Extension tension – Can President Ramaphosa afford to tighten lockdown rules? – News24

Extension tension – Can President Ramaphosa afford to tighten lockdown rules? – News24
  • South Africa’s Covid-19 cases have officially breached the 200 000 mark.
  • While the Western Cape province, especially the City of Cape Town, has carried the heaviest load in terms of cases in the pandemic, Gauteng province is rapidly becoming the next epicenter for infections.
  • The two richest provinces in the country have had the most cases and, as such, restrictions are unlikely to be without economic consequences. 
  • South Africa’s economy might only recover to 2019 levels in 2025.

With South Africa’s Covid-19 cases having officially breached the 200 000 mark, everyone’s eyes are on what President Cyril Ramaphosa’s administration will do to get a grip on the health crisis and how it will feed into an economy in its deepest winter since the 1920s.

While the Western Cape province, especially the City of Cape Town, has carried the heaviest load in terms of cases in the pandemic, Gauteng is rapidly becoming the next epicenter for infections.

The economic hub of the country, which is also the most densely populated province, recently recorded the most Covid-19 related deaths for three consecutive days. As the two richest provinces in the country have had the most cases and, as such, restrictions are unlikely to be without economic consequences.

With infections accelerating particularly in the Western Cape and Gauteng, there is a risk in reverting to harsher lockdown restrictions, Investec chief economist Annabel Bishop said.

“In order to better cope with the disease government could increase lockdown restrictions this month, which will have a second wave of negative effects on the economy.”

The SA economy contracted by 2% in the first quarter of the year that only included a couple of weeks of the national lockdown that began in the middle of March. The Reserve Bank expects second-quarter figures to reflect a 32.6% contraction, accounting for full-blown lockdown in which economic activity was brought to a halt under level five restrictions.

Consumer confidence levels are already at lows last seen during the apartheid era, with individuals less optimistic about the economic outlook and fears that their household income will take strain.

They’re also holding back on purchasing big-ticket items such as vehicles or furniture due to uncertainty about the future, according to the latest reading of the FNB/BER Consumer Confidence Index.

Investec projects the SA economy to contract by -10.1% this year, taking into account the tightening of lockdown restrictions, deteriorating business confidence and slowing recovery, said Bishop.

“Some second waves or clusters of infections are now seeing lockdown restrictions paused or heightened around the world,” she said.

SA’s economy might only recover to 2019 levels in 2025. A reinstitution of Lockdown 5 or 4, would slow the pace of economic recovery, Bishop explained. Unemployment could skyrocket to 40%.

The Swedish effect

Efficient Group economist Francois Stofberg said South Africa was confronted with a complex challenge when it came to how to handle the next stage of the lockdown. Sweden was a country that did not restrict business activity but still wound up with many deaths and a suffering economy.

“Government wants to decide about extending. Initially we thought it wouldn’t be a good idea. First it was about saving lives. But recent data from Sweden is showing that they kept their economy open and didn’t want to impose harsh restriction because they wanted to preserve livelihoods and they wanted, but it didn’t work out that way,” Stofberg.

Stofberg said Sweden’s economy is still likely to contract as much as other economies in its region despite not locking down and their death toll is higher than neighbouring countries that locked down.

“Because Sweden depends on trade with the rest of the region and the rest of the world, it doesn’t help if the neighbouring economies are closed. Whether a hard lockdown is a good idea or not depends on the preparedness of the health system and the availability of equipment and beds,” Stofberg said.

Stofberg said the South African health system is under serious pressure and opening up the economy to lower lockdown levels has sped up the rate of infection. He said while it was unlikely that we will go back to level 5 lockdown, reverting to “upper level 4” would make sense.

Stofberg said businesses are likely to be asked to work from home and others will return to limits to movement and travel conditions. Rural schools can continue under less strict lockdown conditions because learning from home is not possible in such a context, but there is also a lower risk of infection than in urban areas.

Dealing with the cost

University of Western Cape professor Matthew Ocran believes SA would be “lucky” to have the economy only contract by 10%, this with the EU, which has far better performing economies than SA, projecting a contraction of 8.7%.

Ocran said that reverting to harsher lockdown restrictions would lead to “unbearable” economic costs.

“We are still dealing with the cost of the last hard lockdown,” he said. The effect on vulnerable groups has been particularly “devastating”, he said.

Ocran said it would not be beneficial to institute harsher restrictions in some parts of the country with higher infection rates either, seeing as these local economies are interlinked.

He used the example of how Sweden did not institute a lockdown but had still suffered economically with other Nordic countries such Finland and Norway instituting lockdowns respectively.

“Economies are linked together,” Ocran said. Even if South Africa tries to flatten the curve, keeping infections low, it still forms part of the global economy to which its fate lies.

“If it is difficult elsewhere in the world, we will suffer with them. We do business with these countries,” he said.

What we prepared for

Tutwa Consulting senior associate Azwimpheleli Langalanga said as the economy was already on its knees, the rise in cases was not a good enough reason to continue hurting the economy.

Langalanga said the lockdown was never intended to stop infections, but to control the rate of the spread while the public health system prepares for the infections.

“That will be quite devastating to the economy. Remember the idea of the lockdown was to prepare for the peak. It would be remiss of the government to then extend the lockdown on the basis of a peak that they have already been preparing for,” said Langalanga. 

Langalanga said while Gauteng Premier David Makhura believed that Gauteng, as a Covid-19 epicentre, should have restrictions imposed on it to save vulnerable South Africans, he agreed with Social Development Minister Lindiwe Zulu, who said economic activity pays for government’s Covid-19 interventions.

“I think what should be commented on is that while Makhura is talking about reversing the lockdown and going to level 4 or 5 in Gauteng because of a spike in infections would devastate the economy, I think we really need to restate the reasons for the lockdown from the beginning,” Langalanga  said.

Auto-distancing

Alexander Forbes chief economist Isaiah Mhlanga thinks it will be difficult for government to go back to a hard lockdown. “It would hurt the economy further, it would be to the detriment to the fiscus and livelihoods of people,” he said.

Mhlanga noted that hospitals are already full, and infection cannot necessarily be controlled by a lockdown. Right now it’s up to society to put in place precautionary measures themselves, he said. “I do not think any amount of lockdown could prevent a further spread,” he said.

If SA’s growth disappoints further, it would be felt on public finances. The lack of sufficient tax revenue generated due to poor growth would lead to government having to borrow more, Mhlanga noted.

Cutting back on expenditure would not be possible as government has already had to make adjustments to this year’s budget to reprioritise funding towards spending on frontline workers responding to Covid-19.

Mhlanga said he is concerned about infections flaring up in Beijing, China – the Chinese economy would have a big effect in driving sentiment in emerging markets. “If we see a second wave coming out of China, we are likely to see markets correct again, particularly in emerging markets after we have seen a return of risk appetite to our capital markets,” Mhlanga said.

Business Leadership South Africa CEO Busisiwe Mavuso said the rate of infections in Gauteng were spiralling out of control and if there are talks of returning to level 4 and then I guess Gauteng would almost certainly be impacted.

“It has implications. But I think, as the business community, we have been clear that the lives of our people must be put first and foremost. The most disadvantaged must be protected ahead of any economic consideration,” said Mavuso.

Mavuso implored that government conduct consultation with all stakeholders on its plans, “so we can avert some of the push-back that we have seen previously from society”.

Mavuso said with the lockdown levels being less strict than before, rationality and common sense and auto-regulation will kick in and people will be more discerning, even if government gives them more freedom to move around.

“When we introduced these regulations, we were clear that we were not trying to play God. We were preparing ourselves for the high infection rate. Whatever we needed to put in place has been given time and space. But we knew the infections and deaths were going happen,” Mavuso said.

Congress of South African Trade Unions parliament liaison officer Matthew Parks said the labour federation was still in the process of consulting member unions about the prospects of a possible extension to the lockdown.

Business For South Africa’s Martin Kingston noted that it is possible to see harsher lockdown restrictions instituted given rising infections. However, B4SA has concerns that another lockdown won’t be effective in addressing the infections which have already occurred.

“It will have a highly disruptive impact on economic activity, which is critical to alleviate hardship in our communities and generate income for as many South Africans as possible,” said Kingston.

Kingston said if government considers it absolutely necessary it would be better to implement selective adjustments to the current, enhanced level 3 of lockdown in areas with high infection, as opposed to reverting back to level 4 and level 5.

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