The long-term perils of short-termism: The inescapable socioeconomics of it all |#Opinion |#Mike Abel

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A number people have asked me to unpack my growing concerns regarding an extended #lockdown in a simple and accessible way. As I have said all along, I’ve always been a great supporter of the initial 5 weeks as we, together, headed the call to flatten the curve and give our country time to prepare our health services.

But now, without a certain cure on the horizon, and possibly even 18-24 months away, Covid is sadly the new normal, lurking among us.

So below is my piece looking at where we  a) find ourselves and b) what we can do.

There is a currently a certain narrative in our country which wrongly implies discussing the socioeconomic impact of Covid_19 is somehow being disrespectful to the intention of saving lives. I would like to point out why this is not the case, but in fact, the complete opposite.

It is an essential conversation we need to have if we indeed do want to save lives and help fend off a calamitous tragedy.

Having worked from time to time at the coalface of poverty across various initiatives for over 35 years, one can quickly see how the perils of unemployment manifest in various guises. Malnutrition for a start, dramatically lowers people’s immune system and makes them highly susceptible to Covid-19 and a host of other prevalent illnesses including tuberculosis. Malnutrition comes from the inability to buy proper food and eat regular meals. This is the direct and irrefutable consequence of unemployment. Where there is simply no money in the house.

Going into the Covid-19 crisis and lockdown, South Africa had already reached record unemployment levels of 32% plus, across all citizens, and over 50% youth unemployment for those young and passionate individuals seeking jobs. Six weeks into lockdown, we hear of the further hundreds of thousands of jobs that have now been lost. I have also worked closely with a job creation NGO for the past year, and know precisely how difficult and costly it is to create a job, in pre-Covid South Africa, so this note isn’t from someone who hasn’t had front row seats to this unfolding tragedy, even before it hit.

Let me point out some of the economic realities of unemployment and businesses closing. Less people working, means less income tax paid to SARS. Less in tax revenue allows the country to do fewer things in terms of education, healthcare, infrastructure and supporting the needy. More unemployment means less purchases. So, less VAT earned by SARS. Less purchases means less turnover and profit made by companies, so less company tax to SARS.

So, what we see in this simple paragraph, is less income tax, less VAT and less company tax.

When companies perform poorly because of a down-turned economy, the owners and investors in those companies also have far less money to spend on assets. When they trade these assets, like shares or properties, they pay capital gains tax (CGT) so this is also going to decline radically.

I point out in the above few lines, there will be less, far less tax revenue generated by South Africa than there was before Covid.

Now, an unfortunate reality, is prior to lockdown, we were collecting too little tax revenue as a country, as we had failed to grow our economy and as a result, have far too few taxpayers as a percentage of our citizenry. This also means that investors, both local and foreign, had insufficient faith in South Africa providing a fertile and stable environment for growth (return on investment) so they either chose not to invest here – or not to invest at all.

The reason our attraction to investors was so low, is because of our yet unproven ability to tackle corruption and bring the perpetrators to book. Other unclear policy statements about radical economic transformation and redistribution of land without compensation made foreign investors jittery and wary.

It is not that they do not believe in helping create a far more equal society. It is simply that whenever a government talks, without absolute clarity and a clear sustainable, viable plan, about taking assets away from some citizens or companies, and giving them to other citizens, it breaks trust and creates a low faith environment. In addition, our power company Eskom could not cope with the existing demands of our country, so manufacturers, factories, mining, and related companies requiring stable, ongoing electricity supply, could not risk unpredictable power output. So, the money simply moves elsewhere internationally.

Investors today, have the whole world to choose from in terms of where they put their hard-earned money.

As you can see above, it is easy to understand how our situation here is quite different from wealthy and developed markets. They have the investments, reserves, and tax revenues to afford certain lockdown dynamics and related subsidies and stimulus packages that we can only dream of.

Then one week into Covid, Moody’s decided to implement their long-expected downgrade. Unimpressed by our budget and our cost control measures, they could no longer wait for us to deliver on our fiscal promises and intentions and made the hard call. The timing was awful, and it was indeed kicking a dog when it was down, but at the same time, they knew Covid would only exacerbate an already dire economic situation.

The problem with our new investment rating, is there are certain foreign investment funds worth billions of dollars that are not allowed to stay in a country that has junk status. These are not arbitrary decisions, but regulated ones, where regardless of belief of recovery or sentiment, the money must leave until we regain our former investment grade. Our crippled economy has not yet dealt with the looming impact of this multi-billion-dollar disinvestment.

Now you make think I am being negative. I am not. All of these comments are plain, cold and un-emotive facts. A financial report card that paints an incredibly worrying picture if not meaningfully addressed in the short term.

Our R500 billion “injection” in the economy, is not free money. It comes with strings attached, compound interest and growing debt. It is less of a stimulus package than simply an oxygen tank for our economic body. It is triage!

When I then express my concern for our country and its people, it is taking all this into account. A vicious circle of growing debt, less revenue and far too little local and foreign investment. You cannot cure the body, without understanding exactly what you are dealing with, to bring it back to good health.

So, what is the muti required to fix South Africa’s economy?

The first thing we all need to do, hard as it is, is adopt a positive attitude. I have seen people achieve remarkable triumph over adversity when they approach problems with a constructive mindset. A victim mentality and negative outlook is the guaranteed formula for failure. Nothing positive ever emerges from negativity. And whether you like it or not, believe it or not, in one way or another, we are all in this together.

When I suggest that we all need to head back to work, some critics have found my observations ill-considered, naïve or at worst, irresponsible and dangerous. To think this is to sadly ignore what I am saying, to ignore the science and to ignore the data.

What I have said repeatedly, is I fully supported the 5 week lockdown which allowed us to flatten the curve as a country (which we have all successfully done) whilst giving the health care services time to prepare for a possible onslaught.

I also did state, repeatedly, the immuno-compromised and elderly among us should remain under a voluntary lockdown. We need to assist those at most risk from having to head out and be susceptible to infection, whilst ensuring, as far as is possible, that we provide food and shelter for these people.

I have been at pains to mention workplace safety as part of a returning to our jobs.

Barring a miracle vaccine, this virus is among us for the next eighteen months, perhaps even longer, so we need to adapt to a new normal, as science and our understanding of this virus progresses. Social distancing, mask wearing, hand-washing and sensitization may be with us for a while, but unless we get the cogs of industry moving and across all businesses, we are guaranteeing a profound socioeconomic disaster. We need to be vigilant. To monitor staff, temperature checks, tracking and tracing anyone who has been around someone overtly infected as we already know, a high percentage of those who have had the virus, demonstrated no symptoms.

We can only deal with the current facts as they present themselves and wide scale testing therefore remains critical.

Public transport naturally poses a huge challenge regarding infection, and whilst every precaution must be taken with masks, sanitizers etc, the mortality rate is extremely low among healthy individuals, so if those susceptible remain under lockdown, the mortality rate among healthy commuters should also be extremely low. This is not my opinion. It is the data available at this moment.

There are no perfect answers. There is sadly not a no risk option on the table.

It is unfortunate that those who have their own transport are certainly at lower risk from infection as they commute to and from work – but they are simultaneously also at lower risk from starvation. It is in such examples where our social inequality is most amplified, in how those who need money most urgently, are simultaneously those who will have less protection against the virus due to the challenges of their everyday circumstances.

Here is the rub. The only way out of an economic depression is spending. Buying groceries, clothing, cars, phones, investing in businesses, infrastructure, development, property. This spending creates jobs, those people in jobs spend and create other jobs. When a business dies, it is not an automatic defibrillation that gets it going again. Certain businesses and industries which die, remain dead, and all the jobs along with it.

It is extremely foolish to think business is like a light switch that you simply flick back on. Hundreds of thousands, if not millions of jobs have been lost in the past two months, that will never come back in their same shape or form. How many more jobs are we prepared to lose, given we were at record levels of unemployment before Covid?

Mike Abel – CEO Saatchi Abel
  • Without earning and spending there is simply no recovery. Only poverty. And more Covid due to lowered immune systems and enormous stress. So, investment by people, companies and government is the ONLY way out of this mess. And without producing stuff, manufacturing, creating, and selling, locally and internationally, there is no investment.
  • We need to reduce our debt as far as is possible. Government needs to create the urgent and favourable conditions for local and foreign investment through cutting red tape, being extremely business friendly and through tax friendly incentives.
  • We need new investment packages and schemes which are hugely compelling and attractive to investors and are underpinned by legislation to protect and enshrine the rights that protect these investments.
  • You cannot save yourself into growth. You invest yourself into growth. You can save money, most certainly, but it must then be reinvested to grow. In your businesses, investment policies, banking products and other key investments. This pertains equally to people, to businesses and to Government.
  • We must contain and even reduce debt as far as is possible. The same way compound interest is the magic formula for wealth creation, it has the equal effect on loans and debt where they grow and grow and then spiral out of control. Unless the spend is essential, or unlock growth opportunities, curtail your borrowing.
  • We must manufacture and farm locally, and we must buy local and spend local. We must keep our money here for the next five years as far as is possible and get behind the hospitality and tourism industry. Take advantage of our weak currency for the next few years on local holidays, if you can afford them and let’s use our cheap currency to attract the world to come here once we have a better fix on this virus and have a vaccine.

It is a clear and simple picture I have painted. People must work in order not to starve. Working people support those who cannot or do not work. Working people earn and spend. They pay taxes essential to Government in turn being able to supply basic services. Our President and our Finance Ministry know this. They knew it before Covid. They know we cannot afford to go beyond a 5-week lockdown.

We are now playing well into crisis overtime. And for those who believe I am being irresponsible; I say this from my heart. I am not. Your best intentions to sustain a lockdown may indeed secure the worst possible outcome. My points made are economically and factually irrefutable.

May we all start turning the tide together

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eBizRadio is a live multi- platformed social media service providing an online forum to the business community for holding conversations on the key issues related to specific businesses as well as availing a space for cross-business collaboration in response to key issues affecting the world of business. The place to go if you want to know about business and lifestyle

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