In the midst of massive and rare occurrences that have a severe impact – ‘Black Swan’ events, – forecasts have little credibility. The key determining factor of the depth and length of the Covid-19 depression is how long the lockdown and restrictions will last. That is a big unknown.

Bill Gates, whose foundation is funding vaccine development, says nothing will be available for ‘at least’ 18 months. That gives us a very rough timeframe, but, even then, it will probably be a lot longer than 18 months.

There is, as yet, no therapy available and we do not know how long it will take for the virus to run before the infection rate drops to what might be acceptable levels. So, we could be in for a long haul as social distancing and travel restrictions remain in place, even after the lockdowns have ended. That means a world of vast uncertainty.

While economic forecasts should be given a wide berth at the moment, aspects of the direction of travel are somewhat less uncertain. The scenario planners have underscored in recent weeks that events such as the Covid-19 crisis have the effect of intensifying and accelerating existing trends.

Johann Rupert, the doyen of one of SA’s richest business families, recently told the Financial Mail that ‘this isn’t just a pause – it’s an entire reset of our economic system’.  

It is not only economies that will be reset, but politics and much else.

With the reset, South Africa, like many other countries, will be poorer. Poverty will be greater and the middle class will be squeezed by the heavy destruction in the value of their assets, the erosion of their pensions, and likely higher taxes. The level of government debt around the world will have risen to levels unimagined a short time ago, with negative consequences for future generations.  Central banks have injected historically unmatched liquidity into economies after over a decade of quantitative easing. At some stage this will translate into high inflation.

In this new environment, South Africa will have to fight for its economic survival more than ever.

The reset will involve taking vast swathes of the economy online. More education, medicine, retail, and work in general will be online. That has to mean fewer jobs.

The reset world will be less globalist, more populist, and one with fewer civil and economic liberties. States around the world have grabbed greater surveillance powers over the population under the guise of the public good of health. This will be maintained and extended. But states that have grabbed much power may also feel the wrath of their citizens at the ballot box or on the streets.

More immediately, there is as yet no convincing indication of the shape and nature of the recovery. After this unprecedented break, a switch cannot be turned on to restart the economy.

Governments have to come up with longer-term plans for the reset in a highly uncertain environment.

President Cyril Ramaphosa has made mammoth spending commitments and we do not know yet of plans for a New Social Compact between big business, the unions, and government that will bring about ‘structural reform’ and ‘radical economic transformation’.  

As these two concepts might be viewed as diametrically opposed to each other, it is difficult to see real commitment to any deep growth-generating reforms. Government has now rejected the idea of a liquidation of SAA and is working towards the resurrection of a ‘national asset’. That could mean continued wasteful spending on bailouts, and raises the question: what reforms?

Government’s options are fast narrowing. The longer the phase-down in restrictions, the lower the growth, the larger the deficit, and the higher the funding requirement. Last week, Finance Minister Tito Mboweni said he had lined up $1bn from the New Development Bank (the BRICS Bank), $50m from the World Bank and $4.2bn from the International Monetary Fund. But will that be enough?

Even with these loans, the government will be forced to borrow for shorter periods, raising the risk of debt distress, and with that a larger financial crisis. And it may well have to extend its top-ups of grants and thus help raise further pressures.

The reform option would open the way to the really big money. In total, South Africa could borrow $19.6 bn from the IMF, with conditions such as making the minimum wage more flexible, selling off and liquidating state-owned enterprises, and lowering the deficit. That would also open the path for greater growth, revenue, and market borrowing.

As Government will fall short in its funding, the chances rise that it will have to raid foreign exchange reserves and introduce a ‘solidarity tax’ on high-net worth individuals. The next step would be getting the pension funds to buy more government debt – prescribed assets.

Rather than the big growth-enhancing reforms, Government might be thinking more of greater restrictions and impositions.

Last week, Mboweni proposed restrictions on the employment of, for example, Zimbabweans and Malawians by restaurants. This will probably go down well with the electorate as a sign that the government will help people get jobs. But if the Zimbabweans are here legally, or indeed have become South African citizens, this might be an infringement of their rights.

Government is also keen to bring the informal sector into the formal economy by insisting on bank accounts and tax numbers for them to operate. That would be justice in the case of larger entities, but it could make life tricky for the very small guys.

Part of the reset will involve governments around the world readying themselves for the next health or economic shocks. To do this, they will have to run government budget surpluses to build up a buffer to future onslaughts. Governments will take a lot of blame if they are not ready for the next big shock.

As the reset goes ahead, it is governments that might be the victims of their own actions.

In South Africa and other countries there are now strong signs that people will simply not tolerate long periods of lockdown. Those who go to bed hungry are fast becoming gatvol. According to a survey conducted by the University of Johannesburg and the Human Sciences Research Council (HSRC) earlier this month, 74 percent of those questioned think the President is doing a good job.

But, among those who go to bed hungry during the lockdown, only 34% backed the lockdown unconditionally, compared to 48% for those who had not gone to bed hungry.

The president has immensely strengthened his position during the lockdown. Anti-Ramaphosa ANC factions have gone quiet and the opposition parties have supported the lockdown. In charge are the National Command Council working in consultation with big business and the unions. Power has shifted from party and parliament to the executive and big business and big labour.

But things might still go awry as dissatisfaction with tight restrictions mounts, particularly if the promised alleviation measures do not work out as planned. That might well result in deep changes and realignments in our politics. The wider impact and response to Covid-19 has yet to play out.

The views of the writer are not necessarily the views of the Daily Friend or the IRR

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Image by DarkWorkX from Pixabay

8 COMMENTS

  1. And all that because projection based on computer models that was pure guesswork based on programmed inputs designed to get a particular result. Of course followed by fear induced panic by the MSM and responded to by Panicking Officials resulting in Ill-advised Lockdowns. Wow it is idiocy is it not?

  2. Why not call it what it is, we are in the process of a “Bloodless Coup” and now live in a totalitarian one party society where:
    -Parliament is suspended
    -A military curfew goes into effect this Friday – full military deployment within our borders.
    -Xenophobic and Racial policy insisting on B-BBEE for SMME bailout
    -No freedom of movement or association, we must carry a “pass” as essential worker?
    -Power hungry securocrats in charge
    -Our unemployed medical staff superseded by imported Cuban “Doctors” at a cost of R2.5 million per man
    -Unfunded Bailout Spending only through state organs that cant deliver, and when they did were subject to serious questions in terms of corruption and procurement high-jack. What Zuma was trying to achieve with the R Trillions nuclear spending plan.
    -Land bank in default, with an expropriation without compensation policy in the wings?
    -The UN starting to notice this and comment on the draconian state interventions!
    -On social media the Karen brigade applauding it all on, with stay safe commands, we in this together?

    And all because of a virus, which has now good research substantiating that the actual infection is 10-15% of the population, making our fatality rate so infinitesimally small that the justification for this action is in question. The models used under a secrecy blanket, smacks of opportunism, doesn’t it?

    The MSM and big business in cahoots with all of this?

  3. Some big picture thoughts:

    The big winner out of all of this could also be the state and nationalism. Why? Say what you want of state responses, but it is a collective response and in time of crisis people want safety / security and find that in belonging to strong groups / shared identities. The state has been best positioned to do this during the crisis. (In South Africa there is marked difference between black and minority opinion, but that says a lot about RSA politics – really still two nations or not a nation – and more generally reinforces the point about nationalism). It is part of the reason generally why most governments have received such strong support initially. This article raises an important point about how long this can be sustained but that actually underscores social cohesion / political legitimacy (nationalism or strong communal / group bonds). The state will be legitimate as long as people find a level of legitimate security, belonging and fairness in state actions.

    John Gray is brutally perceptive as ever about liberalism absolutely shreds it with these two riffs (see link at end):

    “With all its talk of freedom and choice, liberalism was in practice the experiment of dissolving traditional sources of social cohesion and political legitimacy and replacing them with the promise of rising material living standards.”

    (btw – the interesting post-liberal argument here is that progressive and right liberalism have made people more dependent on the state by doing exactly what this riff claims)

    and

    “It is only by recognising the frailties of liberal societies that their most essential values can be preserved. Along with fairness they include individual liberty, which as well as being worthwhile in itself is a necessary check on government. But those who believe personal autonomy is the innermost human need betray an ignorance of psychology, not least their own. For practically everyone, security and belonging are as important, often more so. Liberalism was, in effect, a systematic denial of this fact.”

    (here again the point that riff 1 leads to the needs of riff 2 and actually make liberal societies more vulnerable and fragile if it cannot offer security and a sense of belonging – a point some of the national conservatives make)

    Nationalism could be the other big winner or at least a politics that move more away from the atomized, market fundamentalist and universalist liberalism of the last three decades (left and right). Already in trouble before the crisis (both riffs featuring prominently in populist politics); some will argue and many will see merits in the criticism that global markets, globalisation and cosmopolitan liberalism if not enabled, then offered little by way of dealing with the crisis and its aftermath. That what is wanted more is a liberty secured within national boundaries and with a fair bit of economic security and political belonging. Economics moving more to the left and politics more to the right.

    Although it will be interesting to see what happens in countries with very little economic security and political belonging (RSA) – where liberalism often has no legitimacy or organic answers for the hard questions (riff 2). Or in those were the corrosive effects of hyper progressive and market fundamentalism has destroyed social cohesion and political legitimacy – if it can be rediscovered and if it will be along constructive nationalism / liberal pluralism or uglier forms of nationalism or the bi-nary cultural wars and hyper partisan politics of the last decade. This is where post-liberals are themselves divided and struggle to offer a solution. Maybe again Burke and conservatives are rights about prudence as a virtue, meaning the right level / balance is what works and is sustainable. In other words not abstract and absolute liberty, but a liberty people can agree and live with in practice…

    https://www.newstatesman.com/international/2020/04/why-crisis-turning-point-history

  4. The immediate future is of Draconian laws and indefinite lockdowns.

    The ANC has what is craved for decades, ultimate power. It is embracing Venezuela, Cuba, China and every dictator it can find. It is not embracing the freedom friendly USA, it is going in the entirely opposite direction – and all according to type.

    This is the dream scenario for the ANC, a country under its thumb, dependent on the whims of ministers and regulated into oblivion. 6 people control the entire country without any accountability.

    The IRR has been consistent on the nature of the ANC, and it is here, much sooner than expected.

    We will get more regulation, more tax and more draconian laws after this. The military will stay on the streets, with their guns pointed at the citizens they are supposed to protect; and instead tell the citizens that they are servants of the president.

    We are Venezuela now. EWC will be forced through as soon as Parliament reopens as a “rebalancing of the economy” move.

    All that saving the ANC are the food parcels. If it gets those wrong, this country will burn to the ground

  5. So many wonderful and insightful arguments and thoughts . However , your article kicks off with “…not only economics that will be reset , but politics and much more ”

    This is exactly where we as the voters of this wonderful country , can make a tremendous contribution by holding our political representatives responsible . For starters this is where we should start a drive to get rid of all proportional representatives at all levels of government. PR reps have absolutely no responsibility towards the constituents , while they dance to the tune of the political pied pipers …….at the expense of the taxpayers. Their only contribution is to negatively influence decision making processes undertaken by duly elected public representatives , as a rule to the detriment of the broader public .

    Millions , if not billions , can be saved by getting rid of these non-contributors ( I can think of many better words to express myself ) to our political system. The late van Zyl Slabbert gave us a report and proposals many years ago that should be implemented asap.

    WHO CAN START THE BALL ROLLING ?

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