Impoverished people to reap putrid economic crop

Years of poor management and administration coupled with a devastating Covid-19 lockdown mean that the coming economic storm will hit South Africa’s most vulnerable hardest.

When President Cyril Ramaphosa shut South Africa down on 27 March 2020, it had as much to do with the economy, and the country’s public finances, as it did with public health. A lockdown designed to save lives and alleviate the surges for hospital beds playing out in early epicentres like China and Italy inevitably struck deep at the economy and set off a cascade of social consequences.

While many public health experts applauded the government’s decision to implement one of the strictest lockdowns in the world, some economists are now questioning if it was a well-taken decision.

Michael Sachs, the former head of the National Treasury’s budget office and now adjunct professor at the Southern Centre for Inequality Studies at the University of the Witwatersrand (Wits), called the lockdown, in hindsight, “a mistake made by elites in South Africa, all of them collectively”.

University of Johannesburg economist Seán Muller said “a form of groupthink, if not outright panic, appears to have taken hold at the time”, and that the lockdown was rushed and implemented “without transparency, consultation or considering the obvious limitations” of the available evidence.

A race lost against time

If little was known about the coronavirus at the time, weaknesses in the country’s public health system were dyed-in-the-wool. The lockdown, which eventually led to an almost 17% contraction of the economy in the second quarter of 2020, may well have been necessary. The imminent threat it posed to South Africa’s meagre economic resources, however, meant that timing was always going to be critical.

There is now a developing consensus that the most crucial aspect of the lockdown – timing – turned out to be its definitive defect.

While a sense of relief met Ramaphosa’s R500 billion economic relief package, which included an unprecedented increase to the country’s social security system, a month of lockdown had passed before the much-vaunted intervention was announced.

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According to financial analyst Stuart Theobald, “extensive damage had already been done”, including the delay in social grant top-ups that forced many families who ordinarily live week-to-week to go a month without an income. And by the time the R200 billion guaranteed bank loan scheme for businesses was operational, many companies had either closed or made alternative arrangements, resulting in low take-up rates.

The brief moment of real economic hope came up against the limits of the South African state, and was scuppered in an implementation phase characterised by what Murray Leibbrandt, who directs the Southern Africa Labour and Development Research Unit at the University of Cape Town, called an “incoherence that was unforgivable”.

The delays that characterised the early phases of the lockdown now make up the seeds that may grow into an economic crop that could cripple a generation.

Social costs

As Indian author Arundhati Roy noted in the early stages of the pandemic, the coronavirus is a portal between the world as it was and the world as it will be. The first drafts of that new world are starting to become clear.

Despite well-documented administrative failures, the Unemployment Insurance Fund Covid-19 Temporary Employer/Employee Relief Scheme (UIF-Covid19 TERS) to assist businesses to pay workers who could not work owing to the lockdown has paid out over R50 billion across more than nine million payments. Because the scheme drew on UIF reserves, it did not place any extra burden on South Africa’s groaning fiscus. Workers not registered with the UIF also benefitted from the TERS after a successful challenge by a host of non-governmental organisations.

All of this means that the scheme helped “stave off many retrenchments” and to “prevent many more families from falling into destitution”, according to Wits economist Daniela Casale.

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Nevertheless, the protagonist in South Africa’s new economic tragedy is undoubtedly a devastated labour market. Data suggest that the enormous job losses brought about by the lockdown, when South Africa lost more or less the number of jobs it had created in the preceding decade in a matter of months, have been chronic.

But there is also an important supporting cast of deepening social crises.

While all evidence suggests that top-ups to social grants and the new social relief of distress grant, which was eventually paid out to more than four million new grant recipients, reached many of South Africa’s most impoverished homes, some grave mistakes were made on either side of the unprecedented increase to the country’s social security system.

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In the beginning, there were delays. Before a group of unions, non-governmental organisations and researchers pressured the state into providing greater protection, the sufficiency of South Africa’s existing grants was overestimated. Implementing the lockdown before sufficient measures were in place to protect the most impoverished, said Muller, “verges on criminal”. And now, whatever success the state had in mitigating the economic blows of the lockdown has been brought to a premature end in the name of budget constraints.

While the three-month extension of the social relief of distress grant goes some way to plugging the deepening unemployment crisis, two in every three of these grants have been paid to men. People receiving other grants do not qualify. With nearly every child support grant being paid to a woman, the decision not to extend the grant top-ups is likely to carry a heavy gender penalty.

Casale, who said “it has become clear that putting cash directly in the hands of the poor is the best solution in times of emergency”, is one among many who say all grant top-ups should be extended until South Africa’s economy begins to recover. Busi Sibeko, a researcher at the Institute for Economic Justice who said that the expansion of the grants system was a missed opportunity to implement a universal basic income grant, is another.

What now?

If direct cash transfers to the most impoverished people and lending businesses a hand in paying furloughed workers characterised the state’s emergency response to the economic shock of lockdown, it is less clear what the plan is to get South Africa out of the crisis.

The economic relief coordinated by the presidency in the lockdown’s early phases and the supplementary budget that the treasury put together to finance it were read largely from the same page. But a lot has happened since, including Ramaphosa apparently coming down hard against the treasury on the side of Minister of Public Enterprises Pravin Gordhan in the R10 billion bailout of state-owned South African Airways.

Now, there appears to be less harmony between the path of economic recovery being articulated by the presidency and the treasury that will fund it.

While Ramaphosa’s recent reconstruction and recovery plan fell well short of the government taking greater control of the economy, it did outline public employment initiatives that would see the state shouldering a more supportive role. In what Leibbrandt called “an admission of a policy coordination failure”, however, the medium-term budget policy statement that followed the plan announced cuts across government that run the risk of sending departments into fights for survival rather than getting on with the much-needed work of a coordinated, credible effort to get South Africa out of its deepening socioeconomic morass.

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It is these sorts of inconsistencies and gaps between policy goals and budgeting that have made the government’s vision more incoherent than clear. Sachs said that the government leading South Africa out of the pandemic resembles “a federation of ministers” more than a unified body. It makes for “a very dangerous situation”, he added, in which the country is not well-positioned politically to own the difficult economic decisions it now faces.

A budgetary crisis appears imminent. If it arrives, however, it will be down to a lack of response to the government’s attempts to stimulate the economy. What South Africa needs now, maybe more than ever, is growth, for companies to get going again and start employing people. In the face of the contractions the treasury is planning, that growth looks more and more fanciful.

While the deepening limits of South Africa’s fiscal position are real, their causes predate the pandemic. Years of poor spending and management decisions have laid waste to South Africa’s fiscal position. But the real questions at stake are more moral and political than they are technical, and ideals should now matter for the government as much as material welfare.

The struggle will be to translate an economic crisis into democratic moral and political idioms. In Casale’s words, the real tragedy of South Africa’s looming fiscal crisis is that “the poorest will suffer the mistakes of the past most acutely … the richest should shoulder the burden, not the poorest”.

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