COVID-19 offers huge opportunities; use it!

24 March 2020

“When written in Chinese, the word 'crisis' is composed of two characters. One represents danger and the other represents opportunity.”
John F. Kennedy

The SA economy was, no thanks to our ANC government, in deep trouble way Before Corona (BC). So, I would hazard a guess that right about now a few members of our so-called ruling party may be heaving a sigh of relief as this crisis overshadows, if only temporarily, their incompetence and mismanagement of the past.

Unfortunately, our local state of disaster caused by the global pandemic, calls for decisive action from this very same government. This creates a significant risk that many of the temporary measures may become permanent fixtures after the crisis, leaving us in a new time that will call PC, (Post Corona). And PC will see an even bigger state that is equally badly run.

Of course, this is by way of a worst-case scenario. More positive outcomes are also possible, should bold leadership use this crisis to address the many structural issues that we have.

But first things first… The necessary measures must be put in place to contain the virus and, of course, to prepare for the worst. On this front I must concede, albeit reluctantly, that our president and minister of health has been stepping up to the plate. Ramaphosa appears to be in charge and well informed, while Mkhize remains in the public eye and comes across as transparent regarding information and decisions.

Having said that, there has already been a few questionable decisions; price controls on certain goods and more teeth to the competition authorities, to mention two examples. One way of assuring that goods remain available, is to ensure they are well priced. Attempt to “control” prices, and goods will become unavailable. The same goes for “uncompetitive behaviour”.

There will inevitably be ethical bottom-feeders attempting to capitalise on the misfortune of others, but that will be significantly less harmful than attempts at control. Plus, and this is a rather huge plus, judging from the availability of most consumables, the private sector is doing a splendid job in ensuring we get everything we need without, to my knowledge, any unrealistic and sudden price increases in the pipeline!

Whatever happens or doesn’t happen, the major threat remains: the “authorities” that are supposed to police price controls and act against “uncompetitive behaviour” will become far too fond of their new powers. And believe me, no ineptocrat will be able to resist this temptation.

Another “maybe” is government requesting the assistance of private medical facilities and services in their fight against the virus. Now, this is all fine and well, up to a point, also keeping in mind that the private sector will probably assist voluntarily. But force their hand once, and misuse of bureaucratic power are likely to become permanent – turning “maybes” into maydays, including the start of the nationalisation of private medical services, which the ANC has been eyeing for quite some time.

Object lesson and red flag: temporary power and interference usually become permanent.

The “health authorities” and the “financial authorities” have been fighting side by side in the corona trenches. And so far, the SARB has been doing a splendid job. They have already reduced interest rates by a full percent, but this is just the first step. Going forward, their prime responsibility will be to assure that enough liquidity is available to banks.

But that’s not all; there is plenty more our central bank can do. They can reduce interest rates even further, and they can relax liquidity and capital requirements applicable to banks, which can happen in an environment where financial institutions are healthy and well regulated.

This, alas, is where the good news ends, but where the opportunities start…

As we all know, the state and most of what it touches, ends up in mismanagement in one form or another. Ergo, as I mentioned earlier, no thanks to previous government mismanagement and/or excesses, we were heading for a financial disaster long before COVID-19 became part of the national narrative.

We also know what needs to happen. State spending must be curtailed, SOE’s must be restructured and government inefficiencies must be improved. But we also know that the ANC and its alliance partners lack the political will and the operational ability to make the necessary adjustments.

Given this woeful state of affairs, or should I say, “affairs of state”, the corona-crisis simply means more and more pressing spending priorities for a weak government at a time that its already depleted revenue can literally not afford additional pressure.

Long scenario short: The weak state of our fiscal finances will deteriorate even further – and that is exactly where the opportunities lie.

An obvious example is SAA. Our national carrier is supposed to be under business rescue, with some ideologically confused politicians hell-bent on “saving” it again. In the meantime, well-run privately-owned airlines are also affected by this crisis. Trying to save a terminal SAA again while allowing viable private businesses to go under, will be nothing short of idiotic. This is the opportunity to kill SAA and rather use the money to support well-run, private airline businesses.

And let’s talk about the unspeakable yet again: Eskom is basically (and pathetically) bankrupt for a variety of reasons covering the spectrum from flagrant state capture and a catastrophic wage bill to seamlessly disastrous management. Against this dismal background, the opportunities emerge quite clearly. As a weak(er) economy will result in a slowdown in the demand for electricity, now is the time to do infrastructural maintenance. Additionally, the useless utility can be restructured as planned, including, of course, reducing that payroll and the number of people that “work” at Eskom.

The reasoning behind this is obvious: everybody is reducing their workforce and we must all carry this burden, why not also Eskom?

In this regard, keep in mind that government’s nemesis is organisedlabour, especially and ironically its own partner Cosatu. Every time the powers that be have tried to cut them down to size, strikes and sabotage forced them to back down. But that was now. The economy is dead in the water, so if the unions want to strike, bring it on!

Another example: thousands of school children receive food daily from their schools, as well as other institutions. But the schools are closed, and poor children are literally hungry. Launch a project to feed hungry children or give civil servants a reduction in their wages – an easy choice!

And another one; most sport events have been cancelled. My view is that we don’t need a minister of sport in any event, but since there is no sport, why can’t we “temporarily” scrap the position of the sports minister? And while the president is at it, why not get rid of all the dead wood in cabinet? Only “temporarily” off course…

The only certainty in this time of uncertainty is that the road ahead will not be easy. Thousands will lose their jobs, thousands of businesses will close, and thousands will die. But while we are all going through this crisis, and since we all know what to change, now is the time to make sure that we will have a strong and growing economy once this crisis is over. We owe it to our children.

Don’t waste this crisis.

Dawie Roodt, Chief Economist, Efficient Group.