COVID-19 poses a clear and present danger to SA economy

“Market trends and other economic data confirm that the coronavirus pandemic (Covid-19) now poses a clear and present danger to the South African economy. The ripple effects from the economic dislocation elsewhere and the immense volatility in financial markets have already reached South Africa.”

This is according to Prof Raymond Parsons, a well-known economist and academic from the North-West University (NWU) Business School.

“The risk of widespread contamination from Covid-19 in a country such as South Africa remains high and requires skillful risk management and anticipation if its impact is to be controlled,” he adds.

Prof Parsons says the strong message from global experience so far emphasises that countries that acted promptly have been more successful in containing the global virus, at least for now.

“At a recent NWU International TRADE and TRADE-DSM User Group Conference in Potchefstroom, Francois Fouche from Trade Advisory said that, while Covid-19 may have stabilised in China, it would still spread outside China and severe challenges will remain unless sensible preventive action is taken to control its impact.”

He says the initial steps taken so far by the South African Ministry of Health are positive. “Progress is recorded wherever authorities are proactive and transparent. However, to minimise the looming overall impact of Covid-19 on South Africa, maximum cooperation is required between the public and private sectors in the implementation of whatever appropriate health and economic measures are still likely to be needed.”

According to Prof Parsons future policy responses will have to include a cut in interest rates and to offer any other supportive measures from the SARB, arising from the Monetary Policy Committee (MPC) meeting on 19 March, and its perspective on the global and domestic economic outlook.

“However, the scope for appropriate policy responses is nonetheless generally heavily constrained by the reality that South Africa has weak economic fundamentals, limited policy space and insufficient health capacity to respond adequately to the enormous additional challenges posed by Covid-19.

“South Africa therefore needs to strategise carefully about the way ahead with regard to Covid-19. Should the virus spread widely, the country is currently not well placed economically to absorb the bad news and extra burden. This makes it all the more essential that a collaborative and coordinated effort be developed timeously to cope with it as it unfolds. Contingency plans now could hopefully avoid more drastic and costly interventions later,” he adds.

Prof Parsons says against the background of recent GDP data showing that South Africa was in a ‘technical recession’ in the second half of 2019, early assessments about the impact of Covid-19 have inevitably led to the country’s growth forecasts being further reduced, with heightened downside risks.

“On present trends growth is now likely to be only about 0,4% in 2020 (compared the recent budget projection of 0,9%), 0,8% in 2021 and 1,1% in 2022. South Africa also remains particularly exposed on the trade front given its major economic links with the Chinese economy. The South African economy will inevitably take a knock: it is only a question of how big it will be and what offsetting policies can be implemented to soften it,” he adds.

Prof Parsons suggests that a dedicated inclusive structure, for example an ‘Anti-Covid-19 Action Panel or a Covid-19 War Room’ could serve as an action-oriented location which facilitates a coordinated and coherent approach to Covid-19 in South Africa in at least five key ways:

  • promoting coordination between various government departments and institutions to ensure a necessary unified approach across the public sector to get the full implementation of whatever containment and mitigation strategies are decided upon, as well as to address the building of immunity to the disease in future.
  • encouraging private sector role players, possibly through their organised business and professional networks, to cooperate by sharing capacity and joint measures which then more fully marshall non-governmental resources, especially in the health sphere, to combat Covid-19.
  • strengthening coordination between the government and the private sector to decide on whatever targeted policy decisions are needed to assist vulnerable sectors facing disrupted supply chains or other negative financial effects which presage economic damage and job losses. Small business is particularly susceptible in this regard.
  • mobilising anti-Covid-19 strategies generally in ways that will help South Africa to successfully manage the inevitable socio-economic consequences of the latest global virus through measures which are also adapted to local conditions.
  • acting as the main point of reference for keeping the public informed about developments and actions around Covid-19, to underpin confidence and trust in addressing the crisis.

“The possible socio-economic effects of Covid-19 on this country in the months ahead must not be underestimated. South Africa needs collaborative effort and timeous offsetting policies to deal with Covid-19. The necessary health and economic capacity needs to be coordinated and consolidated. ‘Prepare for the worst and hope for the best’ should be the mantra for South Africa, given the challenge of Covid19 and its possible impact.”


Submitted by BELINDA BANTHAM on Mon, 03/16/2020 - 10:05