If you’re looking for signs that SA’s post-coronavirus economy will be somehow much improved, the disturbing signs from the government’s handling of this crisis won’t help.
Take last week’s downgrade of SA’s sovereign rating to BB-by S&P Global Ratings, condemning SA further into junk status. It came just as SA announced a package of R800bn to mitigate the impact of the virus, and position those industries that are labour-intensive and export-orientated for the recovery.
But the National Treasury’s spin on this downgrade was that its fiscal and monetary policy stance, together with structural economic reforms, had actually bolstered SA’s economic outlook, as S&P had moved its outlook on SA from "negative" to "stable".
If only that were true.
The ratings agencies have, for the past few years, practically begged the government to focus on the poor by implementing policies that create jobs and lessen poverty and inequality. Only now, fearing destitution and hunger among SA citizens, are government and business speaking the same language, while extending an olive branch to broader society across race, culture, religion and class lines.
It’s an approach that we haven’t seen since, perhaps, 1994. Years of economic mismanagement by the governing ANC, and the decision by businesses to retreat into their boardrooms, have often built up barriers.
Covid-19 has, at least, brought South Africans together, even if we’re witnessing the essence of capitalism’s "creative destruction" — the term used by economist Joseph Schumpeter in 1942 to describe how businesses mutate to adapt to a changing world.
Certainly, it’s a pandemic that is destroying firms, jobs and the old ways of doing work. The irony is that much of this destruction has been caused by bone-headed government policy, rather than the inherent forces of capitalism.
Take the diktat by small business development minister Khumbudzo Ntshavheni, in which she said spaza shops had to be registered with both the SA Revenue Service and local government to qualify for funding. This is destroying spaza shops.
As if to outshine his colleague, the decision by trade & industry minister Ebrahim Patel to restrict e-commerce is destroying the odds of innovation and the migration to a digital economy.
Then, to crown it all, we have the destruction inherent in the government’s decision to prioritise black-owned companies for emergency funding in the face of a pandemic that affects all businesses equally.
Jobs are the biggest casualty. Many have argued that SA’s labour markets are rigid. But the willingness by workers to accept between 25% and 50% wage cuts is unheard of in this country — though so, too, is the speed at which companies have shed staff.
Compared with the inflexible government regulation, SA’s labour market has proved itself flexible and agile during this crisis.
One of the scariest indications of what SA’s post-Covid economy might look like comes from the way in which the secretive national command council, in charge of managing the virus, operates.
Essentially, this council — which includes just 19 of 28 cabinet ministers — accounts to itself, and passes regulation without the participation of parliamentary committees or outside experts.
If that’s any indication of the future, we can expect an economy where power is increasingly centralised in a few hands, and those involved make increasingly inscrutable decisions.
What makes that picture look more grim is the country’s debt prospects.
To finance its response to Covid-19, SA is borrowing large sums externally: $1bn from the New Development Bank (the Brics Bank) and $4.2bn from the International Monetary Fund and the World Bank.
SA, already out of the world government bond index because of its junk status, must rely increasingly on multilateral institutions for funding. More and more, its foreign exchange reserves will be called on to service debt.
Last week, finance minister Tito Mboweni warned that overall government debt could breach 80% of GDP, which, he said, "we are very concerned about". As he should be, considering tax revenues could drop by 32% in the coming year.
The fact is, SA is digging a debt hole for itself, and it may end up with no way out.
As part of the emergency measures, the Treasury rolled out a basic income grant of R350 a month, at a cost of R100bn. But with unemployment and poverty set to widen, expect this to become a universal grant.
To fund this, SA is likely to be leant on to borrow more — like its neighbour Zimbabwe, and South American countries Venezuela and Argentina.
Once that happens, the prospect of SA defaulting on its external debt — something once thought unimaginable because of our "exceptionalism" — can’t be ruled out. And that may come while it is being squeezed by poverty, unemployment and inequality.
- Mondi is senior lecturer at the School of Economics and Business Science at Wits
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