GDP shrinkage of 12%: It’s not the virus, but the lock-down, stupid!

Johannes Wessels (@johannesEOSA1) & Mike Schüssler (@mikeschussler)

At the end of the initial 3 weeks lock-down a GDP decline of about 5% was considered as quite a catastrophic outcome. Even at that level, it was considered worth the price since delaying the spread of the Covid 19 virus would give a window of opportunity for the health sector to get beds, ventilators and care protocols in place for the spike that would inevitably come.

The minister of trade and industry (dti), Ebrahim Patel, however dismissed the negative projections of economic shrinkage as mere “thumb-sucking”.

After prolonging the hard lock-down with just a gradual easing to level 4 to end May, the growing queues of the hungry waiting for food parcels, the increase in the claims from the unemployment insurance fund and the drastic shrinking of the state’s purse, would make a 5% decline in GDP a dream outcome.

The GDP figures for Q1 2020 will only be known end June. Data from other countries indicate that those whose governments had opted for a hard lock-down are in for excessive economic damage.

Change in GDP trend is the difference between growth in 2019 and 2020 1st quarters, implying that the Philippines that experienced a change of -6% went from 5.9% GDP growth in Q1 2019 to -0.1% in Q1 2020. This chart reveals the following:

  • Countries with a hard lock-down that kept only essential services and providers open, saw an average decline of 5,2% in GDP trend.
Continue reading “GDP shrinkage of 12%: It’s not the virus, but the lock-down, stupid!”

Will Cyril be remembered as Nongquase II ? The modern day killing of cattle…

Johannes Wessels
@johannesEOSA1

Just just now (and not “long, long ago!”) there was a man who ordered his people to shut their doors and refrain from going to their places of work. His name: Cyril Matemela Ramaphosa. He told the people of South Africa that there was a way to ensure that the reputedly voracious beast called corona virus would not create havoc in the land.

The Keiskamma Tapestry, Cattle-killing Panel, Detail 3. Copyright Robert Hofmeyr

All his people had to do was to follow the advice of Nongquase as recorded in writing by William Wellington Gqoba who, as teenager, had lived through the infamous cattle killings and the resulting famine amongst the Xhosa:

Shut yourselves in your huts… In order to survive, you are to use many doors to close each hut, fasten every door tightly, and abstain from witchcraft.”

William W Gqoba: The Cause of the Cattle Killing

Substitute the words “abstain from witchcraft” with the phrase “abstain from going out to work and buy only what we allow you to buy”, and one has the contemporary equivalent of a decision that had decimated the livelihoods of tens of thousands of the Xhosa in the mid 19th C with a spiralling death peak caused by the resulting famine.

This is how it is happening in real time now. Cyril called together the many-too-many chiefs that form his cabinet. They talked and they talked and they talked. And they consulted with themselves and they consulted among themselves and they consulted again for themselves.

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Locked-in on Freedom Day: Proposals for Level 4

Johannes Wessels
@johannesEOSA1

Point of departure

The following is EOSA’s position concerning the lockdown as a measure to combat the spread of the Covid 19 virus:

  • It is false to be locked into the binary notion that it is either about saving lives or about growing the economy. That dichotomy is based on the incorrect assumptions that:
  • economic decline will not have any impact on the well-being of people and that there will be no threat to the wellbeing and livelihoods of people in a contracting and stagnant economy, or
  • a society that is ravaged by a virus that causes overnight the deaths of thousands of entrepreneurs, employers, employees and customers will not have a negative impact on the economy.  
  • EOSA is committed to the guaranteed constitutional right to freedom of movement and choice. The lock-down regulations that nullify these rights are dangerous to more than the lives and dignity of people (think about the abuses by members of the police and the defence force) and the livelihoods of people (the damage to the economy, businesses and the government’s budget deficit). The regulations are in fact dangerous for the well-being of our democracy.
  • A balance should therefore be sought: regulations should promote and protect both lives and livelihoods and all these should be tested against the constitutional guarantees.
  • As and when the constitutional freedoms are impacted upon by regulations (as is currently the case) full disclosure is required so that the premises on which the measures to combat the perceived threat can be evaluated and tested in the court of public opinion.  In addition, parliament and its committees should be seen to be able to exercise oversight on all administrative actions based on decrees issued under the state of disaster.

During full lock-down, the government had not – based on information in the public domain – paid sufficient consideration for the implications of the regulations on the economic well-being of society.  

Proposals for Level 4 (Public sector)

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Enterprises, unlike bears, don’t hibernate: lockdown will cause the death of firms and people

Johannes Wessels
@johannesEOSA1

Government’s decision for a stringent lockdown has put at least 100,000 formal enterprises – incorporated and sole proprietorships – on death row by effectively freezing the economy. Unlike bears, firms do not hibernate well: without customers and clients buying their goods and services, they starve and die.

Business relief measures by the government and the funds established by the Ruperts, Oppenheimers, Motsepes and others may enable some enterprises to pull through. But a substantial percentage of formal SMEs will not. Not with an economy that is likely to retract by between 6 and 10%.

Enterprises are already in a predicament and have run up more losses than profits since 2014. SARS data shows that the assessed losses exceed the assessed taxable income for the period 2014 to 2018 by R830 billion (Figure 1).

An economy already damaged by anti-growth policies has now been dealt a vicious blow. The damage is systemic and a systemic approach is required to restore a healthy business environment.

Figure 1: The pre-Covid 19 situation of SA firms was dire

The economy doesn’t resemble Eskom’s electricity supply. Load-shedding means no electricity during the power lockdown, but when the switch is thrown on again with the transmission lines conveying electrical current, the lights burn, the fridges cool, the stoves cook and TVs entertain just like before. 

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Lockdown? Or is it perhaps meltdown?

Johannes Wessels
@johannesEOSA1

Halfway into a five-week lockdown it is appropriate to compile a kind of “balance sheet”. When the lockdown was announced, Pres Ramaphosa made it clear that protecting lives against Covid 19 was paramount: a position he reiterated when prolonging the lockdown.

For the ANC Government, all other considerations weigh less and may be sacrificed. Mutating from a supreme commander in military camouflage uniform rallying his troops to “kill the virus” to a pope like appearance during Easter sympathizing with the population for carrying the heavy cross, almost like Simon of Cyrene, Ramaphosa has been lauded all around as “bold” and “presidential”. The few voices that since the beginning have argued that severe restrictions that limit fundamental freedoms would fuel poverty and unemployment, were brushed aside as being both inhumane and wrong.

To date it is uncertain whether the lockdown, the wide application of Bacillus Calmette–Guérin vaccine in SA or any ther factor has contributed to the (still) low infection rate in South Africa. What is dead certain is that the economy (already in a critical condition prior to the appearance of Covid 19) has been rushed into ICU to a position close to the door where the dead are wheeled out to the morgue.

Read EOSA’s proposals on how Government can assist SMEs by cutting CIT and exempting those with a turnover below R2.5 million from VAT.

Government has, as yet, to indicate its estimates of the economic impact of the lockdown measures, e.g.:

  • the decline in VAT receipts;
  • the decline in CIT (and for sole proprietors, the decline in personal income tax);
  • the additional costs of demands on the UIF;
  • the additional costs of deploying the military and the police at the current levels;
  • the cost of measures to support the informal traders, small enterprises and other assistance measures to support businesses;
  • the support measures to assist businesses in the hospitality industry;
  • how these would impact on the budget deficit and what the implications are for government debt.
Continue reading “Lockdown? Or is it perhaps meltdown?”

Betting on the “good ANC guys”: Building sand castles in an hourglass

Johannes Wessels
@johannesEOSA1

The perception of numerous commentators and business leaders that South Africans should mobilise behind president Cyril Ramaphosa, Pravin Gordhan and Tito Mboweni to support the “good guys” in the ANC to ensure an economic recovery, is not only simplistic: it is utterly naive.

It is also not new. It is a rehash of the theme of the 1970s when the National Party was assessed as comprising good guys (the verligtes) and bad guys (the verkramptes) with many commentators arguing the case to support the verligtes. The person who eventually took the quantum leap with a definite break with apartheid (F W de Klerk) was not counted amongst the verligtes. He was seen as rather conservative and a natural choice to chair the Ministerial Council for White “Own Affairs”.

Verlig-verkramp focused primarily on how Nationalist MPs were oriented on apartheid. That analysis had no eyes for another fundamental division: The PW Botha approach with the security structures of the military and national intelligence as key players versus those who preferred a civil-oriented approach with parliament in the fulcrum. De Klerk belonged to the latter faction. Botha and the securocrats had commenced talks and interaction with both Nelson Mandela (then in Pollsmoor) and the ANC in exile, but De Klerk was largely uninformed and excluded from these discussions.

Playing whilst the resource base is shrinking…

Verlig-verkramp was an insufficient perspective to detect the person who would make the decisive break with apartheid.

Now, many commentators and business leaders still cling to the hope for action and clear policy direction, contrary to what is happening in reality. The hope that “Ramaphosa knows what is required” is based on viewing the ANC as comprising a “good ANC” and a “bad ANC” and that the good guys will restore the country to a golden growth path. Treasury’s document on economic policy is clung to as a lifebuoy.

The good guys are supposedly led by Ramaphosa, Mboweni, Pravin Gordhan and Gwede Mantashe, with the bad guys represented by Ace Magashule, Faith Muthambi, Supra Mahumapelo and others.

This cowboys-and-crooks-perspective is naïve. It also fails on at least four grounds. 

Continue reading “Betting on the “good ANC guys”: Building sand castles in an hourglass”