PAUL MASHATILE: The artillery being used by SA in the fight against COVID-19
“Bring out the big artillery!” This is the advice that many leading economists are giving to governments across the world in their fight against the impact on the economy by the COVID-19 pandemic.
In the absence of the big (fiscal) artillery, the South African government’s response is anchored largely on social compacting collaboration and consensus, which is the essence of who we are as a people.
For some time now since the outbreak of the virus, many governments, working together with central banks, have indicated their preparedness to “do everything”, “for as long as it takes” and “at whatever cost” to fight the economic impact of the virus.
Respected academic Paul Krugman has gone further to describe the COVID-19 pandemic as an economic shock that conventional monetary policy couldn’t offset. He argues that the case for fiscal stimulus is overwhelming in the immediate term, but in long run there is a need for a permanent, large and deficit-finance public investment on a continuous basis.
While the full extent of the economic impact of the COVID-19 is yet to be established, it is clear that it will be substantial. There is mounting evidence of sharp declines in tourism, global supply chain disruptions, weak commodity demand and falling investor and consumer confidence as a result of the spread of the virus. Global growth projections are being revised downwards.
Our economy is likely to take a knock from the slowdown in key trading partners in Europe, for instance, the Italian economy is no longer expected to grow this year, as well as China.
At one point recently the JSE recorded its worst trading day since 1997, with losses to investors reaching R3.3 trillion. Yields on South Africa’s 10-year bonds rose to the highest level since October 2018. The poor performance of the stock and bond markets have a negative impact on the nation’s (this includes workers’) savings and investments. It also limits the ability of companies to expand.
While rich countries have massive trillion US dollar fiscal stimulus packages to help their economies recover from COVID-19 and are looking for a quick rebound as early as the third quarter of 2020 - and definitely in the fourth quarter – South Africa does not have quite the same level of leverage.
Our fiscus is under pressure. Revenue is falling mainly as a result of a weak economy. The consolidated budget deficit stands at 6.8% of GDP while gross national debt is projected to be at 65.6% of GDP by the end of financial year 2020-21.
What this means is that there is little scope for South Africa to lay out a massive fiscal stimulus package – of the scale announced by developed economies – unless we substantially increase our borrowing. South Africa is unable to bring out the big (fiscal) artillery to respond to the economic impact of the epidemic.
Despite having little room to manoeuvre, government has announced a package of carefully planned and targeted measures which are being implemented to prevent further damage to our economy, to protect jobs, incomes, businesses and the most vulnerable in our society.
These measures include the establishment of a Solidarity Fund, which will enable individual South Africans, companies and the international community to contribute resources to the fight against the virus.
During the State of the Nation Address President Cyril Ramaphosa spoke of what he referred to as “the greatest strength of our constitutional democracy, and the reason it has endured.” This, he said, is our ability as South Africans to forge broad-based coalitions and social compacts: with business, labour, special interest groups or wider civil society.
The spirit of consensus and collaboration across all sectors is what produced the “South African miracle” our country is renowned for. It is spirit that is once again carrying our nation as it navigates through the coronavirus pandemic.
As opposed to a large fiscal artillery, what South Africa is bringing to the fight against the economic impact of COVID-19 is the collective will of all sectors of society to pull together through this challenging period.
In addition to measures announced by government and the Reserve Bank’s loosening of monetary policy, the private sector has stepped up in a major way to help cushion our economy, businesses, households and the most vulnerable in our country. Private sector contributions are flowing into the Solidarity Fund established by the President.
It is also reported that business organisations have mobilised human resources into full time pro-bono work to limit the economic, social and health effects of the pandemic and to strengthen government efforts to fight the pandemic. It is said that the response by business to the pandemic; “dwarfs all previous business initiatives in its scale and impact”.
Bolstered largely by the strength and resilience of our financial system, commercial banks are intervening to assist businesses and households in distress. Measures are being looked at how local manufacturing can be optimised to manufacture essential goods that are typically imported but will not be available due to the breakdown in global supply chains. This augurs well for the future of manufacturing in South Africa.
These joint efforts are but a start. However, they are important in demonstrating the power of collaborative work. They point to a brighter future of working together as South Africans to emerge from difficulty. In this regard, the words of the vice president of Business Unity South Africa are instructive; “We have embarked on this major collaboration - among SA businesses and with the government - to share best practice, reduce risk wherever possible, and implement practical measures to ease the hardships caused by this global catastrophe. We will see through this pandemic by preparing effectively, adapting where necessary and acting decisively.”
These acts of working together across sectors are in line with the declaration of the 54th National Conference of the ANC that, “We shall, as urgently as possible, bring together, government, the labour movement, business and communities in a social pact to accelerate economic growth and create jobs.”
They are also an affirmation of the correctness of the ANC’s strategic posture that our movement’s relationship with private capital is one of cooperation and contestation. In this regard the state, private capital, cooperative and other forms of broad ownership must work in partnership to eliminate poverty, significantly reduce unemployment and inequality.
This is the future the ANC envisions: a future where we work together to overcome adversity. The building blocks towards this future are being laid as we together fight the COVID-19 pandemic.
Paul Mashatile is national treasurer-general of the ANC.