Despite South Africa’s bleak economic outlook, there are some bright spots in the economy, says Sygnia CEO Magda Wierzycka. However, businesses will need to be flexible and adaptable, and the government needs to come to the party.
In an interview with What’s Next with Aki Anastasiou, Wierzycka spoke widely on the Covid-19 pandemic, and its effects on global and local markets.
GDP data published this week marked a 2% decline in economic growth in the first quarter of the year. This was the third consecutive quarter of decline, deepening the country’s recession.
The data also comes against the backdrop of finance minister Tito Mboweni’s supplementary budget address last week (24 June) which revealed a sobering picture for the country’s finances – mired in rising debt, a growing tax deficit, and a struggle to find the money required to dig the country out of its lockdown hangover.
Wierzycka said that given the country’s economic situation, it is difficult to pin down bright spots.
What makes it particularly difficult is that the country isn’t in the situation alone – the rest of the world is also suffering the effects of the Covid-19 pandemic and lockdowns.
“It’s not as if we can turn to others and ask for help. There is not much help available. We’ve seen it in the budget,” she said.
However, Wierzycka said that this may be a blessing in disguise, because it limits government’s ability to borrow more money.
“I think if they (government) could borrow they would,” Wierzycka said. “We borrow in dollars, so if the rand depreciates, that just goes through the roof. So I’m glad there are borrowing restrictions on South Africa so we can’t access more dollars.”
Despite this, the Sygnia chief executive said the country has a few things going for it.
“We are actually quite a flexible and resilient nation. We have a very large informal sector economy, and there’s quite a lot of flex – people are used to surviving on very little,” she said.
While populations in the US and UK are “queuing up in SUVs” for unemployment benefits, in South Africa, people are queuing up as they always have, for very small amounts of money. We are more adaptable and resilient,” she said.
A weak rand is also a surprising benefit. South Africa is a net-exporter, and the weaker currency has made it cheaper to do so.
The down-side is that the cost of importing is significantly higher, she said, but this too has a beneficial side to it in that it forces people to look to local suppliers, which presents an opportunity for new businesses.
“Manufacturing can, potentially, rise up again, because we will need to start looking local,” she said. “We are a nation of entrepreneurs, so if there is enough financial support, we could over time come out of this.”
This comes with a caveat: the government needs to move swiftly to tear down the red tape holding potential growth back.
Winners and losers of the pandemic
According Wierzycka, recovery from the lockdown will be a slow process, and businesses need to realise that the environment has changed. Work life won’t return to normal.
“We won’t go back to everyone working at an office – we will look at flexible working hours, people working from home, and rework client engagements,” she said, adding that she expects between 20% and 30% of Sygnia’s workforce to continue working remotely.
Because of these shifts and changes, there is a ‘quid pro quo’ in winners and losers in business as a result of the pandemic, Wierzycka said.
Large property companies will lose out because demand for office space will drop as a result of people staying home – but on the flip-side, demand for data and connectivity will increase, so companies like Microsoft and Zoom will emerge stronger.
Consumer spending is the engine that drives economic growth, Wierzycka said, and the world is in a place right now where this is not happening in many sectors.
Unemployment is up globally, and is heading towards 50% in South Africa, which is not only tragic in a personal sense, but also in an economic sense because it means people are simply not spending, the business lead said.
“Which businesses are suffering? Tourism, tourism, tourism – and anything associated with it. Everything from hotels, restaurants, obviously airlines and even curio shops,” she said.
“Small and medium companies have been destroyed financially. Anything that operates on small margins and relies on monthly revenues.”
However, because people are stuck at home and not able to go out and spend, they are instead turning to online services. These businesses and associated companies are winning.
Online delivery companies and courier services are benefiting. People aren’t going to theatres and sporting events, so home entertainment companies like Netflix and gaming services are also seeing success, Wierzycka said.
Watch the full interview below: