Structural reform is necessary to repay the costs of the lockdown

26 June 2020
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As the dust begins to settle from South Africa's protracted lockdown and a clearer picture emerges of what the future holds, it is worth looking at the downstream costs of government’s draconian Covid-19 policy regime to the economy.

The starting point has to be the national budget and the R500 billion rand stimulus package.

Although a necessary and valuable tool to help South Africans weather the storms of hardship and adversity, it is only temporary relief. It contains no long-term plan of economic reforms aimed at unleashing our entrepreneurs and our businesses to create jobs and to make South Africa an investment-friendly destination for foreign capital.

Even before Covid-19 hit our shores, the country was in a slow-moving death spiral of precarious public finances, a failing education system, a Great Depression-esque unemployment rate and a surge in violent crime. The coronavirus has sped up the need for essential reforms as hunger and unemployment are set to balloon given that many small businesses closed because of the punishing and extensive lockdown.

This will have downstream costs in a number of areas, starting with public finances.

In a report to Parliament on May 5, Edward Kieswetter, the commissioner of the SA Revenue Service, estimated that losses of 15% to 20% of tax revenue, or about R285 billion in fiscal year 2020/21, were anticipated. This was in line with forecasts by the Bureau for Economic Research of R280 billion.

This sharp drop in public finances has to be seen in light of other developments during the lockdown. As of May 20, 1 577 schools across the country had been rocked by vandalism, thefts and break-ins. Many of the thefts targeted computer laboratories containing expensive equipment which will need to be replaced. In the cases of arson and vandalism, an already cash-strapped government will need to fix existing buildings or build new ones. This is against a backdrop of a society in which half of all children do not graduate from high school and half of all young people are unemployed.

Another potentially explosive social issue is how the fiscus will deal with social welfare obligations imposed by the Constitution as the fallout from a deepening unemployment crisis and business shutdowns will leave many more South Africans requiring assistance. At the same time, the fiscus will become more dependent on borrowing at the risk-premium-driven high interest rates required to compensate foreigners investing in South Africa's junk bonds.

Even with the stimulus package, many small businesses have simply not been able to survive. One of the most tragic is the closure of Brownies & downieS in Cape Town, a coffee shop that specifically employed people with special needs.

Perhaps the most concerning aspect of our prolonged lockdown and the subsequent rise in unemployment is the increase in food insecurity among the most vulnerable members of our society.

Even before the coronavirus, the Stats SA report on early childhood development found that a third of children in Gauteng and Free State were stunted as a result of chronic malnutrition.

South Africa also has one of the highest incidences of low birth-weight rates in the world. This is hardly surprising when nearly 35% of pregnant women said they were unable to buy food for five or more days before the survey.

It’s not a stretch to suggest that the long-term effect of the lockdown will worsen and aggravate and prolong any efforts to deal with the gulf in income and wealth inequality between South Africans, especially along racial lines.

This was worsened by the government's heartless decision to systematically starve the children of the poor by shutting down school-feeding schemes and taking away the only nutritious meal many children had for the day.

A population weak from hunger and hunger-related illnesses will be less able to fend off subsequent waves of the coronavirus.

There will be downstream healthcare costs related to increased food insecurity and hunger which have not been priced into the government's insistence on implementing the ill-considered National Health Insurance scheme.

As important as police reform is in both the US and South Africa, without widespread market-friendly economic reforms and an unleashing of businesses and entrepreneurs, any such reform will ring hollow because our communities will still be hungry and jobless and even more vulnerable to alcohol and drug abuse.

We cannot claw back the losses to the fiscus in the medium and long term without economic growth and a wider tax base, because a return to normal in South Africa is simply a return to a country in recession, a failing education system, a lethal police force, food insecurity and a lack of social mobility for the poorest South Africans.

Mass unemployment and hunger will not be good for our communities and might very well increase violence which will make policing even more dangerous. This is a point worth mentioning in light of George Floyd's tragic death at the hands of white police officer Derek Chauvin in the US.

Even as protests rage around the world, it bears noting that when adjusted for population size, South African police are twice as lethal as those in the US but also six times more likely to die in the line of duty. It is entirely conceivable that the militaristic rhetoric from Police Minister Bheki Cele will increase as a response to the upsurge in violence and with that all the attendant problems that have streets in the US up in flames.

This article was first published on City Press on 19 June 2020

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