Covid-19 presents ‘clear and present danger’ to South African economy

16th March 2020 By: Simone Liedtke - Writer

Covid-19 presents ‘clear and present danger’ to South African economy

Photo by: Reuters

Market trends and other economic data confirm that the coronavirus (Covid-19) pandemic now poses “a clear and present danger” to the South African economy, North West University Business School Professor Raymond Parsons said in a statement.

According to Parsons, the ripple effects from the economic dislocation elsewhere and the immense volatility in financial markets have already reached South African shores, coinciding with the risk of widespread contamination from Covid-19 in the country remaining high.

However, he indicated that skilful risk management and anticipation would be required if the risk of the virus was to be controlled.

South Africa’s initial steps taken so far by the Ministry of Health are “positive”, he noted, but warned that in order to minimise “the looming overall impact” of Covid-19, cooperation between the public and private sector would be critical in the implementation of appropriate health and economic measures.

Therefore, Parsons warned that South Africa “needs to strategise carefully” about the way forward, considering that currently, South Africa “is simply not well placed economically to absorb the bad news and extra burden arising if Covid-19 should spread widely”.

Parsons’ commentary falls in line with President Cyril Ramaphosa’s address this past weekend on the virus, wherein he officially declared a “national state of disaster” in efforts to limit the threat of the virus to citizens, society and the economy.

During his address on Sunday evening, the President indicated that the government’s priority would be to safeguard to health and well-being of all South Africans, while simultaneously addressing the economic fallout.

He warned that South Africa should expect a decline in exports, a drop in tourist arrivals and a “severe impact” on production, business viability and job creation and retention.

In response to Covid-19’s arrival on South Africa’s shores, Cabinet is in the process of finalising a comprehensive package of interventions to mitigate the expected impact of the virus on the economy. This is being done in consultation with business, labour and other relevant institutions.
 
Since the outbreak was first reported, government has acted to put screening and containment measures in place, and the national response has been driven by an Inter-Ministerial Committee (IMC) chaired by Health Minister Dr Zweli Mkhize.
 
The manner in which the IMC and the support teams have responded to this emergency has been both exemplary and reassuring, particularly in helping to quell public panic, Ramaphosa said, adding that he would chair a National Command Council to coordinate all aspects of the national response.

The President also announced that a raft of emergency measures have been put in to place, and include, among others, travel bans, mandatory testing, self-isolation or quarantine, strengthening of surveillance, screening and testing at ports of entry.

Ramaphosa also encouraged social distancing, emphasising that this was “critical” in efforts to contain the spread of Covid-19.
 
Gatherings of more than 100 people are prohibited and mass celebrations of national days are cancelled, while a total of 35 land ports and two sea ports will be closed, as will schools from March 18 until after the Easter weekend.

However, considering that small businesses in South Africa are in “a perpetual state of disaster planning”, the Small Business Insitute (SBI) on Monday called on government and big business to consider emergency assistance to the small- and medium-sized enterprises (SMEs).

SBI CEO John Dludlu said small businesses make up 98.5% of the firms in the country and that the country was reliant on these “to make a dent in unimaginable unemployment levels”.

He stressed that, without SMEs, which are already “extremely vulnerable”, South Africa has “no hope of inclusive economic growth”.
 
“We therefore call on government and big businesses to consider how they can assist SMEs in the event the coronavirus hits South Africa causing customers to stay home, employees to need paid leave, supply lines to be disrupted.”

Among the establishment of various emergency loan schemes, Dludlu also suggested that government consider lifting tax thresholds for SMEs, offering tax-free grants, and assisting businesses to protect their employees and customers from the possibility of contracting the virus with widespread public service announcements.
 
Businesses could offer discounted data and cloud services for virtual business meeting, planning and execution.

Business Leadership South Africa (BLSA) CEO Busi Mavuso, meanwhile, in her weekly letter on Monday, commented that the President’s measures “were as dramatic as they were necessary”, and therefore welcomed the “decisive leadership” from the President.

While the measures are doing “to be a shock” to the South African economy, Mavuso indicated that “many of [the country’s] trading partners have been severely affected”.

To reduce the economic impact as much as possible, BLSA has urged the President to announce a stimulus package for the country to “confront the virus aggressively”.

Additionally, Mavuso noted that the President “can and must” instead focus on the structural reforms that the economy urgently needs, meaning reforms need to be put in place that will “spark economic activity that has been frustrated by policy uncertainty and other constraints”.

Among others, this should include moves to open up energy generation, and the settling of disputes over mining regulation, as well as the acceleration of spectrum auctions by engaging with the Independent Communications Authority of South Africa.

Further, in a separate statement on Monday, law firm Webber Wentzel encouraged businesses to deal with the implications “effectively” and in a manner that maintains public and stakeholder trust.

If not done appropriately, the firm warned that businesses could suffer significant adverse and longer-term consequences to their businesses.

The firm urged businesses to ensure that business continuity policies and procedures are adequate to prevent a material disruption to operations, and said that areas that need to be addressed include, among others, a crisis management structure, the establishment of appropriate contingency measures and establishing an alternative site office while also enabling staff to work from home.

With regard to client services, businesses are urged to encourage clients to use telephone or online facilities in place of physical visits, and establish a client notification procedure and ensuring adequate back-up facilities and the arranging and rehearsal of contingency plans, systems and equipment.