STUART THEOBALD: Fast response let down by economic blunders

This column was first published in Business Day.

My life is divided between the UK and SA. So I’ve seen the Covid-19 responses in both countries, and the comparisons are revealing.

The UK made some awful policy missteps in dealing with the epidemic. It started out aiming to deliver herd immunity, the idea that once 60% of the population have had Covid-19 there is enough immunity to stop it spreading.

When a team of epidemiologists at Imperial College London then showed up to 30% of hospital admissions would require intensive care, totally swamping the National Health Service, there was an abrupt turnaround and a lockdown was introduced. Though by then the infection trajectory had been put on a higher plane.

There have been several other stumbles including testing only those admitted to hospital, failing to mobilise procurement of personal protection equipment, and failing to ramp up testing capacity. These blunders no doubt contributed to the UK’s daily death rate becoming the highest in Europe, with almost 1,000 people dying per day in hospitals (not counting those dying in care homes and elsewhere).

Compared to that, SA has been a model of clear, well-considered interventions. The lockdown decision was quickly taken at a relatively early stage of the epidemic. Testing capacity and rate has been impressive, despite the relatively poorly funded health system. President Cyril Ramaphosa earned wide praise, from opposition politicians through to the director-general of the World Health Organisation.

But where SA falls in comparison is the economic response. The UK announced a dramatic £350bn (16% of GDP) intervention to support the economy three days before a general lockdown. This ranged from covering 80% of the salaries of all workers who were furloughed to a funding scheme through which the largest businesses could borrow directly from the Bank of England.

In addition, many specific features of the lockdown in the UK allow far more economic activity than in SA: e-commerce was not only allowed, but many retailers could also set up new online sales and distribution. There has not even been a ban on flights (though there is almost nowhere to go).

While pubs, restaurants, entertainment venues and education facilities have been closed, other businesses can continue operating provided they do so safely, and if workers cannot work from home.

Individual workers such as gardeners and window cleaners can operate provided they work alone. This means lockdown in the UK has considerably less economic impact — you can still buy and sell whatever you want online and if you absolutely must go into work, you can. And it is you who makes that decision; in a country that rejects ID cards as unacceptable government overreach, the idea of permits to work hasn’t even been suggested.

In contrast, SA waited four weeks after the initial lockdown before a material economic intervention was announced. Four weeks of lost time during which business owners would have closed instead of holding out hope. The details of the lockdown, and the phased relaxation, appear not to have been thoroughly assessed for their economic impact. There is no effort to help the economy adapt, such as allowing e-commerce. Companies that could operate perfectly safely, such as highly automated manufacturing or logistics centres were forced to close, with no possible health reason.

The UK’s office for budget responsibility, which reviews government fiscal policy, has estimated that the second quarter will see a 35% decline in GDP, with a 12.8% decline for the year. The estimates for SA are not as bad, with the official Reserve Bank estimate at -6.1%, though others, including my firm Intellidex, are forecasting a worse outcome at -10.6%. But if you compare the two countries’ economic responses, it would be understandable for SA to face a far worse economic collapse than the UK.

Yet it seems some don’t want to hear that. I was astounded at comments by trade & industry minister Ebrahim Patel in the Sunday Times decrying forecasts of the cost to the economy as a “thumb suck”, and that the government had not calculated the cost.

The only UK comparison I can think of is when economists’ forecasts were dismissed by justice secretary Michael Gove before Brexit with the words “people in this country have had enough of experts”. On what basis is Patel making decisions about policy? Does he really have no estimates of what the cost of his and cabinet colleagues’ policies are? Who is doing the technical modelling to forecast the economic impacts?

I fear the answer is: no-one. Which might explain why SA’s economic policy intervention was so late, and the details of the lockdown phases are so unresponsive to economic impact. How has this happened?

While the president was assembling a crack team of health experts, did he not also assemble a crack team of economists? Where are the excellent technical teams from National Treasury? How is it possible they are not in the room to give Patel and the rest of the cabinet and Command Council detailed analysis of economic impact?

This genuinely fills me with fear for the future of the SA economy, one far more economically precarious than the UK’s. In SA, poor economic policy translates rapidly into poverty and hunger.