The coronavirus and simultaneous double downgrading of South Africa’s country’s credit rating is a cocktail from hell.
It is tough out there. It is frightening. We don’t know what the future holds. What we do know is that we will get through it, and we will be a different society because of it.
As American author, artist, and photographer, Doe Zantamatasaid, “It is only in our darkest hours that we may discover the true strength of the brilliant light within ourselves that can never, ever, be dimmed,” we must therefore be ready for a world without the virus and we can realign how we do business.
Now that we know that when the coronavirus is through and we have analysed the impact of the Moody’s and Fitch’s credit rating downgrade, we can begin to visualise and design the economy and the life we desire.
It never rains but it pours for our Rainbow Nation. A week after Moody’s downgraded our country to junk, Fitch downgraded us further, sending the rand into new lows against the dollar and other currencies. Is it what is called a double-whamming or is the COVID-19 pandemic making it a triple-whamming?
Impact of downgrades and Covid-19
It’s safe to say that the one question on everyone’s mind is how will the downgrades affect our economy?
While the downgrade was largely anticipated and did not present any new information about the riskiness of our country’s political and economic policies, it has certainly inflamed investors’ concerns.
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The dark cloud that the coronavirus epidemic has also cast over the global economy already has precipitated a sharp sell-off in global equities.
There is no doubt that the economy of any country is driven by money flows and further magnified by its movement in the global market.
The negative impact of the downgrades on investor and consumer sentiment is a real issue that will negatively impact global equity markets and undermine confidence.
With fears mounting across the world about unsustainable debt levels and slowing economic growth, individuals and businesses may curtail spending and hiring. The spectre of high inflation with slow growth – or even a double-dip recession – can no longer be easily ignored.
The truth is South Africa’s recent downgrades will lead to an increase in the cost of borrowing and reduced appetite for government issuances in the international market.
The government may be forced to access funds in the domestic market which will increase the cost of borrowing for everyone, including homeowners, for their housing, appliances or car loans, and for small and medium enterprises for their business loans.
The deterioration of the Rand-Dollar exchange would have an impact on these prices. Prices of processed goods as well as fresh produce will increase.
The challenge is for President Cyril Ramaphosa’s economic cluster to double their efforts in implementing economic reforms.
As we count the economic impact of the virus, now, it should be clear that Covid-19 respects no borders. Nor does it spare individual countries based on their importance to global supply chains or geopolitics. It has spread to more than 150 countries.
As we ponder the impact of the downgrades, the global economy faces its worst quarter since the 2008 financial crisis just as the coronavirus wipes off output worldwide.
For example, analysts at Swiss bank UBS think global growth may stutter to a near-standstill in the first quarter of 2020. Consultants at Capital Economics said global economic output would not increase at all in the first quarter of this year for the first time since 2009.
The research consultancy said: “Our best guess is that the economic disruption related to the coronavirus will cost the world economy over $280bn in the first quarter of this year. “If we’re right, then this will mean that global GDP will not grow in quarter-on-quarter terms for the first time since 2009,” said the consultancy.
Interrupting global chains
The consequent disruption to the world’s economic powerhouses such as China, Japan and others, has had the effect of interrupting global supply chains, precipitating a collapse in international commodity prices of worldwide trading partners. This has not helped investor confidence.
We need to recognise that lasting damage is being done to our economy, and we must respond accordingly.
Past experience with global credit crunches is that they tend to amplify economic downturns greatly by starving companies of credit at the very time that they most need it.
Lessons from the past
History taught us that in 1945, the nations faced a massive demobilization and millions of men and women in uniform successfully returned to civilian life as soon as possible. It didn’t happen without a plan.
Among the lessons that should have been learned from the 2008-2009 Great Recession is that the favourable resolution of a global economic crisis is best done in a coordinated and coherent manner.
The result wasn’t merely a return to normalcy; it was a race to new heights. There was a boom of industry, of construction and prosperity.
What we need now are bold and future-oriented initiatives to shape our communities and harness their full potential.
Rising from coronavirus-induced recession
We need social innovation and entrepreneurship where the next generation of world-changing ideas will be cultivated, incubated and invested in through purposeful public-private support.
We need a network of social enterprise incubators to facilitate the exchange of big ideas and deeper social networks, coordinated social investment funds, capacity-building efforts and more.
To beat the coronavirus blues, we must focus on entrepreneurial development and technological innovation. This includes providing hands-on technical and business expertise; access to customised solutions from universities, research institutions; and early-stage investment in technology-based enterprises and established businesses.
Sooner, not later, we need concrete action items to accelerate the pace of job growth. Included on the list should be helping small businesses gain access to capital, fostering new-company creation and entrepreneurship, and expanding the state’s renewable energy capabilities.
We need to develop new initiatives that connect 21st-century learning to entrepreneurial efforts and cultural change, a grass-roots movement of all types of citizens, working together to recognise and act upon valuable creative ideas that will advance our schools, our communities and our Rainbow Nation in the next decade.
These examples show that as South Africa looks to rise from the coronavirus induced recession’s ashes and creates a brighter future, we must be willing to step up and see how the proverbial economic downturn can be transformed into the next hotbed of innovation.
Covid-19 and its ripple effects will be felt for years. Along with growing impacts of economic downturns, Covid-19 will bring us together. As people respond to the virus by traveling less, avoiding large public gatherings and working more from home, there will be new ways of doing business.
We will be able to revel in what we have to be grateful for and pull together, share and be of service. We must be practical and pragmatic and seize the moment to nourish our social fabric and prepare to be strong together to meet business challenges as the virus shows us how human health and our ecosystem are interconnected.
In as much as we are all but confined to our homes and separated from each other and our most basic social activities, if Covid-19 is to be the defining story of our time, our abiding goal should not be to be defined by fear, anger and division but hopefulness.
As the late American poet and author, Maya Angelou said, “You may encounter many defeats, but you must not be defeated. In fact, it may be necessary to encounter the defeats, so you can know who you are, what you can rise from, how you can still come out of it,” Covid-19 is and will realign how we will do business, it is going to take a unified effort to triumph against the virus and credit-rating downgrade.
Sibongiseni Mbatha is President of the Association of Black Securities and Investment Professionals, a custodian of black professionals’ interests and black business in the financial services sector. Views expressed are his own.