STUART THEOBALD: A social disaster is brewing

It is harder to ignore than the economic crisis that is causing it.

This column was first published in Business Day.

Perhaps one reason the government has been so slow in developing a decisive economic programme to mitigate the fallout from the Covid-19 crisis is that we don’t have the data. And without the data, it is easier not to panic.

But let’s try to think through the numbers, starting with what we can learn from the rest of the world. The US knows that 22-million people are now out of work, taking its unemployment rate to 17% from next to nothing. It is easier to let go of employees in the US than here, but even in the UK, where companies can get 80% of their salary bills paid by the government, they are expecting the unemployment rate will double to 10%.

Locally, of 11-million formal sector employees, how many will have been retrenched already? Of the 3-million informal sector workers, how many have been cut off from their subsistence activities? Of the 1.3-million workers in private households, how many have been let go? If we imagine a rate between the US and the UK, about 10% seems reasonable. That’s 1.6-million people added to the list of unemployed in SA. Because our unemployment rate is so high already, this would “only” increase it from 29% to 36%.

There are 2-million registered companies in SA, but only 900,000 submit tax returns, which indicates those that are active. What proportion of these are going to survive several months of almost zero income? Are we going to see a 35% contraction in GDP this quarter, as in the UK?

I think it could be worse. Our lockdown has been far more draconian in forbidding online sales and exports of most goods, which the UK has allowed to continue, from an already higher base. Could SA be down 40% this quarter? This stress is also not evenly distributed. Clearly, hospitality and tourism are severely affected and other sectors, such as business services, less so.

Companies were battling after two quarters of negative growth, so cash buffers will already be stretched. But the uneven distribution means some will be experiencing a death blow and others merely a slap in the face. Those we can expect to be in mortal peril include the trade, catering and accommodation category, which makes up 14% of GDP. All told, is it unreasonable to expect that we lose 15% of active companies which are forced into liquidation?

There are clear anecdotes of what this means on the ground. Reports last week were disturbing: residents of Diepsloot shouting to army patrols that they are hungry and desperate for food; police firing rubber bullets on hundreds who had gathered in Alexandra to receive food parcels that never arrived; the SA Social Security Agency (Sassa) receiving 9,000 calls per hour applying for food parcels.

In the absence of data, it is perhaps these anecdotes that will grab the attention of political decisionmakers. A social disaster is brewing that is harder to ignore than the economic disaster that is causing it.

The odd thing is that the health threat of Covid-19 has been dealt with robustly, yet the economic threat has not been. Clear political leadership from President Cyril Ramaphosa got the nation to accept the need for a lockdown, yet his leadership has not so far extended to addressing the economic consequences of it.

Closing companies reduces the capacity of the economy, baking in a permanent loss of economic potential. Unemployment feeds itself as those without work lose skills and therefore become less employable. The crisis will lead to a long-run smaller economy that employs fewer people. When the time comes for recovery, it will be that much harder.

Just how much smaller the economy becomes depends on the actions taken now to defend it. So far, these have been paltry. The R40bn set aside by the Unemployment Insurance Fund (UIF) for the Temporary Employer/Employee Relief Scheme (Ters) is a red-tape nightmare for companies to use and takes a long time for the cash to arrive. For those companies at the margin and face with laying off their staff, any delay tips their hand towards closing. Small amounts have been set aside for a sectors such as tourism, but these have been too little and too complex to access.

To protect jobs and companies we need rapid and substantial interventions. Employers should be able to cover a proportion of their payrolls for workers who cannot work directly through the SA Revenue Service (Sars) without any need for an application, provided they keep them in their jobs. Companies should be able to access low-cost loans to keep themselves from bankruptcy in a simple and quick way, ideally using the banking system.

The informal sector is perhaps the toughest. Arguably, the social security system is the best mechanism we have to deploy support. These are obviously expensive interventions for an already cash-strapped government to make, so it will also need an emergency budget and overhaul of spending priorities with innovative ways of borrowing. This is the sort of economic intervention we need to match what has been done on the health front. That is what strong political leadership would look like.

  • Theobald is chair at Intellidex.