2020/04/23

Private Relief Fund for Small Enterprises

South Africa During the Corona Pandemic

An Interview with Detecon Consultant and Director Thomas Switala

Broad regulations for sheltering in place have been in effect for South Africa since 27 March. The nearly 59 million inhabitants are allowed to go outside solely to buy food. Commerce has come to a standstill. Only people responsible for the operation of critical infrastructures are permitted to continue working. In initiating these strict measures, South Africa joined the ranks of the countries that have responded most vigorously to the pandemic. Born in South Africa, Thomas Switala lived and worked in Johannesburg until July 2018. Today, his life is centered in San Francisco, but he was in his home country until shortly before the measures went into effect. The Detecon consultant praises the determination with which politicians are fighting the spread of the virus. Nevertheless, a long lockdown could be disastrous for an economy that was not in good shape even before the virus appeared.

Thomas, your family is still in South Africa. When will they be allowed to travel to the USA?

Thomas Switala: The way it looks now, my wife will be allowed to leave South Africa in mid-May. We will have to wait and see whether that will really happen. South Africa closed all its borders without exception at the end of March. The South African airline South African Airways immediately ceased operations completely. Only a few foreign aircraft have flown since then, but now there are no more flights at all. The borders to Zimbabwe, Botswana, and Namibia in the north of the country are sealed off. Everything is closed, including schools, government offices, or restaurants. No one is even permitted to go outside in the parks. Alcohol and cigarettes are no longer available. The strict isolation policy still seems to be effective as the infection rate has remained low despite the living conditions in the cities. In the townships, whole extended families live together in a very confined space, sometimes in only one room.

In a country that was poor to begin with, the consequences for the people and the economy are catastrophic. How long will South Africa be able to keep this up?

As of now, there is no foreseeable answer to this question. South Africa was in a deep crisis at the end of Jacob Zumas’ nine years in office, a period of widespread corruption. In the two years since his election, the new president, Cyril Ramaphosa, had not yet managed to turn the country around, but was highly praised for his accomplishments during his short time in office. Developments were moving in a positive direction, and now these gains are likely to be wiped out by a crisis that was not self-inflicted. The South African currency, the rand, has declined substantially in value in a short period of time.

Unemployment in South Africa is almost 50 percent. What are people living on?

There are huge differences between rich and poor. If you live in a wealthy residential area in Johannesburg, the lockdown will not have had much impact on you. Most people, however, work in the informal sector and have been severely affected by the lockdown. They live from street sales or small transport jobs, carry out small repairs, manufacture their own products, or offer services. They manage to earn just enough to feed themselves. When all these activities are prohibited, and if the constraints remain in place for a longer time, food supplies will quickly be exhausted. No one can say what will then happen. There could be riots, even more violence. At the moment, however, the level of violence is lower than before the lockdown because the police and military are highly visible and nobody dares to go out into the streets.

What is the economic situation?

Many companies were having problems before the crisis. Even the power provider Eskom, which is wholly state-owned, was in trouble and could no longer carry out important maintenance. The consequence was that power outages had become increasingly frequent. Electric power had to be cut off for certain periods of time, alternating from one region to the next, and this was obviously detrimental to the economy. In some cases, production had to be interrupted.

What about an economic stimulation program?

As a rule, there is little support from the government in South Africa simply because there is no money. And foreign investors are withdrawing large sums of money from countries like South Africa. President Cyril Ramaphosa has just announced a relief package of 500 billion rand, the first ever in the country’s history, that will pay a monthly benefit of 350 rand to unemployed people for the next six months. This could provide relief to around 10 million South Africans – but the poverty line is 561 rand a month. There are fears that the economic crisis that is sure to follow the health crisis will be far more serious than the financial crisis of 2008. The gold, platinum, palladium, and diamond mines, none of which are allowed to operate at the moment, represent an important economic factor. Tourism is another important source of revenues. Here as well, it is not foreseeable when tourists will be allowed to enter the country again and, even when it becomes possible, whether they will be so quick to return. And assessments of the credit rating agencies could have a catastrophic effect, too. In the middle of the crisis, Moody’s has downgraded South Africa’s credit rating to Ba1. Any investments in South Africa are speculative in nature, and losses must be expected. Who wants to invest in South Africa now? And economic forecasts currently assume that gross domestic product will shrink by up to 10 percent in 2020 and that as many as one million jobs may be lost.

Aren’t there any initiatives from the business world?

Several very wealthy individuals and companies that are doing excellent business have demonstrated tremendous solidarity. They have endowed a relief fund for the economy with several billion rand of their own money. Everyone has access to these funds, which is particularly helpful for the small businesses that have been hit hardest by the crisis. Restaurants, for example, are not even allowed to offer takeaway services, so they have absolutely no income. The privately initiated relief fund will save many of these small businesses.

Thomas, when you are working from your home in California and you think about South Africa – what do you miss most, and what hopes do you have for your home country in these times?

I miss my wife, who flew to South Africa a few weeks before the lockdown and was later unable to leave the country. We did not expect the travel ban to be implemented so quickly. I also miss the rest of my family, but we are in regular contact and everyone is doing well. South Africa is a wonderful country that will always be in my heart. I hope that we can learn from all this and open a new chapter in rebuilding South Africa economically so that everyone benefits, not just a small elite in the country.

 

 

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