A development economist from the North-West University (NWU) says for South Africa to survive the current coronavirus pandemic, the current lockdown must be a success and the virus must be brought under control by the end of April.
Prof Danie Meyer, director of the TRADE research focus area at the NWU, says it is also of the utmost importance that leading countries in Asia and Europe, as well as the US, should win their battles against the virus and that a vaccine should be available in the second half of 2020.
He says South Africa must hope that the International Monetary Fund (IMF) and the World Bank will come to our aid with a massive bailout to relieve government debt. Structural changes required could include changes to the health system, less dependence on China for trade and a new economic-development strategy.
The impact of an unforeseen lockdown
“Who would have believed in February 2020 that the majority of the world’s population would be in lockdown by the end of March 2020?” he asks.
He says the pandemic is like a full-scale war – a health war similar to that waged against the Spanish flu of 1918. “The impact of this pandemic is totally different from the financial crises of 2008/2009, and it is much worse.”
Prof Meyer says that with the financial crises, world leaders could identify the economic problem and formulate plans to minimise the impact on the economy. “They could create certainty in uncertain conditions. Uncertainty is believed to be the number 1 killer of economic development and growth.”
Virus breeds uncertainty
“With this virus, there is no certainty. We do not know when the pandemic will end, or how to treat it, and we are not sure of the extent of the economic impact,” Prof Meyer says.
He explains that all components of life as we know it are affected. These range from social gatherings to sport, religion, and so on. “The economic impact is already massive, and all economic sectors are affected. Supply and demand components of the economy have been severely negatively affected, including supply chain systems. A global recession is a near certainty. Chinese GDP declined by 7 to 10% in one month, with 16% fewer exports, for example.”
He says in South Africa we were already in a recession before the pandemic forced a total lockdown of the economy on 25 March 2020. “The effects of the lockdown are immense in scale. The unemployment rate could rise from the current rate of 30% to close to 50%. In the US the situation went from full employment in February 2020 to more than 3 million applications for unemployment insurance. This number has doubled to 6 million in a week.”
Prof Meyer believes that in South Africa the recession will almost certainly be upgraded to a depression, with GDP contraction of between 5 and 10% for 2020 compared to that of 2019. “Data on the impact of Covid-19 on the South African economy is that the motor vehicle trade was down by 30% in March 2020, and exports declined by 17,5%.”
He emphasises that the government is also under massive pressure with the downgrade by Moody’s to junk investment status. Repayment of government debt has escalated as a result of the downgrade, and with less tax income from VAT and fuel levies and personal tax, he says the government will be unable to repay debt and pay their huge salary bill if the situation continues for a longer period.
“The government, with support from the private sector, has plans in place to support the poor, and is helping small businesses with tax breaks, grants, et cetera. Funding for this should equate to 5 to 10% of GDP, but the Budget does not allow for this scale of assistance as is already implemented in the US.”
Prof Meyer says South Africa is facing the following scenarios:
- Best-case scenario (pandemic is under control when lockdown ends on 16 April): On 17 April, everything returns to normal with schools and universities reopening, all workers going back and business continuing.
Most of our major trade partners are still in lockdown, although international cargo is operational. Local businesses can at least do business at local level. Business and industry can provide in local needs with “buy local” campaigns.
Both the first and second quarters will reflect negative growth, in other words, a deep recession, with unemployment rising above the 30% mark and with some businesses closing down.
- Middle-road scenario (pandemic under control only by mid-2020):
The lockdown is extended into May 2020 and society and business are opened to all only from June 2020.
Globally, the pandemic is not over, but under control. No international travel but cargo is operational. By then the recession in South Africa has extended to the third quarter.
Unemployment has risen to 40%, with many marginal businesses closing down. The government is asking for support from the IMF, and struggling to meet all its commitments.
- Worst-case scenario (pandemic under control only by end of 2020):
The virus is not under control in South Africa after a second lockdown and business returns to normal only towards the end of the year.
International travel will open up only at the beginning of 2021. The South African recession is now a full scale depression and the school and university academic years are under threat of being lost.
The government struggles to honour its debt obligations and salary payments. The IMF provides a bailout with conditions linked to structural changes, including the reduction of the government wage bill.
Unemployment by the end of 2020 is above 45%, and large numbers of businesses have closed down.
For more information, contact Prof Danie Meyer at 082 8505656 or daniel.meyer@nwu.ac.za.
Prof Danie Meyer
