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Mind the Gap: Seeing beyond the crisis


Reducing poverty and inequality are key themes in the sustainable development goals agenda, but whether all countries affiliated with the United Nations are individually making this a priority begs a different argument. According to the SGDs 2020 report, the world has not made enough progress towards achieving the set goals. The Covid-19 epidemic adds another layer of challenges that need to be overcome and in some instances, has led to the reversal of the little progress made over the years. It has furthermore worsened global inequality while revealing economic inefficiencies in governments in dealing with crisis. The world’s billionaires saw a 54% jump in their wealth between March 2020 and March 2021 (According to IPS’ analysis) while most countries battled to provide necessary relief. Advanced economies have been able to somewhat adequately deal with the challenges that Covid-19 presents and this is not necessarily because of their brilliant policies, but simply because they have the means. Inequality played a massive role in the disempowerment of developing economies in dealing with the pandemic. The inequality divide between the rich and poor continues to accelerate as the resurgence of the virus persist.


To draw a picture, COVID-19 has laid a demand on governments to provide relief to badly affected citizens and industries through the expansion of their social programmes. Countries with pre-existing fiscal challenges have had to navigate these set of new challenges while managing the pressure on the healthcare system. Though central banks all over the world took an accommodative stance, decreasing interest rates to record lows and using other unconventional monetary policy tools to stimulate economies, the capacity of how much can be done through monetary policy remained limited particularly for countries with weak fiscal frameworks. More advanced economies such as the United Kingdom provided sufficient support for workers through furlough payments and also implemented stimulus programs such as the “Eat-out-to-help-out” campaign which provided restaurant meal subsidies in order to encourage citizens to eat out. In the United States of America, similar to the UK, government support was targeted at households where cheques of up to $1200 (R18000) were sent to eligible tax-paying adults.


For most developing economies, these strategies seem like luxuries. Many of these economies including South Africa had to turn to different lenders to fund the crisis. Limited funds were used for “survival expenditure” resulting in increased sovereign debt and subsequent debt servicing costs. In South Africa, the R500bn relief allocation was funded through a combination of IMF loans and repurposing funds in the existing budget which resulted in a reduction in some social programmes. Although a new report by the Institute of Economic Justice shows that this amount is not fully utilised, the expected demands on the fiscus as result of vaccine administrations and the uncertainty around the length of the pandemic might necessitate additional government support. South Africa being the international business hub of Africa, has been the most affected by the Covid-19 virus than all of the other African countries. To date, the country has recorded over 2 million cases and about 60000 deaths. With the resurgence of the virus and delays in vaccine administrations, the country is currently on its third wave and another lockdown has been implemented to help curb the spread of the virus. Interruptions to schooling has disadvantaged pupils in rural areas with no infrastructure or enough support to transition into virtual classrooms. It was recently reported that over 700 000 pupils (more than 100% increase from pre-pendamic numbers) have dropped out of school since the beginning of the pandemic which sets them behind even further.


The South African economy has not seen much recovery and households are frustrated by the seemingly lack of progress in dealing with the crisis. The economy contracted by 3.2% in the first quarter of 2021 on a year-on-year basis. The recent inflation figures also suggests a supply-side driven inflation increase which might put an interest rate hike on the cards in the next monetary policy meeting. Central Bank’s efforts to stimulate the economy need to be met by strong fiscal positioning in order to drive growth. Considering the fiscal limitations in South Africa currently, the challenges are too great but not difficult to overcome.

China's unconventional approach


There are lessons we can draw from countries which took an unconventional approach to managing the pandemic. A prime example is China, where the virus was first discovered. When China announced its stimulus programme, its focus was to stimulate investment. Instead of channeling stimulus funds towards households, the country launched a $500bn stimulus programme targeted at boosting investment, playing a long game on their pursuit of economic stabilisation. Taking a look at the macroeconomics, China’s strategy seemed to have been highly effective with an economic rebound at 3,2% exceeding analyst’s expectations in the second quarter of 2020. The country's early response to the Covid-19 virus by implementing a hard lockdown which helped control the virus within its borders and its growth targeted stimulus, delivered good economic benefits. Though the Chinese government was criticised for such measures, the country continues to grow beyond expectations owing to strong policy implementation and support which relieves the need for stimulus extensions.


By virtue of the differences in the socio-economic makeup and economic organisation, it would not be wise to say South Africa should have adopted a similar strategy to China, neither can we say it was beneficial to simply provide social relief funds. The first strategy would be tone-deaf to the realities of many South Africans while the second strategy is not sustainable both from a fiscal and growth perspective. The point however is not about replicating what is being done elsewhere. Though we take the lessons, what is critical is the ability to see beyond the storm so that we stir the ship to the desired direction.

For an accelerated recovery path, we will need more than just growth in existing industries such as mining. To simply put our faith on commodity prices as our escape from the economic downturn is elusive. Over and above growing the economy, increasing employment and restoring industries, the government will also need to service debt in order to reduce budget deficits. One of the prominent channels to help fund debt is through taxes, however, without jobs and a depressed economy, the tax pool shrinks. Targeting corporate taxes is also likely to be met with backlash and it is not a great strategy for a country that is trying to attract investment. These imminent challenges coupled with the Covid-19 mutations are likely to delay economic recovery setting back the South African economy even further behind.

 

How do we see beyond the crisis?


In order to come out on the other side prosperous, we need to be able to imagine a prosperous future and collaboratively work towards achieving it. This could be done through focusing on the easiest industries or sectors to support, making those a selling point for investors. It is important to find the balance between providing the necessary social relief and committing to the country’s growth objectives. Some of the things we can think about are around;

  • The transformation of education in order to increase equitable access across social classes. Such transformation is not only about how many individuals receive the education, but about the quality of that education in preparing pupils to meet the demands of the modern world.

  • Increasing financial support for vocational and technical education by both the public and private sector to help cultivate entrepreneurship. TVET colleagues unlike universities equip students with practical skills which can easily be translated into profitable businesses. This lack of adequate support for this segment of formal education in South Africa is a missed opportunity and needs to be revisited.

  • The private sector should ramp up its support towards government efforts to support small enterprises through the access to capital and mentorship. With high youth unemployment, such support is necessary towards strengthening youth businesses while creating new jobs in the economy.

  • The cultivation and increased investment towards the Agricultural sector, more especially small scale farmers. According to StatsSA, agriculture was the leading sector for growth in 2020 despite the pandemic. There is a need to leverage on the strength of the sector and provide adequate investment to help increase access to markets both domestically and internationally. This also needs to be met with improvements in distribution channels as a complement to the supply chain network.

Through consultation with different structures of the economy, government needs to provide a comprehensive plan on what should be done and extend the invitation for collaboration to help build the economy. In addition, the government should not aim to solve all the challenges, but rather stand to facilitate the implementation of the proposed plans through the provision of adequate administrative (policy) and where necessary, financial support.










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