Caving in to the lobbyists will come at a Covid-19 price

The economy has enjoyed a significant, albeit only partial, recovery since the Covid-19 pandemic hammered it in March and April. Two immediate policy choices will determine if the rebound persists: the extension of relief to households and businesses, and appropriate regulation of holiday entertainment and travel.

Instead, policymakers and business leaders seem to be chasing the chimera of an untrammelled return to prepandemic normality instead of dealing with the reality of a looming second wave. That way lies economic disaster.

Already SA faces an unthinkable downturn. The IMF forecasts an 8% contraction in 2020, cancelling out almost a decade of growth. Worse, it expects SA to recover only 4.5% in 2022. In contrast, the global economy is expected to shrink under 6% in 2020, and to recover 7.5% by 2022.

Employment has dropped faster than GDP, and rebounded more slowly. In the third quarter it was still 1.5-million lower than before the pandemic, wiping out jobs gains from 2012. Losses mostly hit the working poor outside agriculture — ordinary formal workers, informal businesses and domestic workers — physically able to work and not eligible for normal social grants.

Quarterly data obscures the depth of the April decline and growth trends after. Notably, in September manufacturing sales in constant rand were equal to March 2020. In November, the mines employed more workers than a year earlier.

Predictably, businesses where customers face a high risk from Covid-19 — especially indoor restaurants, bars and accommodation, which directly contribute about 2% of GDP and 3% of employment — have recovered more slowly. Even with no regulations many customers won’t return while the pandemic persists. After crashing to near zero in April, by October food sales had recovered 65%, liquor sales 40% and accommodation 30%.

The broader recovery faces two immediate threats: the largest relief schemes ending, and a second surge from holiday socialising and travel.

The Covid-19 Temporary Employer/Employee Relief Scheme (Ters) ended registration in October, which means most payments will stop by year end. The Covid-19 special grant for working-aged people with no other income is due to disappear in January.

Neither programme was extravagant. Ters provides an average of R3,500 a month and the special grant just R350, far below the poverty line for an individual. Still, terminating them while employment remains 10% lower than in 2019 will push many working-class households into destitution, risking a downward cycle in demand. Moreover, ending Ters will force business closures and retrenchments, making it harder for producers to recover when demand improves.

The government’s caution in regulating the holiday season also poses a serious threat to the economy. In Europe and the US the summer holidays fuelled an alarming upsurge in Covid-19 cases, which slowed and in some places even reversed the economic recovery.

In SA all the coastal provinces are experiencing a sharp increase in clusters from public entertainment and private socialising. Holiday travel will bring the surge to the rest of SA. That is likely to wipe out gains even in less risky (and much larger) sectors such as mining and manufacturing.

Since April lower-cost ways to limit Covid-19 have been developed, especially control of indoor drinking, dining and socialising; promoting mask use; and interprovincial travel management. To be effective, these instruments have to be applied consistently.

Governments always battle to institute measures that impose significant costs on a vocal minority while providing larger but less tangible and more thinly spread benefits for the majority. So far the state has caved in to the tourist industry, on the one hand, and financial advisers and creditors. In the coming year we are likely to end up paying an extortionate economic and social price.