Will a generation be doomed by misguided efforts to protect the vulnerable? Or will we escape this surreal nightmare by dispatching delusions? Our politics have always blocked what today’s crisis must provide: policies to spur sustained high growth.
A lockdown buys time; it doesn’t directly save lives. Yet South Africa’s capacity to buy time is meagre. The jolt from recognising the virus’s seriousness must now give way to solutions, informed by objective assessments, overcoming harmful political instincts. Our elected leaders must pivot their coronavirus response from seeing government as the ultimate solution provider toward inspiring community capabilities.
Experts caution that a vaccine is at least a year away. While lockdowns can’t buy us that much time, coordinated determination can constrain the virus while unleashing otherwise imperilled economic potential. An initial lockdown was needed to purge complacency whereas expanding South Africa’s poverty pandemic is inconsistent with improving health outcomes.
As the most prevalent pre-existing condition threatening our population is youth unemployment, older people with impaired virus immunity must be protected through effective quarantining. This requires nimble responses by families and communities buttressed by government’s less agile efforts.
Families and communities will share what works and what doesn’t. Quarantining should be maintained – and steadily enhanced – for months while the health system is being reinforced. Meanwhile, younger people, without pre-existing conditions, must kick-start a restructured economy.
IF THE CRISIS DOESN’T PROVOKE POLICY PIVOTS, A BLEAK POST-COVID FUTURE AWAITS
If the crisis doesn’t provoke policy pivots, a bleak post-Covid future awaits. Many businesses will be shuttered or trimmed, yet we mustn’t presume government has answers or adequate resources. Rather its role in the economy must soon decline.
The many countries that pummelled poverty in recent decades focused on expanding their value-added exports to affluent consumer markets while encouraging high household savings. Conversely, the ANC’s ideologues and opportunists support policies leading to a majority of South Africans being dependent on government. Prior to the past five years of stagnant per capita income, the growth-choking effects of such policies were postponed by households funding purchases with expensive debt.
As South Africa’s consumers were already hobbled by over-indebtedness amid prolonged stagnation before the outbreak, government reducing regulations and committing to surging value-added exports is more crucial than access to capital. Global investors are burdened with an excess of capital chasing a dearth of sound investments.
South Africa can’t cover its cost of capital, as our economy lacks access to sufficient purchasing power. This traces to the isolationist effects of its prioritising redistribution and dependence on government ahead of competitiveness and growth.
FURTHER POLICY MISSTEPS COULD TRIGGER HIGH-VOLUME SOCIAL UNREST
Further policy missteps could trigger high-volume social unrest while the derailment of many wages, rents, and housing bond payments risks liquidity clogging. Unsustainable reliance by government and households on excessively expensive debt must be addressed through large-scale debt restructuring. Putting this off becomes increasingly costly.
Global integration isn’t going away, as it has replaced industrialisation as the world’s primary growth driver. However, consumer appetites, along with supply-chain concentrations, will be substantially altered. This must serve as South Africa’s opportunity to have legions of entrepreneurs ferret out multitudes of entry points within global supply chains.
Before the Covid-19 outbreak, our government had no growth plan amid mounting deficits which were to be trimmed by cutting the civil service wage bill. Yet it had become clear that the unions had no intention of cooperating, as they know the president needs their political support.
Having civil service workers take substantial pay cuts would be more manageable if they didn’t tend to be highly indebted while supporting various family members. Abruptly disrupting such payment flows may be necessary but there would be risks mixed with predictable repercussions.
Before the crisis, economic growth was expected to barely exceed population growth and the budget deficit seemed unlikely to dip below six percent. What numbers are realistic now? What is the implied average yield of SA’s ten-year debt over the next decade? What is the coming decade’s average growth likely to be?
The point being, unless economic policies and practices are reconstructed to promote an export surge, it will soon become clear that the debt load is unserviceable. Policy inversions were necessary before the crisis. The costs to households and investors are now compounding.
Cutting government spending amid a severe economic crisis, in a country with massive unemployment and poverty, is risky economically, politically, and socially. Reducing the civil service wage bill would need to be accompanied by significant restructuring of those workers’ consumer loans. Lenders and policymakers can collaborate to reduce some risks and costs. The country’s consumer debt burden is just too heavy a load for the economy to carry.
The least painful way forward is to surge value-added exports. All the stops (and there are a lot of stops) must be pulled out to accomplish this. It makes zero sense to have BEE requirements that discourage foreign companies from investing in South Africa and from hiring local workers to manufacture products for export. Indeed, it makes no sense to have BEE requirements that discourage any new export initiatives.
Policy reversals and restructuring of consumer debts can unlock a sustainable four percent growth trajectory. This would provoke a sharp price appreciation in the country’s long-term debt; however, to stabilise South Africa’s finances, a substantial “haircut” should be part of a sovereign debt restructuring.
Our government lacks the institutional capacity to nimbly manage public health-induced commercial restrictions while positioning the economy to benefit from the global opportunities which are developing. The government must intervene less in daily commerce and rather focus on remedying financial dislocations and health-care challenges.
If a lost decade isn’t to be followed by a lost generation, we must trust in younger family members and neighbours to protect those who are older and more vulnerable. SAA’s last flight must symbolise government standing back as our entrepreneurs spread their wings.