The world is in for the long haul in living with the Covid-19 pandemic. Vaccines, when they are approved, will face delays in manufacture and distribution, and multiple doses might be needed to establish immunity. Besides we still don’t know if the virus mutates or for how long immunity might last. There is gross uncertainty as to how long Covid-19 will pin down the world economy.

Later this week President Cyril Ramaphosa will address the nation on where we stand with the pandemic. Last week he denied rumours that there would be a return to a stricter lockdown to curb the emergence of a possible local second wave of which there is no sign yet. Travel restrictions continue to suppress the travel and hospitality industries and most businesses remain far off their turnover levels of last year. Most office workers have yet to return to work, and many schools have yet to fully reopen. Traffic, which is a real-time indicator of activity, remains far from what would be normal levels for this time of year.

Despite the likely longer-term threat of Covid-19, the world and South Africa will require the lightest of restrictions for second and subsequent waves, and the long haul. Costly economic sacrifice to curtail the spread of the virus is simply no longer possible, particularly for South Africa. It is unrealistic to think that SA can recover from its Covid-19 economic damage with a government-driven stimulus in the form of an investment and jobs programme. The path should instead be introducing reforms to make the country an attractive investment destination. 

Second lockdowns for Europe

Months after loosening their lockdowns, the United Kingdom and many other European governments have reimposed restrictions as second waves of Covid-19 have swept through their countries, with people spending more time confined indoors in the northern hemisphere autumn. For South Africa this means  fewer tourist numbers and more hurdles to recovery.

Covid-19 has put governments around the world into a bind from which they will have great difficulty extricating themselves. The public will inevitably feel that their government’s response has been either too early or too late, too long or too short, or absolutely unnecessary. And then for some it will have been either too strict, or too free and easy. For others, governments are at fault for their failure to sufficiently mitigate the economic effects of the lockdown recessions. Those who have lost their jobs must feel deeply resentful at those governments that shut down the economy.

Many governments were responding to public panic, and might well have thought that imposing lockdowns was a show of leadership which would allow them to build support. Instead, the entire episode may well have been one of government overreach to protect populations from the ultimately uncontrollable. The final judgment on the efficacy of lockdowns might be far off, given the high level of rhetorical and statistical noise. The original purpose of the lockdowns was to buy time to prepare the medical system. More than enough time should have been bought by now.

The best of intentions have now gone awry, with governments now caught in a muddle. Over the next year or so there may well be a wave of changes of government in democracies or, at least, a significant waning in support for them.

Acceleration of trends

The lockdown may accelerate a sea change in South Africa. The Level 5 lockdown in this country was one of the world’s most draconian. Millions may have lost their jobs, and the lockdown rules were initially enforced in a ham-fisted manner and may have reduced support for the African National Congress (ANC). Moreover, with a secretive National Coronavirus Command Council making key decisions there has been a lack of transparency, and with the evidence of corruption in the awarding of protective equipment contracts, a further erosion of trust. The government now lacks credibility even if it wishes at some stage to reimpose a tight lockdown. The ANC is on far looser ground than it was before.

In addition, the premise behind the lockdown was not founded on South African circumstances. The tight lockdown we endured may well not have been behind South Africa’s comparatively low mortality rate. After all, most township residents live in multi-dweller households and many use packed taxis for transport. In theory, these over-crowded conditions provide the environment for high Covid-19-related hospital admission and mortality rates. As it turned out, both of these were low by world standards.

Low mortality rate but economic devastation

The most likely explanation for South Africa’s low mortality rate is the country’s young age profile. The Economist recently cited the work of David Spiegelhalter at Cambridge University who, albeit with British data, found that the risk of death from Covid-19 rises by about 13 percent with every year of age. It is highly likely that the draconian Level 4 and 5 lockdowns were wholly inappropriate to SA’s demographic profile, but the government was intent on showing leadership and may well have panicked along with many others.

What the lockdown did achieve in South Africa was the loss of jobs, about 2.2 million out of 16.4 million jobs vanished, and many were put on partial pay. Stats SA shifted many of the unemployed into the not economically active category, which allowed a lowering of the rate of unemployment from 30.1 percent in the first quarter of the year to 23.3 percent in the second quarter. In a recent economics brief, Investec says the unemployment rate in fact rose to an estimated 40 percent in the second quarter. The government has plans to create 800 000 jobs, but these are not permanent appointments and the sources of longer-term funding remains obscure.

Another lockdown unaffordable

There is simply no chance that South Africa and most other emerging markets can afford any form of Covid-19 related measures that curb the economy into next year. The International Monetary Fund has said that as a general rule, governments should spend to keep their economies going. South Africa no longer has this option.

For this country, the magnitude of the economic cost of the lockdown is pretty clear. There will be a massive rise in joblessness, a collapse in the government tax take, a R500bn Covid-19 emergency package amounting to around 10 percent of GDP, and a contraction of the economy that the Treasury estimates will be 7.2 percent this year. As President Cyril Ramaphosa mentioned, with what appeared to be some pride in his recovery and  reconstruction plan, the R500bn is roughly comparable with that spent by advanced industrial countries like the US, as a share of GDP.

All this leaves the government with no firepower for the year ahead, closer to a fiscal crisis, and the economy a lot worse off.

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

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Jonathan Katzenellenbogen is a Johannesburg-based freelance financial journalist. His articles have appeared on DefenceWeb, Politicsweb, as well as in a number of overseas publications. Jonathan has also worked on Business Day and as a TV and radio reporter and newsreader.