Economy and employment: Where to now SA? Part I

8 April 2020 by Mamokgethi Molopyane

The pandemic means things will never be the same again. There is no normal to return to.

If 2020 so far could be described in one word, that word would be carnage.

The Covid-19 pandemic has claimed lives and caused devastation in stock markets, economies, production and consumption, and it continues to do so globally.

For South Africa, with an economy that was already on a downward spiral characterised by increasing retrenchments, a poor absorption and participation rate of young workers, struggling businesses and rising government debt – besides the bonds collapse, the likes of which has not been seen in 20 years – the national lockdown couldn’t have happened at worse time.

If the United States, an economic power, was already seeing a record 6.6 million applications for unemployment benefits in the last week of March, despite a labour market that has been creating jobs and is for all intents and purposes flourishing, can you imagine the supplanting effects on South Africa’s labour market, which has an unemployment rate of 29%?

You get the point.

Put another way, as the lockdown continues, everything that could have gone wrong did go wrong.

In a fortnight, SA was reduced to junk status from downgrades by rating agency Moody’s, which spurred the rand’s free-fall.

A few days later, both agencies downgraded South Africa’s top four banks and the domestic currency and markets continue to be bear the brunt.

Furthermore, as Covid-19 persists, its tentacle-like reach is everywhere. This is forcing many countries to impose lockdowns, quarantines and to limit economic activity – simultaneously causing the global economy to halt all at once.

This time we are all affected

For once, the loss of income is not and will not be limited to workers alone; companies are going to suffer too. In some instance both the employer and employee are going to be unable to service their debts and will have to declare bankruptcy.

But hold on, it doesn’t end there.

No one really knows how long the current wave of Covid-19 will last. This has prompted the World Health Organisation to caution that:

“If countries rush to lift restrictions too quickly, the virus could resurge and the economic impact could be even more severe and prolonged.”

As such, countries must continue to test and trace, and ramp up measures to reduce the spread of the pandemic and fund public healthcare. Failure to do this will result in an inability to control the spread of the virus and will have far worse implications for society.

SOEs were already teetering …

Sadly, the lockdown affects activities in industries where ailing state-owned entities operate – in particular those already facing rising debt, inefficiencies, poor governance, bloated staff complements and dependence on state support. For example, South African Airways (SAA) cannot generate much-needed revenue because many flights across the world have been grounded.

Undoubtedly, it will not be business as usual for SAA when economic activities resume. This supports the earlier case I made for the need to relook and rid South Africa of some these entities.

On the business front, the lockdown has knocked small to medium-sized companies that were already affected by needless regulation and bottlenecks that hampered their growth, curbed their ability to hire and fire, and imposed high-wages requirements on them – all of which serve to discourage job creation. For primary sectors that were already struggling, such as mining, the lockdown means limited operating capacity or total shutdown.

Consequences unknown

The above-mentioned considered, we cannot anticipate never mind comprehend the consequences of the pandemic and the ensuing lockdown. For a country like ours that is afflicted with unemployment, has been junked, and was in recession before this apocalyptic scene, this will be unlike any challenge we’ve faced since democracy.

But it’s not all doom and gloom.

In the current disaster, South Africa has seen some brilliant responses from its political leadership: President Cyril Ramaphosa’s economic assistance measures, Health Minister Zweli Mkhize’s informed and decisive action, and pragmatic consideration from business in the willingness of some banks to give people a payment break.

Of course, there will be mistakes (such as the enforcement mechanisms of the police and the military) and shortcomings, because none of us, including our politicians, have dealt with a pandemic as disruptive as this.

The government has been good at coordinating action by responding quickly and effectively. However, it will take much more to rebuild the economy, because there is no returning to the status quo.

Where to now South Africa? What needs to happen?

I offer suggestions in Part II.

Source: Moneyweb at