While government’s commitment to re-open the economy should be welcomed, there are a number of problems with the proposed introduction of Level 4 restrictions, says the Bureau for Economic Research (BER).
In a research note published on Tuesday (28 April), the group highlighted the plan to adjust the lockdown level per province and even per district, as more up-to-date information about the prevalence of the virus per region becomes available.
“Without inter-regional travel, the virus can technically remain fairly contained. Therefore, the regional approach to determining the level of restrictions makes intuitive sense, but it is unclear how this will work in practice,” the BER said.
“It is difficult to envision how, for example, one district could run at full manufacturing capacity and allow unrestricted retail and wholesale trade (Level 2), while at the same time, another district cannot allow those employed in private households to return to work (Level 4).
“Even with district-level differences, the hotspots of the virus are located in the economic hubs of the country (as to be expected, given higher population density).”
Because of these restrictions, the BER said that aggregated country-wide economic activity will remain constrained for some time to come.
It noted that the limitations on the number of workers which may be allowed to return in each industry could be problematic.
According to the draft framework, the ramp-up of most production is linked to limitations on the amount of people allowed back at work, ranging for 20% of the workforce (for most manufacturing) to 100% of employment (for open-cast mines) in Level 4.
“While the worker limitations are deemed necessary to allow for proper social distancing practices, it is again unclear how this will work in practice,” the BER said.
Certain production processes cannot be run with only 20% of employment capacity.
“The additional cost burden of setting up, among other requirements, screening facilities and ensuring safe transport for employees (necessary to curb the spread of the virus) will make it harder for some businesses to restart even if they are allowed.
“Furthermore, without full production along a value chain (due to districts or subsectors operating at different Levels), supply-chain disruptions and limitation on the inputs available may further hinder output.”
As noted by the government, these draft regulations are subject to change.
The BER added that negotiations between the inter-ministerial Covid-19 task team and industry bodies are still ongoing and final plans may find a way to mitigate some of these concerns.
“However, even with unavoidable hiccups along the way, the commitment to a plan to slowly restart the economy is much needed. Minister Patel estimates that about 1.5 million workers will return to work at Level 4,” it said.
Despite a step in the right direction, the group said that the slow process of re-opening the economy makes a so-called ‘V-shape’ recovery in economic output highly unlikely.
“An update of our macro forecast should be released to clients later this week. But, with a steeper GDP decline in Q2 and less normalising in Q3, a decline of 9% or more in 2020 GDP seems more likely than the already dismal 7% we projected before,” it said.