Khaya Sithole | Lifting restrictions won’t bring back business

In just over
72 hours, South Africa will officially move into Level 3 of the national
lockdown. The move from Level 4 has been demanded by many sectors of society,
business and politicians. The motivations for the demands have varied across
different constituencies.

For the
business sector, the demand has been premised on internal and universal
considerations. The longer the lockdown endures, the bleaker the prospects of
businesses remaining viable. When the history of this uncertain age is written,
each business will be a story of three eras – the era before the lockdown; the
lockdown period; and the immediate aftermath.

For all South
African businesses, the pre-lockdown era will be a story of seeking to thrive
under challenging macroeconomic fundamentals. The high unemployment rate; the
stagnant economic growth and the multiple downgrades; made running a business
in South Africa a challenge.

For small
businesses in particular, these factors left some of them operating on thin
margins and just one adverse variable away from going under. In spite of that,
those that had managed to thrive had learnt to manage the process of keeping
their doors open.

But the lack
of deep capital reserves meant that any disruption to business escalated the
existential risk on an ongoing basis. For bigger businesses, access to capital
reserves and well-capitalised shareholders meant that the sense of anxieties
were not at the same level as small business. But with big business presence
comes bigger expectations from shareholders and other stakeholders.

The unifying
variable between big and small business, is that they all need an economy to
keep moving in one way or another. The lockdown era represented a disruption
that made no distinction in size and profile.

Rather, the
distinction became a matter of essential versus non-essential services. This
distinction, however, was premised on the basis of healthcare considerations
primarily.

This meant
that even well-capitalised businesses were not guaranteed to be classified as
essential. Big businesses with business models that are primarily dependent on
foot traffic as a direct and indirect driver of income, felt the pinch much
more than businesses that are less reliant on this variable. An example of such
a business is the commercial property sector. 

This week the
country’s biggest commercial property company – Growthpoint – reported that it
collected less than half its normal rentals on the retail portfolio in April.
This portfolio is exposed to shopping centres like the V&A Waterfront.

Crucially,
such shopping centres themselves have exposure to other sectors that fall
outside the ambit of essential services. But Growthpoint has the benefit of a
diversified portfolio which cushions it from the impact of the lockdown to some
degree. Comparatively, a smaller player with exposure to just the retail side
for example, would not be able to rely on other parts of the business to reduce
the impact.

The challenge
for big businesses like Growthpoint, is the question of what support can be
provided to its tenants in particular, in order to ensure that they are still
viable clients after the lockdown. The offering of rental holidays and
deferrals in payments; is an important concession that must be considered by
other business sectors.

The big
businesses with strong balance sheets have a longer resilience timeframe
between a loss of income and a loss of viability. Their clients, however, are
an accumulation of smaller balance sheets with a shorter resilience period.

Leaving them
to confront the vagaries of the market on their own – either through finding
alternative revenues or borrowing through the crisis – runs the risk that they
may simply not be able to survive the crisis. The long-term risk for a big
business that does not consider customer concessions, is the fact that no
clients may exist after the lockdown.

In the
aftermath of the lockdown, the distinction between businesses will shift from
state-sanctioned definitions to the question of what customers regard as
essential and critical services. Businesses that depend on the discretionary
whims of customer – leisure travel, hospitality and sporting events for example
– will have a much slower recovery curve after the lockdown is lifted.

The lifting
of the lockdown – regardless of what scientific or political considerations
drive it – is not going to unleash economic activity for such businesses.

Rather it
will be subject to the universal question of what the general infection curve
looks like, and whether – in cases that the curve stabilises – customers are
comfortable enough to populate the spaces that are avoidable.

Regrettably,
this means that the capacity of such businesses to remain viable after a
lockdown and a loss of state support, is diminishing with every passing day
until a vaccine is found.

Khaya Sithole is an accountant, academic and activist who writes and Tweets on finance, economics and politics. Views expressed are his own.