At the start of the pandemic we all assumed our world would soon snap back to normal. Now we are used to wearing masks, opening windows and thinking twice before hugging family members. There is no going back, however much we mourn the halcyon pre-Covid-19 past.
The SA economy is also slouching towards a new normal. Yet the policy discourse has mostly doubled down on long-standing debates rather than grappling with the changes. Partly that reflects the fact that the postpandemic economy is still emerging. But it also suggests confirmation bias — we tend to read new developments as reinforcing our existing beliefs, rather than challenging them.
The effect of the pandemic on SA’s already deep inequalities indicates the extent of the disruption. Soaring international prices for shares, housing and commodities, fuelled by global stimulus efforts, have further enriched the wealthy. Meanwhile, a tenth of small formal businesses closed in the year to March, and the share owned by black entrepreneurs plummeted from 50% to 40%. Job losses have largely exempted managers and professionals, but robbed one in 10 lower-level workers of their livelihoods. Distance learning and unequal access to vaccines and health care have further widened the divide between rich and poor.
Inequality feeds protest and policy contestation, which in turn slows economic recovery. In a deeply unequal democracy, fights over policy are a feature, not a bug. The government’s response has been to talk about reconstruction without actually doing much to tackle the roots of inequality. It has provided some relief through social grants and unemployment insurance, but it has not revealed any new plans to tackle the mechanisms that reproduce inequality — that is, the deep inequities in ownership, from businesses to housing to financial savings; in work organisation and by extension pay; in education and health care; and in infrastructure.
It is difficult to initiate disruptive programmes in the midst of a global crisis. It’s easier to expand grants for individuals. The risk, however, is that we never get to the large-scale structural interventions needed to sustainably reduce inequality.
Another major, but welcome, side effect of the pandemic has been soaring international commodity prices. SA’s metals exports are enjoying returns last seen in 2011, at the tail end of a 10-year boom. That has boosted economic growth, government revenues and trade surpluses. The mining value chain, which includes the metals and petrochemicals refineries, remains the most important link between SA and the world economy, for all the calls to diversify. It generates about half of SA’s exports, though only 13% of GDP and 6% of employment.
But mining is like an abusive employer, by turns charismatic and nasty. If they weren’t nice sometimes, you’d have already left. When export prices for mining products are high, the economy seems charmed. When they fall, the underlying structural problems re-emerge. After the price peaks in 2011, metals prices plummeted between 30% and 50%. They only recovered in 2020. The slump brought a decade of periodic recessions, slow job creation and restricted government spending. It fuelled murderous conflicts in the platinum belt as wage increases stalled and international mining conglomerates divested; and it stranded infrastructure projects that looked to mining for core revenues.
The list of Covid-19 effects on the economy is much longer than this article. They include the increase in the deficit to 12% of GDP as the state maintained spending on health care and relief while revenues initially plummeted. In addition, prospects for tourism, hospitality and other high-risk industries have fallen off a cliff, with no real recovery in sight.
As in our personal lives, the challenge is to get past nostalgia and take on the risks and opportunities of SA’s new economic normal. The comorbidities of the past still largely shape our present. But there has also been real change. In response, we need more innovative policies.
• Makgetla is a senior researcher with Trade & Industrial Policy Strategies.
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