After the storm: the world after COVID-19
Three months ago we will not have imagined that the world would take such a dramatic turn. We’d concerned ourselves with loadshedding, financial planning, travel and career moves – been up in arms over Brexit, trade wars and foreign relations. But we could not have envisioned the situation we would find ourselves in, and how the entire globe could be forced to a standstill under the weight of a pandemic which has infected 1 million people and counting.
But what does the future hold?
A brave new world
It is quite impossible to envision what the overall impact of the coronavirus will be on the global economy or where each respective country will find themselves in the aftermath. Using pure conjecture and forecasts made by analysts worldwide, we consider some of the impacts of COVID-19 for the world economies and South Africa.
The ‘new’ new South Africa
It is quite unthinkable, but it seems it took a novel virus to push South Africa into a novel course of action. A course of action which many countrymen, including minister of finance, Tito Mboweni, had pushed for for years.
President Ramaphosa had given the minister of finance the all clear to finally ‘move more boldly on the structural reforms programme’. Mboweni who had been in favour of reforms for quite some time stated that the Finance Ministry would now move forward to establish their unit called ‘Vulindlela’ (isiZulu for ‘Lead the way’) which would guide the restructure.
Although this move may be a bit late, it is also something the International Monetary Fund (IMF) and World Bank have advised if they were to consider providing future funding for South Africa.
It’s unclear how the public and opposition parties will respond to structural reform given that a large part of these reforms involve public sector wage cuts and amended processes allowing for expedited dismissal of underperforming workers.
Research analyst at Glacier by Sasanlam, Johan Louwrens, believes that overseas investors tend to see adverse events in South Africa as opportunities nowadays. Stock broker David Shapiro mirrored this tune, saying that investors are looking to South Africa and not away, regardless of the downgrade. Though this may be true, unfortunately the current global sentiment is a widespread ‘hauling in’ of capital further afield as investors disinvest in emerging markets. But more on SA’s economy later.
World in downgrade…
South Africa is not the only country in economic distress right now, a convolution of US-Iran military action, Covid-19 and a 60% oil price slump had already seen the world’s economy contract by 12% from January to March, according to JPMorgan.
If we compare South Africa to other countries, matters may not be as bleak as previously supposed.
Consider Brazil, which had been downgraded to sub-investment grade in 2015 due to political unrest and presidential impeachment. The country’s GDP had shrunk to -3.5% in 2019, and yet it had performed the best of all emerging markets in the same year. But those gains mean little at present. Brazil’s president Jair Bolsonaro had frustrated his country by prioritising the country’s economy over the health of his people, even going so far as to call some of the mayors and governors of the largest cities and states criminals for imposing lockdowns.
Bolsonaro stated that ‘other viruses have killed many more than this one, and there wasn’t all this commotion’. His views reflect those of Sweden, USA and the UK to an extent, though some of these leaders had reneged on their previous herd-immunity strategies. The result in Brazil is a ‘stepping up’ of Brazilian gangs, who have taken it upon themselves to impose a strict curfew in Brazil’s favelas or townships. The gangs have sent out several WhatsApp messages to citizens living in these slums, and patrol the streets to manage the curfew. One must wonder what the country will look like once the pandemic has passed.
Then look at Greece. The country faced a government-debt crisis in the wake of the 2008 financial crisis, which plummeted them into the longest-running depression of any advanced capitalist economies to date. Its current debt stands at 179% of GDP and this is without taking the COVID-19 crisis into account. Analysts state that despite South Africa’s position, we’re nowhere near the type of crisis faced by Greece. The downside, of course, is that we don’t share a currency with friends within a Union which may offer forthcoming economic rescue from friends. Yet in the current crisis, it seems unlikely that Greece will get the ‘get out of jail’ ticket it had previously received from its European allies, given that so many other nations will require rescue.
The coronavirus outbreak has seen Moody’s downgrade some of the greatest world economies, including France, Italy, Spain, Denmark, the Netherlands and Belgium. The UK’s rating was cut to AA- by Fitch, who stated that further cuts could be on the cards. Italy and Spain are the two European nations hit hardest by the pandemic – with both facing significant recessions which will last a significant amount of time.
But the UK will also struggle, as its GDP debt forecast is said to surge from 85.5% in 2019 to 94% in 2020 and 98% in 2021 while its economy is predicted to contract by 4% in 2020. S&P has already cut IAG (British Airways) and Lufthansa’s rating to the last notch of investment grade and warned that this may not be the last.
In the US, the mass corporate buybacks which companies had achieved through lowering the interest rate has now backfired under the onslaught of the coronavirus. The stimulus Trump had hoped would be gained through lowering corporate tax and interest had already flopped with so many companies choosing to use their freed up cash and lower interest to make even more debt in order to own their own stock.
Now, this incurred debt at the expense of investment income is placing these companies under massive strain. Giants like Apple, McDonald’s, Starbucks and Boeing are feeling the pinch of bad financial planning. The airline industry had already stated that ‘blank check’ bailouts amid this crisis will not apply to companies who had spent their funds and incurred debt for stock buybacks. Petroleum companies like Exxon Mobil are also facing massive losses given the oil crisis.
This pinch will be felt even more on the street, where employees will wage cutbacks and job losses.
Japan had a different approach to most of the world, choosing not to cut the interest rate, but aiming to double purchases of company stock and ETFs.
New Zealand’s treasury secretary has forecast that its 4% unemployment rate could reach double digits in the wake of the pandemic, and government is expecting wage and business subsidies up to NZ$12 billion (near 4% of its GDP). The country’s interventions have been lauded by Peter Martin, Australian editor of The Conversation, as far more decisive and progressive than those interventions undertaken by Australia, the UK or USA.
Moody’s stated that the overall problem we’re seeing globally is that banks will need to fork out more loans at lower interest, which will reduce banks’ profitability and further impact the countries’ economies. While business activity and outputs decrease, supply chains slow and wages are cut, banks and investors will face increased asset and investment risk under tight scrutiny of the governments who won’t tolerate consumer bullying. To exacerbate the problem, there aren’t enough junk grade investors to take on the surge of sub-investment companies and countries. Conversely, investors aiming above junk will face trouble in seeking investment and competition in this arena may grow exponentially.
Governments will need to weigh the pros and cons and consider which bailouts are most crucial and which combination of interventions will work best.
The economic intervention gamble
Many countries have already implemented various interventions to help their failing economies, but given how drastic some of these interventions are one must consider the risks.
In a letter to President Ramaphosa dated 30 March 2020, 75 experts from across South Africa have addressed the interventions noted by the presidency via the Institute for Economic Justice. In the letter, the commentators note how they commend interventions, but that South Africa has not stepped up to consider economic implications as much as we’re addressing the health implications of the pandemic.
Given that the UK, France and the US have injected resources totalling 18.9%, 13.6% and 10.7% of GDP into their economies respectively, the question remains what exactly the presidency will do for SA’s economy. Though steps and initiatives have been noted, these are vague and don’t seem to have clear direction.
The R2 billion donated by Johann Rupert and Nicky Oppenheimer to assist small businesses (and an additional R1 billion from Mary Oppenheimer), and debt holidays offered by big banks to small business and students are welcome interventions from big business – but many South Africans have lamented how inaccessible this funding truly is. For many South Africans have not reached the point of registering businesses and taking loans through these businesses. Millions of South Africans run ‘businesses’ as individuals and sole proprietors and cannot benefit from these incentives.
One can, for instance, not claim from the SMME Relief Finance if they don’t have formal accounting with auditable logs, if they don’t pay UIF (even in the case of sole proprietors) and businesses must be registered for tax. Indeed, the ideal would be for all persons who run their own businesses to register and pay taxes – but this is not the reality of our country where most of the populace have a hand to mouth existence.
And for those whose debts are not under small businesses, the crisis continues as no debt relief has been offered by banks, debt collectors or retail creditors. Still, the retailers themselves are simply putting their foot down – with companies like The Foschini Group having issued a notice to all property owners that they refuse to pay their rent for the period of lockdown.
The Motsepe Foundation has pledged a further R1 billion to fight the novel coronavirus, but its most immediate focus will be mitigating the impact of the virus and saving lives with funds used for health and sanitation equipment, supplying water to poor communities, drilling boreholes and building sanitary facilities. R5 million of the funding will be used to assist poor students in acquiring online learning access.
SARS have made ‘concessions’ with early payouts of tax refunds amounting to R2.4 billion in the first days of lockdown, but many have commented that this is not necessarily an olive branch, given that these refunds will have been paid either way. Further tax interventions include:
- R500 per month subsidy per month for four months to private sector employers per individual earning below R6 500.
- Expedited UIF payments
- A 4-month 20% reduction in PAYE liabilities without penalties or interest for 6 months to compliant businesses with a turnover of R50 million or less.
- Interest rate cut by 1% to a prime lending rate of 8.75% with three repo rate cuts of 25 points indicated for second, third and fourth quarter of 2020.
Will these measures be enough to carry South Africa through our COVID-19 crisis? We can only wait and see.
An era of lockdown?
Some analysts believe that the global pandemic will create a society which is more nationalistic, conservative and controlled.
Though the tightening of borders, travel and movement surveillance and restrictions and other measures are certainly required in these times, the concern is that some governments may cling to the restrictions after the virus has run its course. Furthermore, some interim legislative changes are raising many eyebrows.
In South Africa, for instance, interim regulations have raised flags in the IT industry. Some new measures introduced include:
- Responsibility of OTTs and ISPs to remove fake news from their platforms.
- Guaranteed continued service provision by telecoms and electronic communications networks.
- Undelayed deployment of infrastructure by licensed entities with ministerial intervention which may demand waiving deployment fees between relevant parties.
- Waiving of access fees by property owners to electronic communications networks who want to deploy on their property, provided the deployment is non-intrusive.
- Relaxation and expediting of temporary spectrum licensing and making all bands, including high demand spectrum available.
- Automatic approval of network equipment and handset devices.
- Tracking and tracing of individuals through the electronic communication network service and its licensees (ECSLs) in collaboration with the South African post office.
- ECSLs will further have to make connectivity available free of charge to facilitate 104 district classroom platforms at minimum speeds of 10Mbps.
- All .za top level domains to feature a landing page linked to the Government’s coronavirus website.
- ECSLs must zero-rate radio frequency spectrum related to the government’s COVID-19 sites.
- No number porting or price increases allowed during COVID-19 crisis.
Why are some of these things problematic?
Consider that OTTs and ISPs tend to have non-disclosure and privacy agreements in place which bar them from accessing, filtering and intervening in content posted by their clients.c
With regards to spectrum licensing, temporary licensing of spectrum such as 5G would be problematic given that companies need to purchase equipment at millions of rands which will only function within certain spectrums.
Will companies forfeit their licenses after COVID-19 and lose their equipment or will service providers be allowed to retain their licenses without the stringent vetting and tendering normally imposed by ICASA?
And what of the tracking and tracing of individuals? Will these databases be removed after COVID-19 or will tracking continue after?
Professor of international relations at Harvard Stephen M. Walt states that the pandemic is likely to highlight political conflict between nations worldwide and that many of these measures imposed by governments will remain after COVID-19 has run its course.
Robin Niblett, director of Chatham House, states that we’ll see the world move away from economic globalisation and an atrophy of 20th century global economic governance. Many other analysts and specialists foresee a drastically different future for the world post pandemic, but we’ll have to wait and see what the future holds.
With you all the way
One reassuring part of this pandemic is the undeniable fact that we’re all in this together. No person or country remains untouched, no one will walk away scott free and we’ll all rethink our way of life and how we earn our incomes.
Rand Rescue hopes that our readers are staying safe and that the impact on your lives and livelihoods will be minimal.