Defend Truth


Covid-19 is stretching government’s economic policymaking capacity to the limit


Mandla Lionel Isaacs is head of policy for Rise Mzansi.

Confronted by the Covid-19 pandemic, our politicians are out of economic ideas. The people who presided over a decade of economic stagnation and decline are largely the same people running the country today. They have no idea how to turn things around.

I am concerned about our policymakers’ grasp of the economic impact of the Covid-19 pandemic and lockdown, as well as their ability to respond to it.

In addition to limiting the spread of infections, the focus of policymakers globally has been to limit a sharp rise in unemployment due to lockdown conditions, avert economic ripple effects and keep citizens afloat when many are unable to earn an income due to factors far beyond their control.

How is our government faring on these fronts?

President Cyril Ramaphosa has earned widespread praise for his leadership during the crisis. He has struck a good balance between persuading the public of the necessity of a lockdown and maintaining its legitimacy, and convincing us that an appropriate public health response is underway.

I am, however, worried about the quality of information from the government on the economic impact of the pandemic and policy responses to mitigate it.

Analysts in the United States worry that the pandemic could cause unemployment to rise from the historic lows of sub-4% pre-pandemic, to as high as 30% in the short term, above the psychologically important number in the US of 25% unemployment as experienced during the Great Depression of the 1920s. These are predictions in a rich, otherwise healthy economy where the government acted swiftly to pass an economic stimulus package of 11% of GDP. Ours is a low-growth economy with unemployment which has averaged 26% over the last decade, 0r 38% when you include discouraged work-seekers.

The Reserve Bank warned that the Covid-19 pandemic was likely to result in a 2-4% reduction in 2020 GDP, from its January 2020 estimate of a meagre 1.2% growth. It estimated the lockdown – when it was planned for 21 days – alone as being responsible for a 2.6% reduction in GDP, 370,000 job losses and 1,600 businesses going insolvent.

Acknowledging the fast-evolving situation and difficulty of modelling the impact of this pandemic, these numbers are almost certain to be on the low side for several reasons. First, given international experience, the lockdown was always likely to persist for longer than the originally planned 21 days and maybe even longer than the revised 35 days.

Second, economic activity does not turn on and off cleanly. The longer the lockdown persists, the more damage is done as businesses lose money and staff, and the economic damage ripples up, down and across value chains.

Finally, it does not account for the damage that will continue even after the lockdown ends. Consumers and businesses who suffered losses during the lockdown will not immediately spend and invest. With a vaccine an unknown number of months away and the dangerous winter months imminent, high-contact and proximity-based industries such as restaurants, tourism, conferencing, hospitality and others will be affected for many months to come.

Therefore, we could be looking at millions of jobs lost and the economy shrinking by more than 4%.

With this context, it does not inspire confidence to read about political squabbling over going to the International Monetary Fund (IMF), or in the Sunday Times that government is “putting together an emergency plan to kick-start the economy after lockdown”. Why is government scrambling to cobble together a response when much of this has been predictable for several months?

One possible explanation, based on my experience in government, is that officials in national Treasury have done some rigorous scenario planning, but politicians in Cabinet have been unwilling or unable to grapple with the implications, including politically contentious but necessary decisions (like accessing emergency funds from the IMF and the need for swift, bold, imaginative action (like crafting and funding a major stimulus programme).

I’m also underwhelmed by politicians giving a third of their salaries to the Solidarity Fund.

I am looking for a strategic intervention to try to prevent or substantially mitigate major job losses and a sharp reduction in GDP, in addition to pre-pandemic plans. Something to the tune of the 3.5-11% of GDP, or R190-billion to R600-billion in fiscal measures by the government, enacted by the top five countries in the G20. By contrast, the Cabinet salary cut will bring in approximately R50-million a month. The salary cut is good PR, not effective policy.

After the 2020 State of the Nation Address, I questioned government’s level of ambition, as the scale of public investments announced did not match the levels called for in the National Development Plan (NDP).

On further reflection, I believe this is due to a few factors. First, our politicians are out of ideas. The people who presided over a decade of economic stagnation and decline are largely the same people running the country today. They have no idea how to turn things around.

Second, National Treasury is conservative by nature – as the custodian of a nation’s finances probably should be – and is sceptical of the rest of government’s capacity to efficiently spend additional resources due to corruption and a lack of capacity, and is thus institutionally disinclined to encourage bold economic stimulus.

Finally, there is a widespread belief, including in the presidency, that if the government provides good leadership and puts the right set of conditions in place, business will open its chequebook and therefore the government doesn’t need to.

This is in part why our level of economic ambition remains low, as evidenced by economic stimulus measures which total less than 1% of GDP. Tellingly, the bulk of this came from the last bit of unencumbered money government had on hand, the R40-billion from the Unemployment Insurance Fund (UIF) as the centrepiece of support measures to sustain citizens during the lockdown. This is part of over R160-billion in surplus money which has piled up in the UIF for years and which government could not agree what to do with. Tapping into it now was an easy decision.

The UIF money, however, will only benefit workers in the formal sector who lose their jobs. There are many millions of informal workers, unemployed and even self-employed citizens who won’t get this direct cash support.

This is a time for the government to get cash into the hands of a wide range of citizens, including the most vulnerable. The proposal by a group of leading economists to temporarily increase social grants is an obvious solution, which government would be wise to implement, as well as a helicopter drop to a wide range of households.

While the banks have agreed with each other to implement payment holidays for small businesses and students, this is far short of the UK where banks – prodded by the regulator – are implementing three-month payment holidays for all manner of consumer debt including vehicle loans, credit cards and personal loans.

The initial economic responses to the Covid-19 crisis reflect government’s pre-pandemic policy stance. Our politicians clearly do not fully appreciate the hardships faced by ordinary citizens and offer limited, piecemeal solutions rather than bold, ambitious ones. Just as our policymakers have seemed to let a decade of economic stagnation and decline happen to us, with policy measures always too little and too late, I fear that the economic damage associated with this pandemic will find them wanting again.

Strap in, we’re in for a bumpy ride. DM


"Information pertaining to Covid-19, vaccines, how to control the spread of the virus and potential treatments is ever-changing. Under the South African Disaster Management Act Regulation 11(5)(c) it is prohibited to publish information through any medium with the intention to deceive people on government measures to address COVID-19. We are therefore disabling the comment section on this article in order to protect both the commenting member and ourselves from potential liability. Should you have additional information that you think we should know, please email [email protected]"

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