Sunday Times, South Africa, 22 March 2020 by Colin Cole​man

With about 286,400 con​firmed Covid-19 cases around the world, and 11,000 recorded deaths, the world is reel​ing from this un​prece​dented pan​demic. And brac​ing for the worst. Aside from the hu​man and so​cial di​men​sions, the eco​nomic im​pacts are dev​as​tat​ing, threat​en​ing jobs, small busi​nesses, in​deed liveli​hoods ev​ery​where, spar​ing no-one, no class, no na​tion, no group. 

Dis​cus​sions this week with my fel​low Jack​son In​sti​tute for Global Af​fairs se​nior fel​lows and fac​ulty at Yale fo​cused on how to man​age the con​ti​nu​ity of teach​ing on vir​tual plat​forms, but also on the global eco​nomic shock and its ef​fects. A vet​eran econ​o​mist shared this: “The econ​omy is not just in a re​ces​sion, it is full stop right now.” Lament​ing on how he had never seen that in his ca​reer, he said: “Mar​kets are send​ing an im​por​tant mes​sage: fo​cus needs to shift from the play​book de​vel​oped in past crises (like 2008/2009) to laser-like fo​cus on Covid19 con​tain​ment. Heal​ing process in mar​kets (first) and econ​omy (sec​ond) will only start on the con​vic​tion that a bend​ing of the in​fec​tion curve is pos​si​ble (and even​tu​ally fea​si​ble). The lack of vis​i​bil​ity on that is the main rea​son why the mar​kets re​main in free fall.” The econ​o​mist Nouriel Roubini, made fa​mous for pre​dict​ing the 2008 global fi​nan​cial cri​sis, this week tweeted that he sees “two con​di​tions for the econ​omy and mar​kets to stop free fall​ing and to start a U-shaped re​cov​ery (for​get V-shaped delu​sions): 1. Rad​i​cally con​trol pan​demic’s con​ta​gion via dra​co​nian quar​an​tine; 2. Mas​sive fis​cal stim​u​lus.” 

My for​mer col​leagues at Gold​man Sachs re​vised their full year 2020 GDP growth fore​casts this week as fol​lows: glob​ally down to 1.25%, the US to 0.4%, China to 3%,the EU to -1.7% and SA to -2.6%. This is akin to fore​cast​ing a tsunami of eco​nomic shocks with af​ter​shocks for the fi​nan​cial mar​kets. 

The Na​tional Trea​sury started 2020 pre​dict​ing 0.9% GDP growth for SA this year, so a -2.6% fore​cast by Gold​man Sachs rep​re​sents around a 3.5% neg​a​tive swing to SA’s R5.4-tril​lion GDP. If mod​elled for po​ten​tial im​pacts on lost tax rev​enue, it foretells a likely rev​enue short​fall, rel​a​tive to the Fe​bru​ary 2020 bud​get, of up to R70bn. If you add in ad​di​tional un​planned ex​pen​di​ture of an es​ti​mated R30bn on the pub​lic health sys​tem to cope with the pan​demic, the cost of the pan​demic to the bud​get will be around R100bn, im​ply​ing the 2020/2021 fis​cal deficit will widen from a bud​geted 6.8% to around 10% of GDP, ab​sent any other ad​just​ments.

This will blow SA’s chances of main​tain​ing the Moody’s in​vest​ment grade rat​ing, un​less a medium-term bud​get re​vised plan can be tabled to show a cred​i​ble growth path to restor​ing rea​son​able fis​cal ra​tios and sustainability in the com​ing three years. Yet for South Africans to get through this hu​man and eco​nomic catas​tro​phe, fis​cal aus​ter​ity is the last thing they now need to see. 

Rather, a smart fis​cal stim​u​lus, de​signed to pro​tect the most vul​ner​a​ble and in need, as is the case in most na​tions around the world, will be re​quired in SA. What, given lim​ited fis​cal space, can this look like? The SA gov​ern​ment this week an​nounced plans for a debt re​lief fund, to as​sist small busi​nesses af​fected by the pan​demic. 

This can take var​i​ous forms. To be most ef​fec​tive, such a fund should be a part​ner​ship be​tween the banks, the gov​ern​ment and, im​por​tantly, real es​tate land​lords who should each take pain to help small and medium busi​ness own​ers to pro​tect jobs. Banks should ex​tend credit and pro​vide liq​uid​ity with ap​pro​pri​ately ad​justed and re​laxed pay​ment terms, in​clud​ing pay​ment hol​i​days. The gov​ern​ment should pro​vide the last loss guar​an​tee and re​lax cap​i​tal re​quire​ments on banks, and land​lords should re​lax, lower rents and/or ex​tend grace pe​ri​ods on rental terms, for an agreed tran​si​tional pe​riod, say two years, to al​low the econ​omy to get on its feet again. For small busi​ness own​ers, they should be able to bor​row by com​mit​ting to pro​tect​ing ex​ist​ing jobs and demon​strat​ing a track record of cred​it​wor​thi​ness in nor​mal times, even if with this pan​demic they would be un​able to con​tinue with​out this ex​tra​or​di​nary fi​nan​cial as​sis​tance, such credit re​lief to be made whole when nor​mal times re​turn.

If the suc​cess of the Trou​bled As​set Re​lief Pro​gramme in the US in 2008 is any​thing to go by, it is un​likely that such a gov​ern​ment guar​an​tee would lead to losses. Rather, when the virus ends, small- and medium-sized busi​nesses, which oth​er​wise would have had to close, will emerge pro​tected from this un​prece​dented storm, able to hope​fully func​tion “nor​mally” again. Beyond fi​nan​cial sup​port to small busi​nesses, SA should also look at ways of sub​sti​tut​ing for sup​ply shocks on fac​tory goods. The gov​ern​ment will now have to act ur​gently to bat​ten down the hatches. It will have to ex​am​ine state spend​ing and get bang for its buck or cut back. Cor​rup​tion and wasted ex​pen​di​ture will need to be rooted out. Wage freezes will have to be ne​go​tiated un​til the econ​omy nor​malises. Ex​pen​sive ex​per​i​ments to save fail​ing stateowned en​ter​prises will have to end. Nice-to-have projects such as a sov​er​eign wealth fund will have to be shelved. 

The restora​tion of Eskom to health is para​mount be​cause the com​bi​na​tion of the pan​demic and power cuts is akin to a ham​mer and nail in the cof​fin of this econ​omy. South Africans will have to pull to​gether. Busi​ness own​ers will have to find ways to pro​tect their busi​nesses and keep peo​ple em​ployed and pro​duc​tion go​ing. Em​ploy​ees and unions will have to mod​er​ate their de​mands to see through the bad times. The gov​ern​ment will have to en​sure that its es​sen​tial func​tions con​tinue, and that it pro​tects the health, safety and se​cu​rity of cit​i​zens. 

Peo​ple at home will have to self-iso​late and where high-den​sity pop​u​la​tions live, ex​tra ef​fort will have to be made by lo​cal au​thor​i​ties to en​sure clean wa​ter and sani​tised con​di​tions are pro​vided to pro​tect the hy​giene and health of poor com​mu​ni​ties. A na​tional ef​fort is un​der way, in​spired by the ex​cel​lent lead​er​ship demon​strated by Pres​i​dent Cyril Ramaphosa and his cab​i​net last Sun​day, to de​feat the pan​demic. But it will be a long road, with ca​su​al​ties and pain to come. How much pain is up to us all. We will have to co-op​er​ate to starve the virus, and to kill it off as quickly as pos​si​ble. We will have to keep the econ​omy alive, and we will have to pick up the pieces when the worst is past. Un​til then, each of us will have to keep safe and look af​ter our fam​i​lies, com​mu​ni​ties and na​tion.