It is hardly two months
since the minister of finance, in his budget speech, confidently likened the
South African economy to an aloe ferox plant, known to survive in the most arid
climate conditions.

This plant prefers less
water; it wins even when it seems the odds are against it, he said. He went on
to reassure his flattered members of Parliament that “the South African
economy has won before and it will win again”.

Little sooner had the Minister
stepped off from the infamous Parliamentary podium, a barrage of economic
headwinds came crushing down the little hope for near-term victory or economic
recovery.

Fourth-quarter GDP
figures confirmed that the economy slipped into a technical recession after
experiencing a contraction for two consecutive quarters in 2019. The little
confidence generated by the seemingly decisive and austere budget has been
shattered by week-long rolling blackouts to which the fourth quarter growth contraction
is partly ascribed.

As if this is not enough,
the risks of downright economic depression have now emerged from an unlikely,
health-related crisis of global proportions, whose impact overwhelms even some
of the world’s biggest economies.

The coronavirus pandemic
will be the ultimate acid test of resilience for the aloe ferox, metaphorically,
and the South African economy, literally. The coronavirus hit South Africa
economy at a time when government is virtually impaired to effect any plausible
counter-cyclical fiscal adjustment – inject money into the economy in order to
boost demand.

This, then, begs the
question of whether the South African economy can defy the odds and win again
as the minister of finance professed. Hard choices will have to be made regarding
whether to water the plant or continue to rely on its inherent botanical
properties for endurance.

The irony, of course, is
that a decision over whether a plant needs watering is usually a no-brainer. A plant
wilting from dryness certainly needs watering, but it is not always clear what
do with an economy that is facing a risk of stagnation from a complex medical
ailment that not only shut down the respiratory system of affected people but has
also caused closure of most world economies. The coronavirus pandemic is poised
to become the first health-induced economic contagion of the 19th
and 21st century.

Estimates suggest that
the economic impact of the pandemic could very well surpass the devastation
caused by the 2008 financial crisis and even World War 2, if the ongoing
restrictions on commercial activity are protracted.

Economic activity, that
is, the ability of firms to produce, of countries to trade and of people to
work and transact, keeps the world going around. There can be no economy or
peace to speak of when economic activity is mute. Sooner or later, firms will
lose the confidence to invest and capabilities to produce. People, too, will
lose the ability to earn income and support their livelihoods, and government
cannot raise the tax revenue needed to support vulnerable groups.

The African
predicament

Such a predicament,
however unlikely, could spark unprecedented economic depression, social strife
and loss of life as people scramble for limited opportunities and food. This
especially true for Africa, where 80% of people survive on less than 5$ or R90
a day, and rely on the informal sector for jobs. Protracted work and trading
restrictions could indeed prove life-threatening.

The situation looks dire
for the world economy, and more so for the African countries which have already
seen stock markets plunging, capital receding to safe havens, and currencies
plummeting to levels not seen during the 2008 financial crises. The precarious
situation of African economies with high dependency on debt, imports and hypersensitive
sectors such as resources, agriculture and tourism, makes the continent
extremely vulnerable to the coronavirus-induced economic headwinds.

The United Nations
Economic Commission for Africa has revised the continents’ growth prospects for
2020 from 3.2% to 1.8%. A combination of weakening currencies, stunted foreign
exchange reserves and rising yields on bonds would mean shortage of supplies,
high cost of food and essential medical supplies and risk of sovereign credit
default for many of the African states.

South Africa is no better
position, having been recently downgraded to sub-investment grade by Moody’s,
followed by a further downgrading of its banks to two notches below the
investment grade by Fitch.

While every country faces
unique economic challenges from the coronavirus pandemic, South Africa finds
itself in an untenable situation, exacerbated by deep-seated electricity supply
constraints and fiscal discipline challenges.

Can SA afford a
stimulus?

It is common knowledge
that the South African economy entered the coronavirus era already in dire
straits – debt rising and growth taking a nosedive. The Budget tabled in
February 2020 was at pains to find growth and recovery triggers, to no avail,
as the salary bill continues raking in the lions’ share of the available
resources.

Conventional economics
suggest that government should inject more money in the economy by either
increasing spending or lowering taxes to stimulate a shrinking economy. The
assumption being that there are resources available either from reserves,
savings or borrowing to deploy in growth inducing spending.

However, it was evident
from the tabled Budget that the country lacks the wherewithal to embark on fiscal
expansion to smooth output declines, either through borrowing or structural
budget shifts.

The dire nature of the
national Budget constraint became clear when the president announced a rather timid
coronavirus economic relief package, backed by a R500 million relief fund for
small businesses and a number of off-budget interventions, ranging from soft
loans (R3 billion’s worth) from Development Finance Institutions to tax breaks
and salary payment assistance for low income employees through the Unemployment
Insurance Fund.

This is undeniably
commendable, but it is a far cry from the billions of dollars being deployed by
developed countries to cushion their countries against coronavirus induced
economic shutdown. By way of example, the US has passed the largest economic
stimulus budget of all time, amounting to $2 trillion (roughly six times the
size of the SA’s economy) while Germany approved a $814 billion (€750 billion) economic
relief package.

These interventions will
see large sums of cash being injected into these economies through interest-free
loans to businesses, unemployment benefits and direct payments to distressed
households.

Granted, the comparison
with South Africa is rather unfair, but the magnitude of the interventions will
show that economic resilience is by no means the only condition for economic
recovery, as implied by the minister of finance.

Out of options

What then is to be done?
Regrettably, the options are thin and yet this time around the economy
genuinely needs some stimulus if it is to survive the double whammy of
pre-existing constraints and the coronavirus induced economic shutdown
unscathed.

Turning to the World Bank
and the International Monetary Fund would only aggravate debt problem, and in
all likelihood interrupt the economic reform programme proposed by the finance
ministry.

The solution rests not so
much on illustrious budget allocation, but on quality execution of existing
policies on education and skills development, health, industrialisation, small
business development, structural transformation and fiscal credibility.

There can be no growth
and recovery if the fundamental underpinnings of such growth are wanting. The
time has finally arrived to nurture the aloe ferox, for it dies, it will be many
years before we plant another in its place.

Eddie Rakabe is an economist, researcher and
writer. Views expressed are his own.

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