COVID-19 and the Economy
By Ilan Preskovsky
The first two decades of this new millennium have certainly had their challenges, but 2020 seems to have taken all the uncertainty, anguish, and anxiety of the 21st century and condensed it into a single year – or, as of this writing, half a year. Hysterical premonitions of the apocalypse may be rather premature (there have been significantly worse years in human history), but we are living in the midst of the greatest global crisis of most of our lifetimes. All from a small mutation of the common cold.
Okay, that’s a slight exaggeration, not to mention a medical inaccuracy, but the point still stands: the entire world has been brought to its knees by COVID-19. This highly contagious and sometimes fatal virus may not be the sort of world-ending plague often depicted in films about worldwide contagions (or even significantly more deadly plagues like the Spanish Flu of 1918 or the Black Death of the 14th century) but it has infected millions and killed hundreds of thousands of people worldwide. It has also decimated the worldwide economy more severely than anything since the Great Depression of 1929.
Developed, “First World” countries like the United States and the United Kingdom have been badly hit in particular by the pandemic and the resulting economic turmoil reflects that. In the US, unemployment has reached its highest point since the Great Depression and the period of consistent economic growth of the past decade has come to a bitter and abrupt end. This is nothing, though, in comparison to what many experts fear is going to happen to developing countries in the upcoming months and years.
CNN political analyst, Fareed Zakaria, recently did a brief but sobering analysis on exactly this subject and the picture he paints is not a pretty one. First, South Africa was listed 12th in the world for new cases of the virus recorded during the second week of June. This is worrying, of course, but isn’t too surprising as the common wisdom has always been that the hard lockdown of the past few months was about preparing the country for the inevitable high up-tick of cases during the winter months.
His conclusion that the government would, therefore, be forced to choose between keeping the economy closed with untold numbers dying of starvation and reopening the economy with the risk of the virus spreading like wildfire is something we’re witnessing in real-time in our own country. This balancing act is made all the harder by the fact that so much of South Africa’s population have compromised immune systems – with HIV, tuberculosis, and diabetes prevalent, especially in the country’s poor black communities.
Now, even the biggest ANC-sceptics would surely agree that, overall, President Ramaphosa has done about as good a job of leading the country through this unprecedented crisis as is possible and has done an admirable, if uneven, job of balancing COVID-19 prevention measures with the economic realities of the country. Regardless, as Fareed points out about all developing countries, we went into this with an already broken economy and a weakened currency, so no matter how good a job the president has done and no matter how much individuals and businesses have stepped up to the plate during these difficult times, we’re going to have a much harder time rebuilding our economy than your average developed country armed with the Euro, Dollar or Pound.
Are things as bleak as they sound, though, and if so, what is there to be done about it?
A light in the darkness?
To get a better idea of what the economic and financial future holds for the South African Jewish community (and, of course, the wider South African population in general) after COVID-19, I was fortunate enough to have an in-depth discussion with someone who has a rather better understanding of the topic than most.
Mesh Pillay is the founder of authorised financial services provider YW Capital and a veteran investment banker who has worked on and led some of the most prominent equity capital market transactions across Africa for Deutsche Bank, Renaissance Capital, and Standard Bank. Mesh admits that “the ramifications of the COVID-19 pandemic have permeated all levels of the economy. In particular, the lower to middle-income class of South Africa have been hardest hit following the COVID-19 outbreak in the country,” but that this certainly isn’t the whole story.
In particular, without minimising how difficult the coming days are going to be for South Africans, with many if not most already feeling the pinch (especially those who have already lost their jobs because of the economic effects of the pandemic), Mesh notes that this level of social and economic upheaval may well see the creation of many new opportunities in the long and medium term.
“COVID-19 will result in the redress of regulations aiming to enhance social welfare and monetary stimulus to bolster economic activity. The government will be forced to consider economic reforms which seek to bolster the SMME (small, medium, and micro-size enterprises) sectors and solidify policies which favour mass employment, particularly for impact sectors such as mining and agriculture.”
This will be good news for those most hurt by the economic downturn – the working and poor classes of South Africa, who have faced a notable shortage of employment opportunities in the country in recent years. And, known as they are for being the backbone of any economy, a greater investment in SMMEs would be especially beneficial as it would both stimulate the economy and create plenty of jobs.
While all of this is, of course, reliant on both the government and private enterprises working for the benefit of the people of South Africa as something of a reset for the South African economy, it only makes sense that COVID-19 can just as easily be the spark for a better future as a final nail in an already shattered economy. As Mesh says, “Only time will reveal the extent and impact of what can be done to stimulate the economy, whilst seeing tangible uplift of the economy’s most destitute.”
But What Does All This Mean For Now?
While the future is, as always, unwritten and just out of reach, the fact that there is reason to be optimistic about what tomorrow may hold doesn’t change just how difficult the present is for so many. No doubt, this virus has taken the greatest toll on the poorest South Africans, on the homeless and disenfranchised, but it has done more than enough to severely impact the lives of countless individuals in the Jewish community. Owners of small business, especially in retail, have had to deal with the consequences of their businesses being shuttered for at least a month and then reopening into a deflated economy. Workers of all sorts in small, medium, and even large companies have suddenly found themselves unemployed or indefinitely furloughed in an economy where new jobs are nearly impossible to come by. Those of us still blessed to have our jobs (and especially those of us who can work from home) are the fortunate ones, to be sure, but even we have to try and live in a world that’s crumbling all around us.
Books can probably be written about the psychological implications of COVID-19 just in terms of the strain that such financial hardship can place on one’s mental health, but there are no doubt a number of practical solutions to give both your wallet and your psyche some much needed relief. Mesh, to be very clear, is reluctant to give personal finance advice as he deals with the corporate side of finance, but talking to him in general did give me some idea of how to apply corporate strategies to our own wallets.
• First, take a step back and re-evaluate your current financial position. The past three months will have significantly affected our personal budgets so, before doing anything else, take a good hard look at your financial situation to understand the extent, if any, of the damage.
• COVID-19 has created new costs that may well impact your budget and exacerbate any other hits to your budget. Sanitisers, face masks, and other personal protection equipment can be surprisingly expensive and that’s to say nothing of the medical expenses that can rack up if you or a dependant, G-d forbid, catch COVID-19 and need to be treated for it. Those who lost their jobs are in a particularly precarious position as there could hardly be a worse time to be without a decent medical aid.
• Be as frugal as possible to make whatever money you do have last as long as possible. This means making tough decisions like refraining from eating out or spending your savings on luxuries. Even a daily cup of coffee can seriously add up.
• Managing of existing debt is an easy one to overlook but is crucial for both your current and future financial situations. This would mean, if at all possible, continuing with the same debt repayments as before the COVID-19 outbreak. This can be extremely difficult, no doubt, but compounding debt can be ruinous. On the positive side, the lower interest rates on loans should at least offer some relief.
• For those who aren’t living “hand-to-mouth”, it’s essential to make the most of your existing savings by refraining from drawing too much from your savings and allowing interest to accrue. Perhaps even look to open an account with greater rewards. This includes both good interest rates on your account and added bonuses like Discovery Miles or eBucks that can be racked up just by swiping your card.
As for investments, they aren’t just made by the fabulously wealthy trying to become even wealthier, but by many working Joes who wisely invest their money in the hope of capitalising on whatever extra cash they happen to have, and should be considered carefully. The various forms of investments are complicated and varied enough to be well out of the purview of this article (and my own understanding), but making contact with your broker during these times certainly can’t hurt.
Mesh does stress, though, that as bad as COVID-19 has been on the markets, it’s certainly not the first time even this century that the stock market has been battered by global economic crises (the “dot.com” crash of 2001, the sub-prime mortgage crisis of 2008, the China stock market crash of 2015, for example) and that those who are able to ride out the next few months in terms of their investments should do so.
“Those investors who can afford to weather the depressed capital markets should do so. The recovery of our economy has only commenced and the capital markets have already recovered some of their losses from the effects of the crash and its lowest point in March 2020. This view should remain cognisant of the strengths of asset classes going forward.”
If one is fortunate to have enough financial stability during this period both by entering into it with significant savings and managing your money well during the pandemic, there is one that area that Mesh particularly recommends investing in right now. The property market is widely known as one of the best areas to invest one’s money and the massive depression on property prices right now might make it a bit of a nightmare for those wishing to sell, but is a golden opportunity for those wishing to invest in it.
“Potential home owners, workers who have savings, and those considering property as an investment can consider an investment in fixed property (whether for domestic or rental purposes) in the current economic climate. By April (and before the lockdown), property sales were down almost 40% when compared to the equivalent period in 2019. Moreover, the COVID-19 outbreak has exacerbated the impact to the property sector with house prices forecasted to decline a further 5-15% in 2020.
“This means that the decline in demand could create good buying opportunities for those seeking a new abode or long-term investment. Coupled with the low-interest-rate environment and the recent regulation exempting transfer taxes on properties less than R1 000 000, property provides a long-term, stable investment for average working persons to consider.”
Life After Coronavirus
Inevitably, even as so many of us struggle under the present reality, our minds can’t help but turn to the future; to what our world will look like after COVID-19. Even those of us who are pretty hardcore introverts eagerly await the day when we can leave the house without an emergency kit of hand sanitiser and medical masks, when we will once again be able to take for granted simple things like going to the cinema or visiting friends.
With this, though, comes the entirely reasonable anxiety about just what our return to “normalcy” will actually look like. After all, for all of its many hardships, the lockdown (multi-layered as it might be) no doubt feels rather unreal to many of us – a clear break from life as normal. Sadly, for many, this break from reality is true in the most tragic sense, but for others it has undoubtedly been a forced but much-needed sabbatical from the rat race; one that has allowed us to take a step back and reassess the paths on which we find ourselves.
If Mesh is correct, despite the extremely tough days ahead economically, COVID-19 may well force industries and the government to reassess their own priorities, goals, and methods:
“Let us not forget that a virus pandemic such as the current one manifests at least once every decade, somewhere around the world. However, the global reaction to the COVID-19 pandemic and its effect on South Africa is what forced the hand of our government to consider a regulatory change. South Africa, like many counties, has relied on the aid of international monetary funding for stimulus support. The result is our country now operates in a further national budget deficit. Should the conditions imposed by the International Monetary Fund and others, who have provided South Africa with financial aid, enforce further governance on our budget allocations then we will find a reduction in unscrupulous government spending. Time will tell if this independent governance will result in reducing bailouts of unprofitable state-owned enterprises (SOEs) and align efforts to public-private partnerships (PPPs) and, hence, majority privatisations of SOEs.”
What this boils down to is that however anxiety-provoking our uncertain the future may well be, there is certainly room for both hope and for brand new opportunities that might not have existed before. Mesh stresses, in particular, that there is a high probability of the government investing more money in small businesses than ever before, which would be a major game changer for these small enterprises and the people they employ.
“South Africa has always been a destination with private sector dominance across industries on one side, but on the other side, a destination with immense opportunities for small businesses and entrepreneurs, however with limited funding capability. In the past, small businesses have relied on friends and family to further their business endeavours. I strongly believe that a change in regulation and monetary stimulus will result in a growing pool of capital which will chase returns that are now not achievable in your bank-supported, medium-size businesses. The funding opportunity to grow our economy and increase jobs will be refocused to smaller businesses. Large banks cannot justify the time or risk to fund these small businesses.”
The lockdown has also shown that working remotely isn’t just doable, but, in many cases, preferable, and we may well be looking at a radically different way of working moving forward. Though this certainly won’t apply across all sectors and all industries (especially not service or manufacturing industries), after months working with flexible time tables, largely reliable video conferencing, and the clear ability to do the same work from multiple locations, it’s not hard to imagine a shift away from what is becoming an increasingly anachronistic practice of having to report to a single office for nine hours a day regardless of how much work you actually have.
Even in the investment banking industry, which Mesh firmly believes will not move towards a work-from-home system, he does believe that “there will be a paradigm shift in the way the sector operates. With the aid of technology, one capable individual will be able to perform many jobs.”
Will any of this actually happen, though? Will this crisis breed further innovation in work and a revolution in government spending, or will we learn nothing from the past and go back to the way things were as if 2020 never happened? Time, as it has the habit of doing, will tell. If nothing else, though, we can at least draw some comfort that things may not be anywhere near as bleak as they might first seem. And that’s not nothing.