While it is widely accepted that the world economy will be remarkably different post-coronavirus, it is just as important to manage the South African economy within the context of facing the challenge of the pandemic which could possibly last for the next two years, according to Reserve Bank Governor Lesetja Kganyago.
The governor was sharing his views on a "new normal" following the Covid-19 crisis, during an interview on Fin24 Speaks, last week.
"The world economy will not be the same again and the SA economy would not be either," he said. This is the worst crisis the domestic economy has faced since the global depression back in the 1930s, the latest growth estimate by the Reserve Bank indicates a contraction by 7% for 2020. Treasury projects a worst-case scenario contraction of 16.1%.
"I know people talk of a post-Covid-19 economy. I don't know how many years to come, that will be. We must learn to manage this economy in the context of facing the Covid-19 challenge. Absent of a vaccine or cure, we will have to live with this Covid-19," Kganyago said.
The message of not returning to the "status quo" has been stressed by government officials, some business leaders and the president. Just last week, SARS Commissioner Edward Kieswetter said the country now has an opportunity to reshape a more inclusive economy, addressing past injustices.
President Cyril Ramaphosa similarly shared these views, in an address to the South African National Editors' Forum on Sunday. He said that the SA economy should be restructured to address challenges of society – poverty and inequality.
The president said a new social compact between government, business and labour is needed to work towards achieving inclusive economic growth. "We have been operating under an economy which has been colonial and racist, over the many years," he said. "Covid-19 gives a stronger rationale to transform and restructure the economy," he added.
A draft document including submissions on the restructuring of the SA economy has been collated by the ANC's economic transformation committee. There are submissions on interventions across sectors such as energy, tourism and manufacturing, and proposes the establishment of a state pharmaceutical company as well as the fast-tracking of a state bank, as part of efforts to bolster the economy. It also weighs in on the financing of a n infrastructure development programme, which could potentially come from pensions.
Commenting on the document, Enoch Godongwana, the head of the ANC's economic transformation committee, explained that the proposals had not yet been finalised, but the ruling party was hopeful that it could "influence debate" on the way forward for the economy. "There were submissions to the ETC by various individuals… these are the submissions we got, we have to fine-tune them."
In terms of the idea of a developmental state, touted in the document, Godongwana said it not only about state ownership, but also about allowing the state to bring leadership to society, including business.
Analysts are, however, not convinced there is anything ground-breaking in the document that could result in meaningful change, especially given government's track record in state ownership.
"Guidance is code for direction. We are seeing this most obviously in the way energy policy is being centrally controlled and not liberalised. It will also come through in the desire for infrastructure to be centrally controlled and managed with funding channelled through DBSA (Development Bank of South Africa," said Peter Attard Montalto, head of capital markets research at Intellidex.
Montalto said that state "direction" would still result in the same inefficiencies as seen in state owned institutions.
CEO of Business Unity South Africa Cas Coovadia criticised the document of bringing up "old ideology and dogma" of an increased role of the state in the economy. Instead he put forward that the role of the private sector was important in stimulating sustainable economic growth. "We need to agree on the structural reforms critical to enable investment, growth and inclusion ... it means we can only invest in projects that will deliver meaningful social or economic returns," he said.
Director and chief economist at Econometrix Dr Azar Jammine felt that the document did not speak to the "heart of the problems" in the economy and will hardly address inequality. "We have covered this ground time and again for the last 25 years … we have seen nothing positive coming out," he said.
Covid-19 has turned the spotlight on inequalities prevalent in rural areas and informal settlements where there is a lack of access to water to allow people to wash their hands, or similarly an inability for people to quarantine themselves in the event of infection.
Getting proper access to water and electricity as well as skills development in these areas is a starting point, Siemens Southern Africa CEO Sabine Dall'Omo told Fin24 in an interview. "Covid-19 is a great chance to change things," said Dall'Omo, but the country is going to have to "pull together".
When asked if Covid-19 could potentially encourage businesses and government to work towards a sustainable development path, Dall'Omo said the pandemic has certainly provided a "golden opportunity". Economies across the world have been forced to shut down, reducing the demand for oil to power operations. People have been working from home too, reducing the need for fuel to travel to work. Dall'Omo thinks it could possibly create the "stimulus" for foreign direct investment in renewable power projects, especially those required for emergency energy procurement domestically.
Lesiba Mothata, head of strategic clients at Alexander Forbes, said during a webinar last week that the pandemic could possibly expedite technological innovation in Africa, especially as working from home becomes entrenched and to respond to climate change. "We have said before that data has become the new oil. Covid-19 expedites that. It'll have a huge impact for sectors," he said. The pandemic could even usher in workplace flexibility, he added.
Chief economist for the Bureau of Economic Research, Hugo Pienaar, noted that if government embarks on an infrastructure programme to support development, such projects should be financed by the private sector and developmental finance institutions (locally and abroad). This is due to how stretched the public finances and debt levels are, Pienaar said. It would free up government funding to assist the vulnerable in society, especially during the Covid-19 crisis.
To encourage private investment, government should work on improving the ease of doing business. This is possible by eliminating "binding constraints" on growth such as ensuring secure electricity supply, lower electricity costs and addressing bottlenecks at harbours or ports of entry.
Pienaar also believes that now is an opportune time to expand the green energy sector, which could also be a "nice kickstart" for the investment programme to be implemented at a quicker pace. "I think there will be international appetite to finance these investments as well," he said.
Pienaar gave an example of how additional spectrum was provided to internet service providers after lockdown was introduced, to help businesses with their connectivity as people worked from home. While it had taken years to get additional spectrum released, the Covid-19 pandemic showed that if there is "political will" it can be done.