PETER ATTARD MONTALTO: What lessons should we learn from the Covid-19 crisis?

After the health crisis forces in the government will be pulling in completely different directions.

This column was first published in Business Day.

Has something switched in this crisis?

President Cyril Ramaphosa is rightfully getting a lot of praise for showing strong leadership. But why? What has people so enthusiastic?

We have seen swift action pushed for, advised on and then implemented by health experts. (Scary) evidence was presented which sparked change and the roll out of new systems of control. SA’s social partner framework has given the strong impression of joined up action and cohesion.

What people are really excited about however is a final joined up chain from PR and rhetoric, through evidence-based policy to implementation. This has been the siloed chain of governance for the past two years on economic policy issues. Seeing government in action through the president and the short turn around times of decision making, the fact SA has acted significantly ahead of the curve versus other countries (locking down before the first death) has all shown resolve.

Minds naturally wander then to possibilities of the same resolve being shown with respect to structural reforms. Indeed, some people are getting overexcited that momentum can be continued through from this crisis to deal with economic reforms.

The question arises that with an energy crisis brewing in the past two years, an unemployment and an inequality crisis not to mention the failure of the Tito paper (which let’s not forget shocked the country by being evidence based policy making) — why will anything change after this health crisis?

People are alighting on the president’s supposed instruction to finance minister Tito Mboweni following the S&P’s downgrade that now structural reform will happen! To me this sounds like a very odd time to wake up to the need to embark on reform.

But we need to inspect more why things are suddenly happening now and why this isn’t applicable to structural reforms.

First, the coronavirus crisis plays perfectly into the governing party’s command and control mindset which is fearful of subsidiarity and liberalisation. As such they are all pulling the same direction and in a time of crisis getting a huge amount of support and heavy lifting from organised business.

In particular, the expert evidence-based policy is aligning with securocrat tendencies that want lockdowns and want centralised control by ministerial dictate. True the nature of the lockdown has probably gone beyond the health recommendations, but the direction of travel has been the same.

Structural reform however requires the opposite, liberalisation, less central command and control, less direction by ministers and an inability for central direction — and this is why the energy crisis hasn’t been dealt with decisively.

Indeed, despite the state of the nation address in February, the latest Schedule 2 to the Energy Regulation Act that was gazetted singularly fails to offer the required or promised liberalisation to the sector. More recently we have seen vested interest make a move against the National Energy Regulator of SA with the suspension of its widely respected CEO. Games are ongoing.

The point is that after this health crisis forces will be pulling in completely different directions and the president has not shown he has actually changed how the ANC or political economy or government structures work — they are just aligned currently to his leadership direction.

The state has also not really been tested yet. The issue with so much structural reform in the past two years was that there was a lack of state capacity and what was there was distracted and risk averse with vested interests jockeying.

The number of coronavirus related deaths is currently low and hospital capacity and government response has yet to be put under severe pressure. But this test will come — the government is expecting the most rapid scaling up of the death rate only into mid-year and peaking early in the third quarter.

Ongoing fights that are largely below the surface will then really come into sharp relief — especially central control over procurement (and associated corruption risk being seen already in some cases) and more decentralised procurement and control efforts.

The same is true for the ability to actually roll out and implement economic crisis responses. The government was quick off the bat to put in place the Unemployment Insurance Fund support and Department of Small Business Development funds among others, but has yet to show success in its ability to pull capacity together and implement and pay out in size to the number of required claimants.

The economy is set to shrink in 2020 by at least 9.7% with the extended lockdown and the shockwaves through over one million jobs lost and several thousand formal sector SMMEs that may not reopen. Yet the real pain will be to casual workers and informal sector SMMEs who cannot access support and with limited fiscal space to offer any broad-brush stroke money drops.

The slow rises in cases now should not lull SA into a false sense of security. This is going to grind on for months to come.

Nor should the (correct) praise for the leadership shown and governing over the head of the ANC to the people be unquestioningly morphed into rose-tinted glasses on post crisis reform. The reform agenda needs to move forward now so the economy can accelerate out after but the limited capacity is fully engaged on the health crisis.

Equally we should be mindful that the securocrats in government have now got a taste of power and ministerial dictate — as have those who like command and control on the economy. The hang over from the crisis risks a sticky slide to more control not less — which we should watch carefully. That would drag post-crisis growth lower than that of before the crisis. This is not a simple one way street towards reform.

It won’t be until we see a fundamental shift in the political economy and state machinery, an ability to drag the post-crisis divergent forces along the reform path at the critical speed required to achieve lift-off — that we can say that something has really switched during this crisis, and is not just a coincidence that the divergent forces are aligned. SA and business in particular needs to not repeat the same mistake it has made before of misdiagnosing the problem and should see the political economy as a more sticky and unchanging mechanism instead.

• Attard Montalto is head of Capital Markets Research at Intellidex.