Human nature is such that we are very uncomfortable with uncertainty. Unfortunately, the Covid-19 pandemic has thrown this at us all with such force that discomfort and unease are likely to be key characteristics of the global economy for some time to come, notes Nedbank chief economist, Nicky Weimar.
Against this backdrop, it’s unsurprising that many South African economists, analysts, investors, and even armchair experts are trying to predict what the economic future will look like for the country once we emerge from this crisis, she says.
Weimar shares insights following a Nedbank Private Wealth webinar regarding the post Covid-19 economy and the role of South African banks.
Unfortunately, such attempts at forecasting the future are largely futile, given that we are dealing with a global crisis for which no historical reference exists – never before has the economies of so many countries been subjected to ‘lockdown’ – and possibly more importantly, the crisis is still unfolding.
That said, we are now starting to see some green shoots of recovery emerging globally.
A measure of resilience has been restored in equity markets after the initial steep shock-driven declines, risk appetites are starting to normalise and, while there is still a tremendous amount of uncertainty, volatility indicators are becoming more stable.
Interestingly, most high-frequency economic statistics, like global purchasing manager indices, industrial production, and retail sales figures, appear to be pointing to the likelihood of the world economy experiencing a deep-dip and then recovering relatively well throughout the second half of 2020 and into 2021.
However, nothing about this is certain and, in fact, there is growing global debate on the shape, nature and speed of this anticipated global recovery.
The scenario for South Africa is further complicated by the fact that the country went into the Covid-19 crisis already significantly on the economic back foot. So, while the local equity markets have seen a measure of recovery, this has largely been driven by resources, particularly given the rally that gold has experienced.
However, local and global investors are under no illusion about the state and future of the SA economy. Growth prospects for the country are very limited, hindered by complex historical and present-day structural constraints.
These include, but are certainly not limited to, a lack of reliable electricity and a growing unemployment challenge.
So, while much of the rest of the world is hoping for a return to pre-Covid economic growth levels, that is not an appropriate target for South Africa. What is needed, is a return to growth levels that we last saw before 2013. It’s no small ask, but it’s not impossible.
And there are a number of ‘scripts’ being proposed by various stakeholders to achieve it in the next few years. Most of these centre on using the crisis to ‘reset’ the economy. But there is little clarity or consensus on how that can be done.
National government is determined that the state will ultimately save the day for South Africa. While not argued in so many words, the proposed approach centres on the state being the primary driver of development through infrastructure spending, which will create jobs, boost national income and underpin local demand for goods, services and investment.
Of course, the challenge with this model is finding the money to finance it. This was already an issue before Covid-19 and is now a much bigger challenge.
Capitalists, on the other hand, are looking to the opportunities that the Covid-19 crisis will eventually create to strive for greater efficiencies.
It’s essentially a survival of the fittest argument, built on the need for successful businesses to strategically restructure their finances, move to far more digitised and automated operating models, and thereby increase their outputs and market access at lower costs.
Finally, National Treasury has been vocal about its opinion that what is needed is a ‘back-to-basics’ approach, through which growth is catalysed by making it easier and cheaper to do business in South Africa, with growth- and employment-oriented economic policies.
The approach also encourages stronger ties with the rest of Africa in an effort to take the continent, as a whole, forward to a better future.
Ultimately though, the most appropriate solution would appear to be a more pragmatic one, albeit with elements of all these scripts.
The simple truth is that government cannot spend or borrow its way to economic growth. Previous attempts to do this have been unsuccessful and have only served to crowd out the private sector.
Rather, what is needed now is the recognition by all stakeholders in the country’s future that we need each other more than ever before.
We all have to recognise, as soon as possible, that we need to work together to fix what is broken in our economy and identify and strengthen what is working.
Government needs to commit to restoring fiscal discipline, cutting costs, reforming SOEs, putting an end to corruption, and moving from planning and discussing structural reforms to
implementing them. Businesses need to commit to fully transforming their operations, creating jobs and expanding equitable ownership.
And both need to commit to speaking to each other again, openly, honestly and with no other agenda than to contribute to a better post-Covid-19 future for the country and its people.
Ultimately, if South Africans truly desire a better future, it’s up to each of us to put aside our differences and work towards that shared vision.
We need to enter into a new social compact, with increased levels of cooperation and trust between the public and private sector and society at large, as well as an even stronger focus on ensuring that the rising economic tide, which is generated as a result of this cooperation, lifts all South African ships.
- By Nedbank chief economist, Nicky Weimar