Its life Jim; but not as we know it...
The coronavirus renders everything we know about the economy obsolete
Fans of the television series Star Trek may have heard of a 1987 song by British novelty band, The Firm, simply titled: Star Trekkin’. One of the lines in the song is an eerie predictor for what each of us will experience post-COVID19: “It’s life, Jim, but not as we know it, not as we know it, not as we know it; it’s life, Jim, but not as we know it, not as we know it, captain”.
Martin Kingston, executive chairman of Rothschild & Co, is on record that South Africa has yet to see the impact of coronavirus from a humanitarian and healthcare perspective; but that the economic impact is increasingly visible. He was participating in a live discussion with fellow business leaders Piet Viljoen (executive chair of RECM) and Sandile Zungu, president of the Black Business Council (BBC). The conversation was hosted by Fin24 editor, Ron Derby. Kingston is the latest among a growing list of commentators to characterise the COVID19 outbreak as an unprecedented healthcare, economic and societal challenge.
Viljoen observed that it was extremely difficult for economists and fund managers to make sense of recent developments. “COVID19 is impacting markets on a different level,” he said. “We have negative interest rates in many economies worldwide; a negative oil futures price [being] something that nobody has ever seen; and huge concentration in stock markets”. He mentioned that the market cap of just one US-listed share, Apple, was recently ‘worth’ the equivalent of the entire Russian and Brazilian equity markets. His view was borne out by Kingston, who observed: “We can rely upon some experience of what happened during the Global Financial Crisis (GFC), we can look back at the Global Depression of 1929, and even the Spanish influenza… These events provide useful inputs; but COVID19 is a law unto itself”.
Government’s response to the pandemic has been widely praised; but there is growing concern among business leaders that a continued hard lockdown will cause irreversible damage. This view was raised publicly by PSG CEO, Piet Mouton, who observed in a recent letter to government that South Africa did not have the luxury to remain in lockdown. “[Members of the PSG Group board] lie awake at night as we have a major responsibility to all our employees and their families, to our clients, our suppliers, our bankers, our government, and ultimately to the people of our country”, he wrote, before observing that the lockdown was “causing severe damage to what was left of the country’s fragile economy”. PSG is among many businesses advocating for a significant relaxation of lockdown conditions to allow the economy to operate as “close to normal as possible”.
Zungu said that the views contained in Mouton’s letter resonated with many business leaders across the colour divide. “We must consider his warning that the mortality of our economy is being tested to the limit, because beyond lockdown we must still have a viable, resilient, dynamic economy which is globally competitive”, he said. The letter emphasised that government must consider the economic, healthcare and social consequences of any lockdown decision, because these factors were inextricably linked. An extended lockdown will have severe implications for the population, causing job losses that will contribute to rising poverty. Kingsley warned that even the best case scenario pointed to a million people joining the unemployment line, pushing the expanded definition of unemployment up from 40% to 50%.
Some cold, hard truths
South Africa Inc was in significant trouble before the COVID19 pandemic struck. “”We are running at a significant budget deficit, with already worrying levels of debt, high unemployment and struggling parastatals,” writes Mouton. He noted that the situation was made worse by the country’s recent downgrade to junk status with a negative outlook, a move that will make debt more expensive. Government faces a triple whammy of declining income tax revenues; soaring debt servicing costs; and a standstill in new foreign investment at a time when economists are pencilling in an eight to 10% contraction in the economy for the full year.
Few will envy finance minister Tito Mboweni the task of reassessing the 2020 National Budget to find some of the R500 billion pledged to South Africa’s COVID19 stimulus package. “We need to be clear [that this R500 billion] will mainly be a relief intervention directed towards preventing a full-blown humanitarian disaster, rather than an economic stimulus,” warned Mouton. “And a further increase in debt of this magnitude will unfortunately have dire long term consequences for our economy and our country”.
Business leaders participating in the Fin24 panel discussion agreed that significant structural reforms were necessary. “Business for South Africa; Business Unity South Africa; and the BBC have been calling for structural reforms for a long time,” said Kingsley, before adding that reforms were easy to talk about, but difficult to implement.
Make the best from the crisis
“We cannot allow the COVID19 crisis to go to waste,” noted Zungu. “We will have to phase in difficult structural reforms across all sectors – they will affect financial services, mineral resources extraction and beneficiation, telecommunications and, of course, the labour markets”. He urged South Africans to support the President in the difficult task of restructuring for long term sustainability.
The PSG letter ended with a similar plea. “South Africans are resilient, entrepreneurial, and hard-working human beings,” concluded Mouton. “Working together with government we can overcome COVID19, we can get our economy going again, and we can lessen the impact of future hardship and the future cost of lives”.