have to remain in place.

Using some basic assumptions, Mhlanga suggests that even with the precautions taken, South Africa and the world generally will probably still be dealing with the virus for months. The negative impacts may therefore take longer to fully play out.

“What we have seen before is a V-shaped kind of recovery,” he says. “I don’t think we are going to see that this time around. In an optimistic scenario, we are going to see a U-shape, and if things are far worse, then it could be L-shaped – where we enter a slump for two to three years without recovery.”

Listen to Nompu Siziba’s interview with ‘Africa is Open for Business’ author Victor Kgomoeswana:

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We may survive lockdown but the economy won’t. And with it millions who will lose their jobs and many others who will develop mental issues and have their pensions destroyed. Why?

Because the lockdown won’t work anyway. And you’ll need another one and rinse and repeat for 18 months. And at the end of that you’re not going to have a functional economy.

This virus overwhelmingly kills people of advanced age with other serious health conditions. This may sound callous, but how long were they going to live anyway? And is it worth killing your economy to save them?

The elderly and at risk need to socially distance themselves and lockdown until this thing has run its course and we have a vaccine or herd immunity.

But what we are doing is too costly

I agree completely – the lockdown in this country is fundamentally unworkable, for the simple reason that there can be no such thing as isolation for the millions of people living in informal settlements. Your neighbours are 6 feet away; you share communal toilets and washbasins with them. Contact with them is unavoidable. It may have worked overseas where people can be effectively isolated, but here? Forget it.

And to add to this, hundreds of thousands of people will lose their jobs, adding to those living in informal settlements. Killing the economy will be far worse than losing people to Covid19 long term, and these 21 days are doing exactly that, a pointless killing the economy which will not stop this virus.

As president you cannot order the potential death of millions of immune compromised individuals (or elderly in Europe). The paradox is that they might not have died, but once a million die you cannot put the genie back in the bottle. So you have to take the compassionate route now with terrible damage.

@jblack. This actually happened in SA – a president causing the death of 300,000 people by means of his AIDS denialism. So it would not be a new thing for the ANC.

“…with terrible damage” you say.

Accepted then. Unemployment for you for a few months going ahead…

South Africa has not (yet) had any deaths as a result of COVID-19;
but, it may be conjectured, may well suffer many from increased poverty.

@MichaelfromKlerksdorp – a few months you say? No, I suspect that the consequences will be far more severe than that.

@Incitatus – and Mbeki will always be remembered for those poor decisions, in fact accused of genocide. Perhaps CR heeded the health professionals this time but blew up the economy. I don’t want to trade places to make that decision.

sure you can, ask trump

It is the only thing to do to reduce the carnage. Density and living condition wise, we are no different from India, most of South America, and probably 2/3 d’s of the world. Think also of yourselves and your families. Until now, you have been a high risk to contaminate your staff. Going forward it switches around.
At least we are being pro-active, not denying it. More than some other leaders.

Old Ramaphosa has, through his actions, made himself indestructible. The ANC now has no chance of booting him out. He has taken good advise and seen the devastation elsewhere. This is a good thing for the Country.
After this, the unions attitude will change from demanding to begging for jobs, so that could also be positive.

Its a Sh…storm of unprecedented proportions WORLD WIDE. The trick is to keep yourself, your family, and your business alive.

Stay at home everyone !

Concur – People believing that this will only last 21 days are seriously naive or smoking heavy green stuff.

As there is no determined condition for the lifting of these restrictions, I fully agree that it is most likely to be extended.

The best economy exists on foundational priciples linked to Morality.

If an entire national were to disregard the actual value of life, as displayed in your post, it would translate into a weaker economy.

Your thinking is disturbing. Would you weigh your grandmother or mother up against a replaceable asset, as a mere accounting transaction when determining the “useful life” of depreciating asset?

Even basic accounting skills that we were taught, like counting, were passed down from the very people you now feel can be done away with. Our education is actually there to build a nation and look after the elderly and not just ourselves for monetary gain.

Please re-check your moral compass.

Except for the economic clause of being for the “greater good”. If you save tens of thousands from dying to Covid but you kill millions from dying from economic collapse, what was the better choice? I don’t know if we’ll know what the best choice was, but at least this one saves lives now.

Navigator may be an apt name for a sociopath. He should Navigate his way to morals and ethics in a civil society. It may serve him well. Probably a young gun who believes he is invincible; like we all thought when we were younger.

‘How long were they going to live anyway’ – Sounds more barbaric to me.

It is in everyone’s interest to save and treat people now, otherwise you nor anyone else would not even enter a hospital in the distant future!

I am sure that you will not feel comfortable to lock your own mother away for months to come.

The economy is playing second fiddle to something larger (and yet only a staggering 120 nanometers in diameter), something number crunchers and hedgers and betters cannot, and do not want to understand.

Please tell that to Eskom, city power and the municipalities who will demand payment for services, no matter what.

As soon as the lockdown ends, the cut offs for non payment will begin

Very few of us are wired to make triage decisions. A rare few such as combat medics, ER doctors & nurses etc. are trained to take tough triage decisions. I’m afraid leaders across the globe are going to have to make these extreme decisions very soon to save economies and livelihoods or else violent social unrest on a scale never seen before is going to rip society apart from one corner of the world to the other.

That is exactly what I foresee. I hungry person will stop at NOTHING to provide for himself/herself, and even more so if there are hungry children involved. I see people living from hand to mouth on a weekly basis and fear the day will come soon when they do not have any food to eat.

Life expectancy in Italy is around 82 years. Take a guess what the ave age is of people dying from covid 19.

If there’s ever been a time for technology such as Asimo robots to take over, that time is now. Imagine if we could open up borders so that we can export our raw materials and produce while also importing the clothes and chicken we need with minimal human contact until a machine has scanned and verified that the virus isn’t on the incoming delivery vessel. All this can be done by remotely maned or autonomous robots.

Subsequent to that, meetings should be on video software. There’s no shortage of such software, but if there is, we can even revive mixit. People won’t be flying but deals will still be concluded and most importantly, our customers and suppliers can still complain to a human, just without physical contact.

Thirdly, this should serve as a study for the NHI around private and public health care sector’s responsibilities not only to a crisis but to health care needs in general in South Africa. What if things such as outbreaks like Covid-19 and new cancers can be constrained to 2 hospitals per province as is the case right now, does it work? How much does it cost for 2 patients, one in public and another in the private to go from full blown flu to recovery? The subjects must be senior in age so as to stretch the results to their full potential.

Will China be forced by the international community to from now on be more transparent? I hope so. We cannot afford 2 have an unidentified virus originate in a country as developed as China needing Canada to blow the whistle first before the Chinese admit things to the WHO. They are leaders in 5G Communications, they need to use those communication channels to give information to the world in time.

Maybe these tough times will teach our fractured political parties to pull together for the common good. Maybe Cyril can repeat his performance calling this lockdown by standing up and and announcing the business friendly reforms the country needs so badly. Don’t waste a good crisis!

How do we expect business owners and people to pay leases or their bonds on 1 April or next month exactly?

Unfortunately, of those that demise due to the consequences of this disease, the cause of the demise in many will be the actions of fellow citizens, not the microbe.

One institution that is oblivious to the economic destruction around them, must be SARS!

Had tax-return audit on a client’s reduced property rental income, and one of Revenue’s questions were to “motivate/explain why your rental income reduced”.

I mean, what the $#@%…?

Maybe a good time to copy/paste a plethora similar articles like these, and tell SARS “pick any one”…. 😉

Telling you something: as a small business owner, my August provisional tax return is going to go big in terms of declaring losses caused by this, and claiming back a substantial refund.

…”Nil” provisional returns for August’20 (1st period 2021) are going to be drastically higher.

That’s worries me….where does Govt going to get sufficient funds from? I know: prescribed assets on ret funds may come sooner than we think 🙁

as with any crisis, you also get to know a lot about people and their selfish behaviours:

the hoarding had a terrible impact. I cannot find ANY face masks for essential staff that must work, never mind N95 masks. Yet there are probably millions sitting in boxes in places that will not need them in the next 3 weeks.

already I hear about staff in essential categories complaining that they have to come and work but others are having a holiday and getting paid.

it is all about me, me, me. the people that travelled because they deserve their european holiday, the ones that left cities to get to their game lodges taking the disease to naturally isolated communities.

the ones that created fake FB groups and seeded it with ads for R200 face masks deserve a special mention. the ones selling sanitizer for R800 per liter too

There is a very relevant work by Richard Dawkins, “The Selfish Gene,” that agrees with you.

Thanks – Looks like an interesting book – at least I can download it without endangering any of my fellow earthlings 😉

I think this thing will change many things fundamentally, as in what Industrial Revolution did to industry or French Revolution did to celebrities.

Prediction Engine : the concept of office work will change massively. Millions of people are being forced to confront what are presently cumbersome remote working technologies only because they HAVE to. By May they will fit into tools that will become better and better.

its not going to work for people living in informal settlements.

What Govt should’ve done (instead of a 1st world lock-down) is to let the economy carry on, but BUILD A SOAP-FACTORY WITHIN 10-DAYS!! (like the Chinese built a hospital).

In this way the economy capitalizes on the virus problem. Let’s say this giant soap (hygienic products) factory becomes an SOE….with a newly instilled hygienic way of life for all South Africans into the future, this govt-owned business could be the only SOE to make a profit… 😉

Herding people together in informal settlements will cause the rapid spread of the virus, not stop it. And all ministers are now grasping the opportunity to live their despotic dreams. Alcohol, tobacco forbidden, Patel even wants to dictate what foods are “essential”. Channelling his communist idols of the past. History will judge this government harshly for destroying our economy and callously preventing the most vulnerable from putting food on the table. Where are the soup kitchens?

We are all in the same boat, unfortunately. Now we must row together. Vir Volk en Vaderland.

Well, I have deep concerns for our staff that now have to stay home. How will all the shared toilets in the informal settlements be cleaned? Have municipalities come up with plans here? Why so much emphasis on what people eat, drink and smoke? Where are the plans to assist people in the overcrowded informal settlements to stay safe, for children on the school feeding schemes to still be fed, for hawkers to get food on the table? In wartimes people were fed en masse, what is happening, or have I missed those contingency plans by the ministers?

If people are interested I can share a food parcel list that one of the social welfare departments use. Buy it, distribute to people you know, should be survival for a month

Ja, I was totally amazed today at a friends (pretty empty) shop. She said the local police capt. had debriefed her in the morning.

She had to remove all cigarettes, cakes, koeksisters and other “undesirable” products (such as take aways) from her shelves/ fridges.

So these “essential service” shops are being told what they can and cannot stock even… I am a non-smoker Tx God but still- no pastries! Be prepared for a puddingless 21 days!

“Lockdown decision: Ramaphosa was bold, decisive and presidential
It is galling that Ramaphosa is all those good things only when he is not challenged by intra-party factionalism.

If I were sick and elderly I would want the option of Euthanasia. Much better to end the suffering and protect your life savings being gobbled up by the medical Industry.

Your option sounds enticing even without COVID. White is definitely not the preferred colour with the current regime and foreign countries don’t want you due to age – welcome to work but don’t stay.

Not to Worry : Your life Savings will be Gobbled by the ANC first and foremost.

Choosing to lockdown is the worst decision, they have no solutions just short term trade offs. We need free markets to fight pandemics.

Well thank guys, that’s really cheered me up! Once I’d read that I went back to the article and the OMIG forecast of global growth in 2021 of 4.5% from -1.2% this year, and for South Africa to rebound to 1.8% growth next year looked very cheery!!

I’m old so I’m just going to f**k off and die as suggested – the things we old guys do to help the economy!!!

…you’re the right person that can send a strongly worded letter to Greta “how dare you” Thunberg 😉

Greta who? Funny how quickly things get pushed to the side-lines….and don’t you just miss load-shedding!!!

Johan Buys – 26 Minutes ago

Thanks. I would be interested to see the list. Please supply.

Jeffrey Epstein did not kill himself.

End of comments.

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