The economy is going to shut down. Well, some crucial sectors will operate such as food distribution, banking and the JSE. But basically it will come juddering to a halt. Power demand will plunge, so at least Eskom should be able to keep the lights burning. Things are that bad: Eskom might actually work.
President Cyril Ramaphosa knows the costs that will be inflicted on an already moribund economy, and any forecasts at the moment can only be a thumbsuck. The contraction will be massive – depression-sized seems almost certain – and the economy’s ability to get back on its feet will be put to a severe test.
But the human and economic costs of not acting decisively will be far higher.
“The action we are taking now will have lasting economic costs… But we are convinced that the cost of not acting now would be far greater,” Ramaphosa said in his televised address. In Johannesburg at least, it was a fittingly dark and stormy night.
Those who will be allowed to go about their work outside of their homes will “include those involved in the production, distribution and supply of food and basic goods, essential banking services, the maintenance of power, water and telecommunications services, laboratory services, and the provision of medical and hygiene products.
“All shops and businesses will be closed, except for pharmacies, laboratories, banks, essential financial and payment services, including the JSE, supermarkets, petrol stations and healthcare providers,” Ramaphosa said.
Underground mine operations “will be required to make arrangements for care and maintenance” – this means they will cease production but some basic things will keep running. A mine cannot be switched off with the flick of a switch. The industry will need a couple of days to close down, but it has some experience in this regard – strike notices are typically 48 hours.
The upshot is that 8% of South Africa’s GDP will be lost for a period of at least three weeks, as well as most of the manufacturing sector, which accounts for about 14%. A large part of that is food and beverage manufacturing, which should be largely exempt, so there’s that.
Ramaphosa also said that a Solidarity Fund to help the vulnerable and help with efforts to track the spread of the virus, which anyone could contribute to, was being set up.
“White Monopoly Capital” has also come on board, with the Rupert and Oppenheimer families donating R1-billion each to assist small businesses and their employees.
Regulations will also prohibit “unjustified price hikes”.
“All channels for access will remain open, including ATMs, retail point of sale devices, Post Offices and cash pay points,” Ramaphosa said. South Africa’s economy has always been liquid, and so that should help.
A proposal is also being mooted for “a special dispensation for companies that are in distress because of Covid-19”.
“Through this proposal employees will receive wage payment through the Temporary Employee Relief Scheme, which will enable companies to pay employees directly during this period and avoid retrenchment,” Ramaphosa said.
Commercial banks do not have to abide by provisions of the Competition Act to enable them to present a united front on debt relief.
“Many large companies that are currently closed have accepted their responsibility to pay workers affected. We call on larger businesses, in particular, to take care of their workers during this period,” Ramaphosa said.
Reserves in the UIF system may also be used to help workers whose companies cannot afford to pay them. Such initiatives are laudable, but whether or not the South African state has the capacity to undertake this in an efficient manner remains to be seen.
A tax subsidy of up to R500 per month for the next four months will be provided to private sector employees earning less than R6,500 per month.
More broadly, it is hard to imagine now how much money will be needed to provide relief, or where the money will come from. It’s not only South Africa that is shutting down and going broke. But for now, money will flow through the economy.
Speaking of the SA Reserve Bank, Ramaphosa said: “The Governor has assured me that the bank is ready to do ‘whatever it takes’ to ensure the financial sector operates well during this pandemic.”
“The banking system will remain open, the JSE will continue to function, the national payment system will continue to operate and the Reserve Bank and the commercial banks will ensure that banknotes and coins remain available,” he said.
But most of South Africa’s economy is going on shutdown. And there is no “Gone Fishing” sign to hang up, because no one can go fishing until mid-April. BM