UMP Associate Professor of Economics and Programme Leader of Bachelor of Commerce, Andrew Maredza, shares his thoughts on COVID-19 and SA’s economic and social response to the pandemic.
Across the world, interventions are ongoing as governments respond to the current unparalleled health and economic crisis brought about by the COVID-19 pandemic. For South Africa, the much awaited intervention announced by the president on 21 April 2020 came through in the form of a staggering R500 billion economic relief-fund and stimulus, together with a risk-adjusted strategy plan of partially and gradually lifting the lockdown. This economic relief and stimulus is much needed, especially considering Oxfam International’s recent projection that in the absence of inclusive COVID-19 economic rescue, half a billion people in Africa could be pushed into poverty.
This proposed economic relief package, the largest in the history of South Africa, comes at a time when South Africa is already in a recession amidst a number of other economic challenges prior to COVID-19. Many will recall that South Africa’s 2019 third and fourth quarter economic outlook delivered 0.8% and 1.4% economic contraction respectively. Again a quick overview of the economy before Covid-19 shows that the informal sector comprising 18% of South Africa’s workforce bled 77 000 jobs in the fourth quarter of 2019 and yet the sector provides livelihoods to an estimated 3 million people who make up the poorest of the poor.
Now add an estimated 7 million job losses and we should expect the worst GDP numbers in the pipeline and poverty impacts that are staggering. In the meantime, this is threatening an already economically fragile economy grappling with an unsustainable fiscal deficit, a worrisome public sector wage bill, inefficient state-owned companies, energy supply bottlenecks, high levels of foreign debt and servicing cost – and the list goes on.
This gloomy picture is on the backdrop of a society that is polarised, ranking among the most unequal societies in the world. Not to mention the recent Moody downgrade to sub-investment grade and its own share of economic challenges. It has been estimated that each day that we endure under lockdown, economic activity of between R14 billion and R20 billion is being lost. National Treasury’s latest revisions of economic outlook for 2020 projects real GDP contraction at around -6.4% and unemployment reaching 50 per cent. Considering the number of revisions released to date nobody really knows how economic activity will be impacted by the COVID-19 crisis.
It is no surprise that the significant financial support of R500 billion is indeed what South Africa currently needs to mitigate these unprecedented challenges that we all find ourselves in. However, in the absence of a smart and efficient approach regarding the use of COVID-19 funding, the South African economy will steer towards a 1930s-style economic depression forcing thousands of businesses to shut down and many workers to lose their jobs – driving millions into economic hardships and extreme poverty.
At our current stage of the lockdown it should be clear that the focus is not to stimulate consumer spending but (i) providing capacity to the healthcare system and upscaling testing, (ii) delivering social and income relief to households (iii) and providing financial support to struggling small and medium sized businesses.
Healthcare system support and intensification of testing is fundamental
In Africa, South Africa has the highest number of positive cases of the novel corona virus and we are seeing this trajectory gradually getting steeper. There is a general sentiment that if the infection rate continues to climb in developing economies, in particularly where healthcare systems are poor, its impact will be even more devastating than what have seen in the US, Italy, and Spain.
These three developed countries have top notch healthcare systems. In fact, the 2019 Bloomberg Global Health Index ranking 169 countries named Spain the healthiest country in the world with Italy placed second. The countries that made it into the top 20 category were typically developed countries with high-quality healthcare systems among other indicators.
For that reason, significant amounts of money need to be pumped into ensuring that our healthcare systems are at least reasonably capacitated to cope with the worst case scenario of covid-19 infections. Providing protective equipment and ensuring that hospitals and clinics have adequate supplies and that doctors and nurses are working under healthy and safe environments.
In addition, mass testing or upscaling of daily testing in order to screen positive cases and isolating them is crucial to stopping the spread. This is critical in order to get a reasonably true picture of the level of the infection risk the country is in, and to feed into the five-level risk-adjusted lockdown strategy. Hence, the more accurate the risk assessment the better the implementation of the risk-adjusted strategy allowing progression to the appropriate lockdown level. Remember, the degree of success of these interventions depend among other things on how efficient and rapidly we move down the levels.
Integrity and support of the “missing link in income distribution”
Concurrent with healthcare interventions, delivery of social and income relief to households must be rolled out with minimum delays to all vulnerable groups including those whom the Finance Minister referred to as the “missing link in the system”.
Many of the interventions which are ongoing such as UIF claims, the solidarity fund, mortgage holidays, tax reliefs etc. are reaching largely the formal sector rather than the informal sector. And yet our society consist of an unemployed segment that is not entitled to any social grant or any form of social safety net – the missing link in the income distribution. The government is currently addressing this missing group whose lives are actually more in danger of hunger than the corona virus itself.
However, identifying this disadvantaged group under our current lockdown context may not be such an easy task due to the data-driven nature of such an exercise and the verification processes that are required. This is particularly so when one is thinking about efficiency and credibility of the WhatsApp COVID-19 application platform chosen under the circumstances to be used for submission of the required data. There is therefore great need for efficiency and transparency of systems and processes to guarantee timely delivery of this proposed R350 unemployment COVID-19 grant.
As a country with a history of corruption and little success holding corrupt officials accountable, the first concern that comes to mind is the need to ensure that accountability lines and structures are in place, supported by efficient administration systems, a credible independent or external auditing for protecting these funds and ensuring that they reach the target beneficiaries.
Hence, the success of these relief measures is among other things strongly dependent on whether the funds are utilised as originally envisaged and that officials assigned with the task of administering these funds are held accountable. As COVID-19 pushes the world towards digital solutions, encryption technologies with a digital trail to link the initiator of the grant and the beneficiary of the grant (and all the signatories between) may just be the solution. Above all what we need is human integrity.
Cooperation of the general public
The success of the emergency relief intervention is also dependent on a society that understands what the government is trying to accomplish. South African citizens have a key role to play in this pandemic environment in helping to flatten the curve. The President’s message has been to persuade South Africans to endure the lockdown and to be patient during these difficult times. “We have to balance the need to resume economic activity with the imperative to contain the virus and save lives.”
Health experts have also warned against the dangers of fully lifting lockdowns without a vaccine, arguing that any premature lifting of these containment measures may unleash a serious storm of infections that might be difficult to reverse. Without a vaccine, it appears there is no riskless pathway of action to take.
The government must therefore execute as expected to garner cooperation from the general public and avoid the potential risk of igniting civil disobedience, which might reverse the progress and benefits so far reaped. Hence there is much to be gained from a relationship between the government and the public that is based on trust and not force.
Coping with uncertainties of COVID-19
As businesses thrive on certainty, continued uncertainty about the magnitude and duration of the economic impact of COVID-19 presents one of the biggest impacts that businesses and the economy are experiencing. For businesses, this crisis requires a critical reflection on existing business models and an attempt to move towards less human-to-human contact methods of production and ways to reach their customers.
Thankfully, such models are possible in the wake of the 4IR technologies already in place. Nevertheless, it remains crucial that evaluation and continuous re-evaluation of the infection trajectory and its socio-economic impact be conducted in short time spans. With this high level of uncertainty regarding South Africa’s future growth trajectory of active infection-and fatality cases, many questions remain unanswered: How severe will the real impact of a lockdown on businesses and the economy be? How long should a level-4 lockdown last typically and is it a viable long-term strategy if the curve does not flatten? How rapidly are we likely to move down the levels?
In the post-COVID-19 South Africa, how will a huge government spending be supported given South Africa’s current fiscal space and do we even have enough economic stimulus for full economic recovery when we eventually win this COVID-19 war? It appears from the proposed numbers there is substantial preparation for the status quo relative to post-COVID-19 economic recovery.
@ The author of the article is Andrew Maredza, Associate Professor of Economics and Programme Leader of Bachelor of Commerce. Pictures supplied