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F A R
N O R T H
10 April 2020
M E D I A
3
National Covid lockdown extended to May ■
Joe Dreyer
In what was arguably the second most anticipated live appearance by the president, Cyril Ramaphosa addressed the nation last night (Thursday evening) to affirm the fears of an entire nation. “If we end the lock down too soon and too abruptly, we risk reversing the gains we have made over the last weeks… After careful consideration of the available evidence, the National Coronavirus Command Council has decided to extend the nationwide lockdown by a further two weeks beyond the initial 21 days.” That precise moment will undoubtedly be recognized by future generations as the day the
SMME suffered cardiac arrest. Many small and medium business owners in the formal sector are more than just a little concerned about the effects that the lock down, which has now been extended by another two weeks, will have on what remains of their now fast-depleting financial reserves. Many lodges, pubs and restaurants rely on the spend of daily guests to their establishments. As a result of the complete shutdown of the restaurant industry, many local restaurateurs have had to lay off their entire staff contingent - adding to the already worrisome unemployment figure which was at 29% before the lock down. Though there have been many platforms created by government to assist the SMME owner to minimize the effect of this lock down and perhaps even rescue their businesses from bankruptcy, the red tape surrounding applications and the uncertainty of who exactly qualifies for the bailouts have steered many away from the olive branch. In his speech, Ramaphosa made mention of the Unemployment Insurance Fund (UIF) which has already paid out R356 million of the R40 billion set aside for the lock down. He also mentioned that the Industrial Development Corporation (IDC) has set aside R3 billion for the procurement of essential medical supplies and that it has already approved R130 million in funding - and expects to approve a further R400 million in the coming week - to companies who applied for funding under this special facility. The Small Enterprise Finance Agency has approved the postponement of loan repayments for a period of 6 months. Government has reprioritised R1.2 billion to provide relief to smallholder farmers and to contribute to the security of food supply. In addition to these expenditure measures, the Reserve Bank has also lowered interest rates and has taken measures to inject liquidity into the
economy. “I am pleased to report that the Solidarity Fund – which was established to mobilise resources from companies, organisations and individuals to combat the coronavirus pandemic – has so far raised around R2.2 billion,” he added. “It has already allocated around R1 billion to buy sterile gloves, face shields, surgical masks, test kits and ventilators. It will also allocate funds for humanitarian relief to vulnerable households, in addition to the R400 million set aside by government for Social Relief of Distress grants.” In one of the most favoured announcements, the president said that himself, the deputy president, ministers and deputy ministers would each take a one-third cut in their salaries over the next three months which would be donated to the solidarity fund. The highest paid members of the national assembly are the speaker of the national assembly and the chairperson of provinces who each earn R2 825 470 annually – the same as the salary of the deputy president. Cabinet ministers are paid R2 401 633 a year and the national assembly’s deputy speaker earns R1,977,795 a year. Following these salaries are the house chairperson who receives an annual pay check of R1 882 488, senior members of parliament who each receive R1 600 467 per year and parliamentary committee chairs who each receive R1 495 755 annually. Leaders of minority parties earn R1 346 232 a year and the lowest salary an MP in the national assembly or NCOP earns is R1 137 933 a year. You would be forgiven for questioning what exactly these salaries are for… In addition to these enviable incomes, South Africa’s members of parliament also receive a few “perks” of the job. The include 88 single journeys a year (by air, train, bus or car), daily commuting, travel to and from airports, parking at airports, re-
location, travel for their dependants, tools of trade including a cell phone, tablet and laptop, equipment and furniture for their offices, stationery, personal accident insurance, accommodation in parliamentary villages (three complexes in Cape Town that house MPs when parliament is in session) and transport from these villages to parliament. Will the third of their salaries they “donate” presumably involuntarily, to the solidarity fund, include a complete halt to their perks? Will the people we see bickering on our television screens be forced to endure the lockdown with the rest of the country? There are currently 400 members in the South African national assembly. That means that 400 individuals each earn more than the average small business in this country. According to a recent online report released by South Africa Facts, the average general surgeon in South Africa an annual salary of R565 865 – a little more than a third of the salary of a senior member of parliament. The president said nothing in his speech about any plans to assist the education sector which should be on the list of priorities given that the country’s grade 12 students will now be gearing up for the final senior exam. How will this lock down affect the future of the class of 2020? We do not know. Ramaphosa’s attempt to motivate his countrymen in his closing statement will do little to lift the spirits of those facing financial duress as all of us now enter unchartered territory. “As we walk this road together, as we struggle to defeat this pandemic, we remain strong and united and resolved. Much is being asked of you, far more than should ever be asked. But we know that this is a matter of survival, and we dare not fail.” Mister President, when the time comes, will we as South Africans have the freedom to ask of you and your cabinet, the same?
Can South Africa recover from Covid-19? ■
Walter Hohensee
Currently South Africa’s economy is feeling the pinch of the Covid-19 lockdown. While the rest of the world is faced with similar circumstances, the south African economy is taking a beating internationally, as is evident in the downgrading of the credit rating to junk status and the Rand’s plummet against other currencies with similar lockdowns in place. Money, grossly simplified, is a store of value, it allows us to store the effort we put in to produce or deliver a product or service, and exchange this stored value for other people’s efforts and vice versa at a time of our choosing. Modern currency is intrinsically valueless,
except for the faith that trading partners have in the specific currency, i.e. currency is not gold backed and only works because all parties involved trust in it. A currency’s exchange rate is a measure of the trust in the open market in a certain currency’s value. In other words, it is a measure of how much trust there is in the value of the stored effort a currency represents. It is usually compared to the US dollar, as the dollar is used internationally and is therefore a store of value for the globe and not just one country’s people. A nation’s credit rating also represents a measure of trust, It represents the trust in a nation’s ability to fulfil its financial commitments (Paying Debt) based on the country’s economic outlook and its previous dealings.
It is therefore safe to say that trust in South Africa’s economy is relatively low at the moment. Especially when compared to other emerging/developing economies facing the same struggles with lockdowns and healthcare as South Africa is. Comparing economic indicators of South Africa and India might give us more insight into why this is so. India was chosen as their GDP growth forecast for fiscal 2021 was revised to 3,4% growth despite the covid 19 pandemic, South Africa’s GDP growth forecast for the same period is a paltry 0.8% according to the International Monetary Fund (IMF). India also has a 21-day lockdown period.
Country
GDP PPP (million $’s) (IMF 2020)
GDP PPP Per Capita ($’s)(IMF 2020)
South Africa
809 034
13 965
29.8%
8.11%
2.8%
-34.5%
+ 26.1
-4.4%
India
11 325 669
9 027
6.1%
3.66%
9.2%
-10.9%
- 184
-3.4%
Unemployment
It is clear from the above data that except for our unemployment rate and the budget deficit, South Africa is in a much better situation to weather the current lockdown. Why then, the lack of trust in South Africa, you might ask? The answer lies in delving deeper into the data and inferring a couple of conclusions.
Government Debt as percentage of GDP Country
2017
2018
2019
South Africa
53.02
56.7
62.2
India
70.4
69.8
69.62
From the table above, India has had a historically larger government debt holding versus South Africa, however their government debt has been trending downwards in relation to their GDP despite a deficit. The South African government’s debt has been increasing at an alarming rate and with another large Budget Deficit for Fiscal 2021 and poor GDP growth we will see another large jump in the percentage. This calls into doubt the ability of the South African government to service its current debt obligations which makes future debt more expensive and causes a negative feedback loop. Enter
% GDP Contribution of Healthcare (World Bank)
% GDP Tourism (WTTC)
Dollar Exchange rate change (from 1 year best to today)
Trade Balance ($ billions)
Government Budget Deficit as % age of GDP
Covid 19 and the outlook is even more grim. For South Africa to restart its economy, which has mostly come to a standstill, after the lockdown we will need government funded stimulus packages. Historically, this has been the norm for countries recovering from disaster, and seeing as disaster means lower economic activity, governments have lower tax income and need to borrow money to fund these stimulus packages. In the case of India, they are still holding onto a credit rating just above Junk status and while not ideal, they will be able to easily find credit on the open market for their stimulus packages. The need for economic stimulus is justified in that the longer the economy takes to restart, the more the populous suffers and more businesses close. Therefore, governments receive less tax income and the bigger their deficits will grow forcing them to increase debt either way. Hence the downgrade in South Africa’s Credit rating. The markets are worried that South Africa will not be able to service its future debt burden due to the extra economic pressure the lockdown brings, as we could not get our spending under control in normal circumstances.
There is an upside though
It is not all gloom and doom. Compared to India, our Healthcare system should be more robust and able to handle the health crisis better, saving lives. While a certain percentage of our Healthcare GDP contribution can be attributed to profits due to wealth inequality (Private vs Public) as long as these profits are spent locally, they should help our economy. The Rand’s loss in strength will also benefit our agricultural, min-
ing and manufacturing sectors as the exports they generate after the lockdown will now garner bigger value being brought into our economy at the cost of more expensive foreign goods. As we are in a positive trade balance, the effect on our economy could also be positive. In effect, the value of South African Effort/Labour has been devalued, making exportation of South African products more profitable. Hopefully international markets’ demand returns to normal quickly, as we should be able to increase production and lower unemployment with the right combination of stimulus and incentives. Despite government’s insistence on growing the tourism industry, it is a good thing that our economy is not overly reliant on tourism, as most forecasts predict a global slowdown of tourism due to fear and economic uncertainty. To put this into perspective, India would have to increase their deficit by 270% in order to cover the economic shortfall of a tourism collapse, while South Africa would only have to increase it by 36%. In conclusion, the entire world economy is on shaky legs right now with economic forecasts everywhere being very pessimistic. However, if South Africa sticks to its strengths, supports the local economy wherever possible, and does not lose confidence, it might see itself in a better economic position than it would’ve been without the lockdown. While a lot of people struggle with justifying the economic cost of the lockdown, the human cost without it would have been horrific and would have come with its own economic costs, incalculable due to the severe inhumanity of pondering the thought. The best we can do is use the downtime to ponder our economic strategy and decide whether wasting our effort on post-apartheid pseudo-economics (land expropriation) is the best way to solve the economic and wealth inequality problems our country now faces.
