Navigating South Africa’s ‘New Normal’
The Covid-19 pandemic followed by the ‘hard lockdown has blown a huge hole in South Africa’s economy’! From our already fragile position due to years of political wrangling, state capture, corruption, ESKOM load shedding and now Covid-19 lockdown, the South African economy has spiralled into a dire situation, placing the country’s future growth prospects at risk. For the layperson, it’s critically important to understand the unfolding reality and the best way to prepare for this uncertainty is not to panic, but to gain awareness which can better inform decision-making. Harvard academic, Ronald Heifetz, suggests that one should confront reality, ‘facing reality means facing up to mistakes and failures.’ It’s only when we understand our failings that we can start to make constructive plans.
There is no doubt that rising unemployment and non-trading businesses during the lockdown have dealt the South African government’s financial performance a severe blow. According to Mr Edward Kieswetter, the tax shortfall since lockdown in April 2020 has already exceeded R13bn. This does not include the loss of tax revenues from the excise tax of approx R1.5bn from lack of tobacco and alcohol sales. Since all non-essential businesses are in lockdown, thousands of workers might be retrenched as major retailers file for business rescue. The result of the fiscal damage is that the debt to GDP ratio will increase to dangerous levels.
Adding to the financial woes, global equity markets including the JSE, have lost significant value and in one fell swoop, the financial security of many elderly South Africans have been placed at risk. Pension funds have shed billions and those whose retirement is imminent may have to lock in lower income for the rest of their lives, or delay retirement. Adding to these woes is the flipside; the massive cut in interest rates, which will also provide lower incomes for those pensioners relying on interest income.
At a social level, Covid-19 once again highlighted the deep inequalities in the country as a result of the apartheid legacy and from successive failures of ANC economic policies across all public sector institutions. To mitigate the impact of the failing economy, the South African government has responded with a R500bn financial stimulus package–the biggest in South Africa’s history! This is over and above the Solidarity Fund that has already attracted over R3bn from concerned individuals.
Although the stimulus package is laudable and might bring short term relief, what should be of greater concern is the sustainability of the South African economy into the future. The country is trapped in a vicious dilemma – the economic model of the developmental state has failed dismally, resulting in a bloated wage bill and a rising number of grant beneficiaries, whilst depending increasingly on the private sector to create growth and employment. But for the private sector to invest and create jobs it requires radical structural reforms to the economy, and policy certainty—some of which do not serve the political and socio-economic aims of the ANC led government, or its stakeholders.
Managing the Covid-19 drama is all about inclusive decisive decision-making, collaboration that transcends political ideology and bold, timeous implementation. The government provides the “theatre” within which all of us act, but the actors’ don’t have the confidence to create anything new and the ‘audience’ is growing restless. Business confidence and consumer confidence levels which were already low prior to Covid-19, can only be boosted by a radical implementation of structural reforms – now! —even 6 months from now might be too late.
Important to note too is that economic battles are not won with a stimulus package, which is a short term intervention. Meaningful economic growth results from sound policies, an investor friendly environment, competent skills, a productive workforce and innovative practices. To this end, South Africans need to grasp the golden opportunities presented by Covid-19 and fix what is ‘broken’ in our institutions. Top of the list is to reign in irregular spending and corruption, and employ officials based on competence rather than racial classification.
The reality for most South Africans is that financial austerity will not be a ‘new normal’. Economic austerity was already prevalent where a large segment of society has been experiencing this for many years. What is different this time round, however, is that since Covid-19 even the employed will be facing austerity due to reduced income through salary cuts and various cost reductions. These extraordinary times have led to a re-think to how business is conducted and as ‘necessity is the mother of invention’, there will be the distinct possibility that many businesses will not need as many employees as they did before. This elevates economic austerity to a whole new raft of citizens who previously felt secure in their jobs.
Despite the pain that economic austerity will undoubtedly bring, it does not have to be all ‘doom and gloom’. Covid-19 has shaken us from our stupor and resulted in increased solidarity and social empathy. Hence we’ve seen decisive decision-making by the government, as well as unprecedented collaboration between the public and private health sectors. At community levels, there have also been outpourings of altruism and philanthropy where aid and humanitarian organisations are pouring millions of rands into feeding schemes and social relief efforts.
So what can the average salaried employees do to mitigate the Covid-19 financial fall-out? Fixing the economic challenges that constrain South Africa’s economic growth is not solely the government’s responsibility, but the responsibility of all South Africans.
For many indebted citizens, this will mean developing innovative ways to manage financial liabilities, restructure debt and change wasteful consumption habits. These should also include strong fiscal discipline (spending less than earned), using the excess to reduce debt or investing to create long term capital formation if one is employed.
One should also take heart of the fact that many successful entrepreneurial ventures were built during times of hardship. Therefore now is also the time to think entrepreneurially—use skills and contacts to earn a living or explore diverse income streams. Self-imposed and planned economic austerity will eventually pay dividends later. Afterall, each person is in charge of his or her own destiny.
As we bear the brunt of Covid-19 and lockdown, we should take comfort in the fact that humans are incredibly innovative, resilient and adaptable.
This is how we survived pandemics in the past such as the Spanish Flu in 1918, two World Wars and the recent financial meltdown in 2008. We will only thrive if we learn from our mistakes. Let us heed of the words of Alvin Toffler, who in Future Shock (1970) wrote, ‘The illiterate of the 21st Century will not be those who cannot read, or write, but those who cannot learn, unlearn and relearn’. ▲
Article written by Rudi Kimmie (PhD), Chief Executive Officer of TSIBA Business School and Viren Garach, CFP, CA (SA), Chief Executive Officer of PWM Advisors. They write in their personal capacities.