COVID-19 and the economy: why you should move your Rands abroad
One of the most pressing matters amid this global pandemic is undoubtedly the loss of income so many people are suffering around the world.
With the pandemic affecting markets worldwide, South Africans had hoped for a slight reprieve – as there were indications that investors were eyeing emerging markets as slightly less volatile investment opportunities. But those hopes were dashed with the announcement of President Ramaphosa’s R500 billion stimulus package.
R500-billion stimulus: good or bad
For the majority of South Africans, the stimulus package is a good thing. The package which, at the time of announcement, had amounted to 10% of South Africa’s GDP and would be rolled out in three phases. The stimulus is aimed at four focus areas:
- a supplementary health budget
- hunger and social distress relief
- support for companies and workers
- phased reopening of the economy
This budget includes guaranteed unemployment grants and an increase in all other grants for six months, distribution of food and sanitation packages, income support payments for workers whose employers can’t pay their wages, a loan guarantee scheme and health equipment.
Though South Africa may be lauded for taking proactive steps to both protect its people and inject funds into the economy, many analysts are wondering at what cost this stimulus will be achieved. For while R130 billion of the package will be achieved through adjusting SA’s existing budget (the details of which have not yet been revealed),470 billion of the package will have to be raised from other sources, including the Unemployment Insurance Fund and loans from the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank.
The IMF had previously put down certain stipulations for the SA government which would need to be adhered to if they were to support South Africa financially, but they have since made it patently clear that – given the unique circumstances of the pandemic – they will relax all of their previous requirements. This does not mean that SA is in the clear. What loans we incur, we will incur through some significant IOUs and though much of the world is relaxing its risk criteria, interest rates and compliance stipulations while extending loan terms, this will still come at a significant cost for South Africa’s economy.
Jumping through hoops for aid
Even if the acquisition of funding goes down without a hitch and we ignore the debt implications, one has to wonder whether the implementation and execution of all the initiatives under the stimulus plan will be practical and corruption-free. Millions of South Africans have already applied for funding and a great chunk of these applicants have been let down by the requirements laid before them. Earlier in April, Minister of Tourism, Mmamoloko Kubayi-Ngubane had stated that the tourism relief fund will restrict funding to achieve ‘economic transformation’ which will require all applicants to comply with BBBEE legislation. Artists and sole proprietors have also been left out in the cold as the solidarity fund, artist relief fund and banks require things like:
- Business banking accounts – most individuals running micro businesses don’t have business accounts since these carry higher fees
- UIF payment – most individuals running micro businesses don’t pay UIF for themselves
- Tax filing – micro businesses and sole proprietors often have variable income and don’t necessarily need to pay tax, even if they should apply for tax clearance, there will be some significant hold-ups in issuing tax clearance
- A clear credit record – individuals who are already in debt will not necessarily be able to benefit from low-interest loans offered by the government or financiers and with the repo rate cuts some institutions may even hike up their risk assessment
- Affidavits and police clearance – such documentation will require individuals to visit police departments and wait in long queues which will not only require travel, but also incur printing costs and expose individuals to crowded spaces
- Proof of cancelled events or projects – for freelancers, artists and those whose work varies monthly, there is no way to pre-empt or calculate projected loss of income.
The real kicker is that these people will not be able to benefit from the unemployment funding either, and the R350 grant per month would hardly provide any significant supplementation for such individuals who work for themselves or as freelancers.
Then one has to consider the implications of the mass grant authorisation which is now underway. The initiative will see millions more South Africans flock to SASSA offices to receive grants each month – rather problematic given social distancing guidelines. Current SASSA applications take up to three months to process, and rejected applications are relayed in writing via the postal service, so the question is also how the South African Social Security Agency will manage the administrative hurdle placed in front of them . Not only do they have an existing backlog, but the question remains how homeless and unemployed persons will receive confirmation of their applications?
Though many banks are offering payment holidays and emergency loans to qualifying individuals, these initiatives benefit but the upper 20% of South Africans. These benefits and the relaxation of regulation, risk assessment and lowering of interest seems to only apply to individuals who could qualify for credit and maintain a clean credit record in the first place.
The presidency and ministry of finance have, by some remarkable feat, completely neglected stipulations to delay debt collection or offer further relief to those who are paying off debt to such collectors.
The only stipulation which has been gazetted is that debt collection is not an essential service – which means such companies aren’t allowed to open their offices. But debt collectors do not generally operate from physical premises like other financial institutions. Instead, these companies outsource work to staff or other agencies and operate via phone and email. Not only will they therefore not offer any type of relief, but they also charge ‘clients’ or debtors for each communication remitted.
The same lax treatment has been applied to retail accounts and credit cards held by companies who use other financial institutions to administer their accounts. Absa, First Rand, Standard Bank and Nedbank, for instance, administer many ‘credit accounts’ for other institutions such as Kulula, Edgars, American Express, Direct Axis, Makro, Game, British Airways, Woolworths and so forth. Although individuals will necessarily make payments towards these administrators and utilise some of their applications, the financial institutions do not deem these individuals legitimate clients and the onus of debt relief will therefore fall on the retailer. Yet no specific stipulations in any Government gazette makes provision for such circumstances.
Consider also how many people in SA make use of unsecured loans at exorbitant interest. Such loans are loosely prohibited in SA, but not widely monitored, and interest rate cuts have no impact on such loans which don’t fall under the eye of the NCR. It is worrying that the government would deploy an additional 73 000 military personnel to enforce lockdown restrictions, but not care to deploy any type of crisis directorate or force to protect its people from economic exploitation.
Individuals who have been retrenched and unemployed in the past and utilised credit insurance under these circumstances will also not be able to use the credit insurance again if they are still unemployed or have not formally applied for credit restrictions to be lifted by providing proof of employment. This is a catch-22 which South African legislators have let slide for far too long. For even though individuals cannot utilise these services again, insurance fees are still levied on their accounts for insurance which is inaccessible to them.
Then there is the sheer hypocrisy of these retailers in their approach to COVID-19. Though some of these institutions offer payment holidays, this is a long and gruelling process which is restricted by the fact that most customer support services are either partially or fully suspended during the lockdown. Consider the Foschini Group which has made it clear that it will not pay rent for any of its stores during the lockdown period. Though one may argue that they have a point – it’s interesting that this same payment cessation has not been extended to their own clients. Dis-Chem is another store which has stipulated that they will only pay rent for the stores which are operational during lockdown.
Another aspect of debt which is crippling South Africa relates to the real estate and property sector. It is quite understandable that individuals who have lost their income may not be able to pay rent during COVID-19, and that people who had to move in or out of properties cannot do so at present. But the government has also stipulated that owners or landlords of properties are not allowed to:
- claim additional rent for the periods which these persons cannot move out or into properties
- disrupt services and utilities
Understandable…except that the municipalities have not extended the same grace to property owners. They are still responsible for municipal fees, levies, taxes and downpayments on properties irrespective of their income. For those who rely solely on rental income this is highly problematic. For although the banks may give some relief on bonds, the responsibility to pay all fees relevant to maintaining the property as is. The City of Cape Town has announced financial aid to those struggling to pay their municipal bills, but once more this requires an application process and funds are generally limited to those who are most vulnerable. Further assistance is offered by the Retail Landlord Alliance for those who rent retail property, but once more this doesn’t apply to non-retail property.
Some landlords and tenants are playing a tug-of-war with rental deposits – both claiming that this amount should be theirs to utilise during this period, but the legislation is quite grey on this matter.
Travel and tourism? Well it’s no surprise that these industries have imploded worldwide. Not only have unsound decisions by the likes of companies like Boeing (stock buybacks) led to pre-existing financial woes and compound economic disaster, but even our stable companies are in distress. Consider Richard Branson’s call for financial aid to keep Virgin afloat. Though pictures of penguins waddling through Simon’s Town and Lions occupying golf courses and roads in nature reserves throughout SA are heartwarming – they are also spotlights on some of the most crucial tourist attractions and destinations in SA which are now left desolate. And this industry is unlikely to make a swift recovery. Even if airlines and countries relax restrictions – individuals are bound to travel less, whether for health or financial reasons. And cancellations or refunds? It seems no industry or provider truly knows how to manage the situation. They have an obligation to clients which clashes with their obligation to staff.
Losses are vast and given the proliferation of this economic snowballing insurers are also making choices which will cripple the insurance industry. The magnitude and impact of the concurrent crises are simply not eventualities which financiers had considered or catered for in their risk assessments or forecasts, and it is quite impossible to ask a helping hand from another industry, financier or bank under the weight of COVID-19. No financial services provider had considered a situation where every one of their clients, employees, stakeholders, holding companies and investors would be simultaneously incapacitated.
What we’re facing is therefore not merely mass debt, payment defaults and loss of income, but invariably mass applications to courts of law for mediation on matters which the courts had not seen before. More admin, more drawn-out legal affairs and lengthy periods of uncertainty and further loss of income ahead as South Africans face off in an unprecedented face-off of moral and legal quandaries.
Pensioners and those who plan on retiring
Elderly people who receive pensions are also excluded from the current funding. This means that even though they may receive limited income from pensions, they are excluded from SASSA grants and other emergency funding applications by default. Given the dismal state of retirement funds, the elderly – who are already at a higher risk of infection – may find themselves in quite a dilemma.
The Financial Sector Conduct Authority (FSCA) has called on retirement fund administrators to submit urgent rule amendments to address financial difficulties of employers and members during the coronavirus crisis. Problematically, the FSCA indicated that very few pension fund administrators had existing rules relevant for a crisis of this level, nor do they make stipulations for absence from work, break in service, postponement of contributions, reduction of pensionable service or the impact of a pandemic of this scale on pension values and investment portfolios. Consequently, authorities are seeking immediate feedback from companies who are not fully operational and have to make crucial decisions, projections and amendments at the drop of a hat.
The JSE, like so many other indices worldwide, had experienced crash upon crash since the start of 2020. Although the panic selling and stock depreciation affects all other sectors, when it comes to pension funds, there’s not really a backup plan. Funds can be reinvested elsewhere over time, the government can supplement savings, etc. but unlike other industries pensions cannot be suddenly restarted once lockdown is lifted. It will take time to consider new investment opportunities which are stable, and then administrators will have to weigh up the risks of pooling money into low-risk, conservative assets, or high-risk assets and investments to possibly recover losses.
But more about pensions and retirement later…
The phased lifting of lockdown restrictions will commence on 1 May 2020, and though many people have welcomed this move, the presidency has received much criticism from different camps. Some believe the phased reopening of SA is too soon, and this is a particular concern for educators and parents with children.
On the one hand, educators feel that even with certain grades allowed back to school incrementally, the risk of exposure and infection is still too great given the sizes of most classrooms in South Africa. As some grades may need to remain at home for a prolonged period of time, parents are also concerned with childcare – as domestic work and au pair services are only planned for Phase 2 of the lockdown, many parents may have to return to work before childcare resources will be made available.
Furthermore, as domestic travel is also intended for Phase 3 to 2 of the lockdown only, children of parents who live in different provinces may not be able to return to school given the interprovincial travel restrictions.
The travel restrictions will also mean that many individuals whose industries may be opened for business will still be restricted if their business requires travelling across provincial lines. During Phase 3, the stipulations for travel will necessitate airlines to limit domestic flights and each passenger will need to obtain authorisation for travel. E-hailing and taxi services will also be restricted – a limited number of passengers will be allowed and all passengers will need to wear protective gear. Unrestricted domestic travel and flights will only be allowed from Phase 2, while international travel will only be allowed from Phase 1.
One has to wonder how the millions of workers throughout South Africa who use public transport will make their way to work each day given the number of passengers who normally travel via taxis. Auxiliary supplies for many of the industries which will open during Phase 4 will also be restricted. Equipment like stationery, books, chemicals, cell phones, computers, clothing, hardware and online stores will only be available from Phase 3. Indeed, essential service providers will be able to acquire these materials in Phase 4, but the administrative process will be gruelling and some of their stockists may not be available or not have stock at all, even if their teams are operational.
The agricultural sector, for instance, is one of the first industries lined up for opening on 1 May, and yet many farmers, processors and suppliers require ingredients and products which aren’t locally available. The animal feed industry, for instance, has standing orders with international suppliers for medications and chemicals used in the processing, manufacturing and packaging of ingredients and final products. These things may be available locally, but these producers will need to reacquisition these items locally, retest and resubmit applications and/or product stipulations to governing bodies to continue manufacture and supply. For although our borders are not entirely closed, it’s not merely South African borders and supply chains which are hampered; resources acquired from abroad are under the same pinch, backlog and constraints.
The cost of death
If we’re to look at the cost of the pandemic on a foundation level, we need to consider the cost of the loss of life, and how this pushes people and countries further into debt and financial ruin.
In South Africa, certain funeral arrangements and supplies can only be handled by authorised bodies – it is illegal to bury someone without the use of a funeral parlour, an authorised casket, authorised plot or cremation. Your average casket is around R8000, average burial fees around R4000 – bear in mind that should stock be in short supply, you will need to pay the price levied by the funeral provider(s) and this will be non-negotiable if another provider cannot offer a cheaper price – one cannot bargain for caskets the same way you would general merchandise. For cremations, the average cost is around R7000 with an additional R700+ for the cremation venue itself. The average headstone is around R4000, average undertaker fees around R6000. Those who are part of traditional South African society may be required to slaughter and serve livestock estimated at R1k-R6k each.
These rates exclude the cost of autopsies (should you wish for a body to be inspected where the state hasn’t authorised it), funeral venues, religious service providers, caterers, transport, storage of bodies, printing costs for funeral brochures and other peripheral services. Even with a funeral plan, one is almost always faced with additional expenses which must be forked out in an instance. Due to the time-sensitive nature, many people need to resort to borrowing and accept whichever terms creditors offer them.
Some funeral plans include some form of estate management, but this is not always forthcoming and usually lacks proper administration. The administrative burden of having to navigate finances and assets after a loved one has died is not only significant for its financial impact, but further piles on the emotional load one bears in the wake of death.
And for a country like South Africa, death carries additional burdens. Families often rely on income from individuals to sustain large groups. Those married within community of property can be burdened with expenses left by those who have passed. Those not married formally cannot benefit from any policies or estate ‘payouts’ unless a will had been drawn up which can supersede any specifications laid down in legislation. The role and value of individuals who perform a crucial role in both micro or macro enterprises will be wiped from the book. The loss of life is devastating and the compound impact will be felt throughout families, communities and societies worldwide.
Where individuals cannot carry the cost of funerals and burial, the state will once more need to step in and take on the financial responsibility for those who cannot afford it. In South Africa funerals carry a far higher cost per individual or family comparative to other countries. For traditional factions and cultures, funerals require certain undertakings, rituals and expenses which may be negligible or mitigated in first world nations. The burden on the state to fund, facilitate and honour such traditional funerals is therefore one which is cost-for-cost far higher and a more crucial and sensitive undertaking than many other countries.
Impact of Covid-19 global markets
But let’s take a look at economic repercussions further afield. It’s no surprise: Covid-19 has impacted global economies extensively, and the impact is bound to compound and last for months, if not years to come.
It’s quite impossible to quantify the losses that this pandemic has caused and is still causing worldwide. It is equally exchausting to try to quantify the impact of peripheral and concurrent events and occurrences on the existing COVID-19-induced economic recession. There are political powers at play, trade wars, Brexits and oil meltdowns, armed conflict, natural disasters, climate change – and amid all of this, each economy and system has its own inherent pitfalls, catastrophes and variables which contributes to the losses within and across its borders.
Things were heading this way before Covid-19
We’ve covered this in previous articles, but will touch on it once more. Whether South Africa, USA, China, UK, Iraq, Australia, Brazil or other countries – things were a bit dismal before Covid-19 put the world in shackles, though the reasons for unrest and economic turmoil aren’t equal.
For South Africa, a long and winding process of correcting past wrongs and weeding out corruption and mismanagement of SOEs had only just started. Ramaphosa had lost some footing within party ranks, he’d been lax with imposing or authorising decisive action in certain respects, Eskom, SAA, SABC,Transnet and other state owned culprits had been sucking the country dry. And yet, South Africans had all hoped that the drastic action and overhaul mentioned in the budget speech in February would enact change. If we had time, perhaps this will have been the case. Interestingly, though, COVID-19 had empowered the presidency to take exactly these steps which had previously evaded him. The president seems to have unfastened the shackles which had burdened him, and together with force that is Tito Mboweni, things have been overhauled immediately. In addition to other initiatives and undertakings, the president and his cabinet have taken a salary cut of one third of their income for the duration of the lockdown – the funds of which will be funneled to the country. Yet the tough decisions made to safeguard South Africans from the pandemic are devastating.
In the US, analysts had noted how the drastic rate cuts, tax cuts and stock buybacks were a perfect storm for a US recession. Given that the economic policy changes ratified by President Trump had not had a positive outcome on the economy as hoped, the balloon was bound to burst with or without COVID-19. Then we have other points which indicated an economic collapse:
- The US trade war with China which prohibited certain exports and imports
- Militant action against Iraq which extended to Iranian territory
- Border and immigration controls and subsequent humanitarian outrage
- Corruption and misuse of funds by the Trump foundation as determined by the US courts
- Corruption and incarceration of several republican statesmen and legislators
- The veto of impeachment inquests by the Republican Congress
- Silencing and firing of witnesses who will have testified in a trial had Congress approved it
- Charges of misconduct brought against Democratic opposition leader Joe Biden (before Sanders had conceded)
- The Epstein debacle and revelations that both the Trump and Clinton presidencies had had numerous dealings with him (including a private party organised solely for Trump, Epstein and several young women)
- The Trump administration reducing or overruling previous environmental, humanitarian and health initiatives aimed at uplifting and sustaining their environment and people
In the UK and Europe, Brexit had taken its toll on member states for the past few years, and even though the official exit passed at the end of January, the economic and social impact of the UK’s exit from the EU had been devastating. The nation which had been relatively harmonious and amicably nationalistic in years preceding the Brexit announcement (achieved through a fluke referendum announced by David Cameron), has been in turmoil ever since. Lines have been drawn in the sand and between nations, countries and companies. Many international businesses had already extracted and reestablished their European headquarters elsewhere – outside the reach of British rule. Ireland – two nations in one living in tenuous peace since the Good Friday Agreement – has been torn in two once more. The proverbial baby ordered to be cut in half or shared by Solomon is the Isle which had fought for its independence and belonging for decades. And those who must decide? The United Kingdom and European Union: both Sophies who have to choose which child to let go.
Australia – a relatively stable nation with progressive legislation. But another state which had, quite surprisingly, suddenly clutched onto the radical and nationalistic political trend in the past few years. Its greatest challenge in the COVID-19 war is not politics, however, but the devastating impact of wildfires which had ravaged and destroyed the country in a way which it had never seen before. In the wake of this…in picking up the pieces and having already spent a ‘crisis’ budget and incurred financial losses and debts at the start of 2020 which it had not foreseen – coronavirus was there to take up the reigns of the fire and punch the country in its gut.
Brazil? Another country which had faced significant turmoil and protest in the past year. President Jair Bolsonaro, a staunch supporter of president Trump, had stunned his own citizens in 2018 by authorising the destruction of Amazonian forest – and with it the territories of native tribes living in these lush forests – for the sole purpose of agricultural, mining and commercial use. As with Brexit in the UK, and Trumps rise to presidency in the US, Brazilians seem to have been stunned by Bolsonaro’s election win. But citizens were even more stunned by his ruthless decisions pertaining to the people and natural resources of his own country. Not only did President Bolsonare okay mass deforestation and displacement of native tribes, but his lax stance on COVID-19 preventative measures has infuriated his citizens. Such is the disdain for his rule that Brazilian gangs have taken it upon themselves to enforce lockdown and social distancing measures in the favelas (townships). The gangs even have a notification system whereby they disseminate lockdown restrictions to residents via WhatsApp.
The oil melt-down
Perhaps one of the most shocking events of 2020 is the melt-down of the oil industry.
What started as a tiff between two member states of OPEC – Saudia Arabia and Russia – turned into a bizarre collapse of the oil industry which saw the oil price plummet into the negative for the first time in history, falling settling at -$38,45 per barrel in a massive 310,45% fall in one day.
The catalyst for the oil war? None other than our dear friend COVID-19. As the virus spread, demand for oil and petroleum products declined, leading Saudi Arabia to call for reduced oil production in order to keep oil prices stable. Russia refused this call, arguing that the US which is not a member of OPEC would sweep in to take market share from OPEC nations. With a surplus of barrels stored below ground, Saudi Arabia could maintain its spot as top dog in the oil industry without having to rely on production to maintain its position – although it did lower production since January along with several other OPEC nations. The decision to lower production was made at an OPEC summit in Vienna on 5 March, but Russia rejected the decision.
The Saudis didn’t take kindly to Russia’s snubbing, deciding to drop oil prices by $6-8 per barrel for the US, Europe and UK on 8 March 2020. The drop in prices caused a freefall of oil prices, with Brent crude oil plummeting 30% and the West Texas Intermediate falling 20% in one day.
Despite the depreciation, Saudi Arabia announced an increase in production from 9.7 million barrels to 12.3 million barrels per day while Russie indicated a daily increase of 300 000 barrels per day. Oil prices reached a17-year low on 18 March with Brent crude oil at $24,72 and the WTI at $20,48 per barrel.
Things seemed to be looking up when President Trump announced that he’d brokered an agreement between Saudi Arabia and Russia, followed by president Vladimir Putin announcing a cut in global production by 10 million barrels. This gave the oil price a boost – recovering prices by 25% in one day – the biggest in history.
With oil prices at a low, the WTI’s contango saw the US purchase cheap oil to store for later sale – the rationale being that they would be able to recover funds by selling surplus at a higher price in future. Unfortunately the rapidly diminishing demand led to another historical first – with the surplus leading to insufficient storage capacity. On 20 April 2020, the May oil prices for the WTI fell to -$37, certain Canadian oil prices fell to $0 and Brent oil fell to $18 per barrel.
The blowback of the oil war (a war which both Saudi Arabia and Russia deny) saw Saudi Arabia cut capital expenditure by $10 billion, raise its debt ceiling from 30% to 50% of GDP and cut its spending by 5% as its budget deficit was projected to rise by 3%. Russia saw its currency depreciate by 30% since the start of 2020 to mid March. Worldwide, stock markets quaked; the Dow Jones saw its largest point drop in history of 2 000 points, S&P contracted by 7,6%, the Nasdaq by 7,2% and the FTSE MIB fell 11%.
South Africa was not left unscathed. Though the drop in oil prices should theoretically see a drop in prices across the board and alleviate household financial stress, many manufacturers, distributors and logistics companies are reluctant to drop their prices – choosing to benefit from the cost cutting themselves. Unless government interventions therefore specifically stipulate price adjustments, the relief is often negligible. With South Africans stuck at home during lockdown, cheaper fuel prices are also a rather useless benefit.
But the pinch is felt elsewhere in South Africa. Its petroleum industries have been struggling with the seesaw in oil prices. At the end of 2019, international petroleum company Tullow oil had announced the closure of its South African and Irish offices – retrenching nearly its entire staff complement in these regions and sending shockwaves through the industry. It would seem the crisis in the petroleum industry had been brewing for quite some time. In the six months leading up to December 2019, Sasol saw its earnings collapse by 72% to R4,5 billion. Then Sasol was hit by the pandemic and eventual oil crisis, seeing a 21,19% drop in share prices in January 2020, 22,27% drop in February and 80,13% drop in March 2020 – its lowest level in more than 20 years. Though the stock recovered by 81.42% in April 2020, stocks are now valued at a mere R6 700, down from R30 348 in December and equal to values last seen in 2001.
Perhaps a new player in the oil debacle which the big players had underestimated is the emerging Clean Energy market. Historically, the price-fixing and bullying imposed by oil-rich nations had no antidote – the world’s reliance on fossil fuels had required complacency by the rest of the world. The scarcity of such fuels had also driven demand and allowed artificial tampering of prices for the benefit of the nations who dominate the market – and it still does. But the world is changing. Not only have nations across the world imposed penalties and taxes on the use and exploitation of unsustainable energy sources, but there is a global shift towards sustainable, readily-available and less invasive production and distribution of energy. Countries and individuals are more geared towards a world without oil and though oil will most probably still dominate global minds and markets for years to come, we are likely to see a reduced interest in this commodity over the next decade or so.
So which countries will fare best post-pandemic?
This is a rather tricky question for various reasons. Firstly, one has to consider whether the ‘rebound’ refers to organic recovery or artificial recovery and how much an economy needs to recover. With organic recovery the country relies on minimal interventions – boosting its economy through policy change and budget amendments. Artificial recovery is usually gained through loans from non-government organisations, banks and international investors. The latter tends to offer a more rapid recovery, but in the long term it can cripple economies once more as the cost of debt as adjustments need to be made to reduce the deficit. Governments usually achieve this through raising taxes, interest rates, reducing wages and making cuts to other parts of the budget. Both choices are a gamble. Should one refuse third-party intervention, the GDP could simply depreciate more over time and plummet the country into poverty. Should one opt for third-party intervention and not manage productivity, achieve industrial growth throughout sectors, or mismanage funding – one could further cripple the economy through debt. Investors also tend to avoid the risk of investing in countries and industries which are over-indebted. Since SA have opted for a mix of interventions but will rely mainly on loans, we’re treading on fragile ground.
Of all nations worldwide, China seems to be most geared to recover from the pandemic. Though many conspiracy theorists view this as an indication that China had deliberately spread the virus – the answer to their recovery is actually far simpler. Firstly, as a communist nation, the country was already geared towards controlling its citizenry through both restricted and monitored movement as well as having sole autonomy over media and the dissemination of information. Secondly, the country’s primary activities of agriculture and manufacturing allowed it to maintain controlled production of foodstuffs, health and sanitation equipment and even temporary hospitals. Thirdly, an economy governed by communist hypothetically gives the state more freedom to adjust budgets, introduce policy changes and intervene with corporate governance and thus negotiations, restructuring and cooperation between industries and employees can be achieved more rapidly with minimal pushback.
Fiona O’Neill of Fidelity International stated that,‘The Chinese authorities’ decision to impose strict travel restrictions in affected areas relatively early in the outbreak seems to have ensured the country will face a broad-based shock to the system, but will recover relatively quickly and with less of an impact to earnings overall, as long as it doesn’t see a second wave of the virus.’
This has been demonstrated quite effectively when compared to some democratic nations or constitutional republics whose citizens oppose any restrictions and regulations on their movement, business activities and social lives. In the USA such outrage against restrictions have seen thousands of people flock to rallies where they are protesting social distancing measures in large groups – thereby increasing the risk of infection.
Countries impacted most by the pandemic seem to be those:
- who responded slowly to the pandemic with minimal interventions
- who have overburdened or understaffed health systems
- who have seen the greatest influx of local and international travellers
- who have overburdened economies
- whose citizens distrust or resist its political leaders, laws and/or law enforcement
- who did not make drastic changes to their health, socio-economic and economic budgets, interventions and approaches
On that note, South Africa, New Zealand, India, El Salvador, Portugal, Vietnam, South Korea, Greece, Costa Rica, Qatar, Argentina, Belgium, Kuwait, Ireland, Norway and Denmark were some of the first countries to institute strict lockdown measurements to curb the spread of the virus and ‘lower the curve’. Sadly, many people seem to misunderstand the rationale of lowering the curve, thinking that these governments aimed to eradicate the virus altogether. Instead, flattening the curve is merely aimed at giving health facilities more time to prepare for patients and see to a more steady influx of patients.
Three of the nations who had either partially or entirely thwarted social distancing and lockdown measures at the start have since backtracked on their ‘herd immunity’ approach given the rapid rate of infection and mortality. These include the UK, USA and Sweden.
The problem with herd immunity – as explained by so many epidemiologists – is that it is something which needs to develop over a prolonged period or in a controlled environment. The common flu, for instance, is something for which humans had built up immunity over more than a thousand years – and yet despite this immunity we are still susceptible to the virus. An unknown and uncontrolled virus being allowed to spread throughout society not only has a greater impact on individual immunity and health, but overburdens healthcare systems, prevents tracking and tracing of individuals and virus strains and could see rapid mutation which would place scientists at a disadvantage in developing vaccines.
Sweden learnt this the hard way. At the beginning of April, Sweden and its neighbours Norway and Finland had been neck-and-neck on infection and deaths, yet by the third week of April Sweden – who had refused lockdown measures – had leapt 18 spots up the international infection table. More worrying is the mortality rate. Though epidemiologists have cautioned that mortality rate cannot quite be calculated accurately at present, they have advised that this rate should be based on closed cases – those infected patients for whom there have been an outcome: recovery or death. Looking at these stats, Sweden stood at a 74% mortality rate compared to Norway at 8% and Finland at 4% by week three of April. The country tried to backtrack rapidly on its initial stance by imposing restrictions on its citizens, but unfortunately the damage had already been done. Hindsight is not something suited to 2020 – the dead don’t rise.
The US with its vast number of states had seen different results regionally. Unfortunately, Trump’s initial and immediate travel ban (without additional health and precautionary measures) had seen thousands of US citizens abroad flock back to their home en masse – mostly via New York – which led to an unprecedented spike in infections in this state. Elsewhere, restrictions which had been in place have now been lifted, with citizens flocking to beaches and bars to enjoy their freedom. The jury is still out on what the outcome will be, but given that the US is nearing 1 million infections with a 32% mortality rate at final outcome, it’s not looking good. Some of the country’s citizens argue that the US situation is not comparable to other countries given the size of the country and its population – but then one must consider that both China and India – countries with far greater populations and divergent political systems – had managed to contain the spread of the virus far better through their restrictions.
The same comparison can be drawn between Spain and Portugal – two neighbouring countries who’d approached the pandemic in vastly different ways. Spain had recorded its first case of COVID-19 infection on 31 January, and Portugal its first case on 2 March, yet the two countries imposed restrictions at nearly the same time, which meant that Portugal had intervened far sooner than Spain – at the time of lockdown restriction Portugal had 100 reported cases with no fatalities and Spain 5 000 with 133 deaths. Spain has subsequently surpassed Italy in infection and takes second place below the USA, with total loss of life at 22 524 at the time of writing this article.
Our top spots for social, economic and health recovery therefore go to:
- New Zealand
- Cayman Islands
- South Korea
- Hong Kong
- Costa Rica
The reasoning behind this recovery differs between nations, however, for countries like India, Qatar, South Korea, Vietnam and El Salvador, it would seem the relatively low initial rate of infection paired with swift social distancing and lockdown restrictions and a compliant citizenry has managed to mitigate health and economic impact. For New Zealand, Singapore, Finland, Iceland, Hong Kong, Malta and Canada, recovery is based on swift responses to the pandemic, progressive stimulus and socio-economic interventions as well as the relatively stable or progressive economies and cooperation of citizens which has managed to cushion the greatest blows. Other countries have managed to stay afloat due to low thoroughfare of travellers, low population density and a relatively lower risk in economic impact; it seems like the higher you are the further/harder you fall is true of emerging economies in particular.
Germany is an anomaly among the other large economies and within Europe. The country has the fifth highest number of infections worldwide, and yet it has managed to restrict mortality quite efficiently. One hypothesis for the country’s success is its leadership – unlike other nations which have had to rely on individuals or opposing panels of experts to strategise, Germany’s leader, Angela Merkel, is a scientist herself – with a doctorate in quantum chemistry. Not only is Merkel known for decisive and staunch action in times of crisis, but in this particular crisis she has the ability to acquire, process, analyse and make decisions based on scientific data which supersedes the abilities of other world leaders. She is not swayed by drama or sensation, determined to employ and utilise only the top resources – both government and independent – to aid the government in its fight against Covid-19, and dedicated to swift identification and treatment of infected residents. Added to this, Germany has a stable economy and strong workforce – it is prepared!
Perhaps, if one could take an abstract stance for a moment, Germany reflects South Africa’s approach to the virus – as countries who had been ravaged by tragic human rights violations, political division and mass loss of life, livelihood and cultural belonging – we are more aware of the risk of inaction and more concerned with the fate of each individual citizen and community than other nations. We’ve learnt hard lessons, and have had to make hard choices.
It should be noted that although we excluded most European nations, the UK, US, Japan and Russia from this list, these countries can hypothetically make a swift recovery given their clout. Russia, much like China, has a rather tight hold on the activities of its citizens, low population density and foreign relations which could see it recover rather swiftly. The US, UK and Japan have relatively stable economies and strong ties with various nations which could see it move funds around, recover debts owed to them and incur loans to see them through the worst. As for Europe, not only do the individual countries benefit from pooled resources, liquidity and economic stimulus packages, but these respective countries have strong ties with other nations outside the union as well – something which could boost economies and recovery.
Where to invest and stow your savings?
Another tough question given the state of the world economy. For much of the world the peak of the pandemic is still a long ways off, which means that projecting economic outcomes is a rather complex undertaking.
Firstly, we’ve seen a record of firsts in stock markets, in the oil and mining industries, by facing a global pandemic – these record highs and lows have shown that no amount of financial analysis or projection can account for unpredictable variables or a confluence of crises.
Lockdown restrictions have hampered the property market. Gold – the ever reliable investment asset – has not offered investors a safe haven, nor boosted their savings,
Yet there are some indicators which we can follow:
- Investing in industries which are not affected by the pandemic, and have even been boosted, such as IT, communication, social media, healthcare, healthcare equipment, online education, logistics (novel and progressive), weapons manufacturing, clean energy, micro-farming (gardening), essential foodstuffs
- Investing or moving retirement savings to countries which are most stable and progressive such as New Zealand, Canada, Cayman Islands, Malta, Germany and Singapore
- Investing in stocks which have plummeted, but may make a sharp comeback – this is a gamble though, as one is not guaranteed an outcome.
Expats: moving money out of SA is imperative
Despite changes to expat tax and relaxation of cross-border transacting in the pipeline for SA, Rand Rescue is for once, convinced that expatriating retirement savings and financial assets out of SA is the most sound decision those living abroad can make. Where we’d given tentative advice in the past, our stance is that global markets are simply not conducive to further gambling on outcomes.
The world is in recession. The only sound decision is one which mitigates risk.
We’re a crisis never seen before; no amount of political tomfoolery, spreading of fake news or ignorance will forestall the impact. South Africa is certainly one of the more stellar and responsible nations in the mix, but for expats abroad, the measures in place to buffer the economic impact are mostly inaccessible and require jumping through administrative hoops the likes of which we’ve not seen before.
There is every indication that the South African government is taking steps to recover the economy and take care of its citizens, but the cost of the necessary choices and impact on the income, savings and investments of its citizens will be dire and recovery will be slow. Given the depreciation of pension funds, stocks and the respective investment portfolios linked to those pensions, provident funds and RA’s, it is simply a sound decision to move your rands where you can expect less depreciation, higher growth and swifter economic recovery. With rumours of additional taxes for higher income earners in the pipeline, one must also consider the possibility that the expat tax we’d expected will once more be reviewed and amended, and with an overburdened public administration, SARS and SARB are also likely to see drastic increases in traffic, application and backlog in months to come as South Africans scramble for financial relief and compensation. This will place expats at a disadvantage.
As an authorised provider of cross-border financial services to South Africans worldwide, Rand Rescue has the capacity to assist all our clients remotely and facilitate all the necessary administrative and financial inquests, applications and submissions on your behalf – whether with the South African Reserve Bank, South African Revenue Service, South African banks and insurers as well as banks and authorities where you currently reside or wish to immigrate to. We offer sound advice, low costs and swift, hassle-free exchange and transfer of your funds and will see you through the whole process no matter your location.
Simply leave your details below and we’ll get back to you to get your money safely to you!