Two weeks into lockdown level 3, it's as yet unclear how far and how fast the economy is reopening — or whether the bleak forecasts of even the relative optimists among economists will prove correct, or those of the profound pessimists. In the absence of up-to-date official statistics, economists have taken to looking at a variety of real-time indicators of economic activity such as Google mobility data and banks' ATM and card transactions, as well as fuel and electricity sales. Indications are that activity is picking up, if not to pre-crisis levels. But this week’s shock business confidence index, which was worse even than after the disastrous Rubicon speech in the mid-1980s, or the 1976 Soweto protests, suggests the economy is still in deep trouble.
In theory, the level 3 regulations, which go further than the government originally had in mind for level 2, allow a return to work by sectors that account for more than 90% of the workforce. In practice, reopening safely is complicated, and the worst may be yet to come.
For a start, going back to work doesn’t help much if there is little or no demand. A world in recession has slashed exports. People and businesses have lost incomes, limiting domestic demand. Added to that will be the fear factor as the coronavirus infection rate surges across SA over the next couple of months, as it’s predicted to do. This will also mean renewed shutdowns as staff get sick or are quarantined. And the Organisation for Economic Co-operation and Development this week highlighted the possibility of a “second wave” of the virus that could again shut down economies globally, and locally, later this year.
As it is, capacity in many operations will remain limited by social distancing requirements — and where firms discover they can produce the same with fewer workers, they may soon look to retrench. We could see a wave of retrenchments and restructurings and failures in coming months as firms that delayed making hard decisions during the hard lockdown can delay no longer. That’s particularly so in sectors such as sit-down restaurants and tourism, which may not reopen for months to come. Weighing on the recovery, too, will be that many firms, and households, that survived the shutdown with the help of debt relief or even new loans from their banks will emerge from it more heavily indebted, and less able to start spending again.
So the big questions are whether the economy will indeed bounce back, and how fast, and how much permanent damage has been done to productive capacity and jobs. Nobody really knows. Economists are divided, and they have also fed very different assumptions into their models.
Forecasts range from S&P Global’s projected economic contraction of 4.5%, through the minus 7.1% middle ground of the Reserve Bank and World Bank to the minus 10% to minus 14.5% scenarios from Business for SA and other private-sector economists. Any and all of these numbers are catastrophic, and will add more than 800,000 to the ranks of the unemployed even in the best-case scenario.
What’s more, these forecasts factor in the boost supposedly provided by the government’s R500bn stimulus and relief package — which isn’t really R500bn: new government spending accounts for less than a quarter of the total, and so little of what’s been promised has actually been delivered. Little if any detail has been revealed of the R100bn in “job creation and support for SME and informal business” that President Cyril Ramaphosa promised in April. And government machinery has often proved desperately inadequate to deliver the relief funding allocated. The new special Covid social grant has at last been paid out, but only to about 100,000 of the 6-million people who've put in valid applications. It took the Unemployment Insurance Fund forever to pay out R16bn in Covid relief to 3-million workers for April, and it’s still processing applications for May.
Nor has the government addressed big and arguably essential items that are not in the package — such as the financial relief being demanded by the taxi owners who provide the backbone of the public transport system that gets SA to work every day. And there is still little sign of the big public education campaign that is surely needed to help everyone to behave in ways that reduce the risk of transmission.
In coming weeks, finance minister Tito Mboweni is due to present his adjusted budget, and Ramaphosa is expected to outline plans for economic recovery. If they are serious about mitigating the economic and fiscal fallout of the crisis, they will need to show a sharp sense of priorities and a willingness to make long-delayed decisions about fixing the economy, and the government itself.
• Joffe is contributing editor
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