Thursday | 26 March | 2020
Solidarity earlier published an article on the economic permutations of Covid-19, commonly known as “coronavirus”. However, since its publication we have seen matters only getting worse. On 23 March President Ramaphosa announced that South Africa would be placed in a state of national lockdown. The question therefore arises: What will this large-scale closure of business mean in relation to unemployment in South Africa?
Unfortunately, the figures don’t look good. The MD of the International Monetary Fund (IMF) Kristalina Georgieva already indicated that this virus and the trade restrictions associated with it “will be at least as negative as the 2008 financial crisis, or perhaps worse”. The Organisation for Economic Co-operation and Development (OECD) has warned that the impact is probably already worse than the 2008 collapse, while the UN Conference on Trade and Development (UNCTAD) estimates that approximately $1 billion in value has already been wiped off the global economy.
The picture does not look much better when we look at job losses specifically. Initial International Labour Organisation (ILO) estimates indicate a significant increase in unemployment underemployment in the aftermath of the virus. Based on different scenarios for the impact of Covid-19 on global GDP growth, preliminary ILO estimates indicate an increase in global unemployment of between 5,3 million (‘low’ scenario) and 24,7 million (‘high’ scenario) from a base level of 188 million in 2019. The “middle” scenario indicates an increase of 13 million (7,4 million in high-income countries). Although these estimates remain highly uncertain, all figures point to a significant increase in global unemployment. By comparison the global financial crisis of 2008-09 pushed up unemployment by 22 million.
While it is impossible to determine exactly what the effect will be in our country, a few points count in our favour, though:
- We responded much faster to the crisis than many other countries have. By the time 64 infections were reached South Africa closed schools and announced other measures, while countries such as Italy waited until around 3 000 infections were reached before they did the same.
- The majority (56%) of jobs in South Africa are with only 1 000 major employers, including government where employment is growing faster than SMEs can create. We all know that larger companies are more resistant to such major shocks than smaller companies are. As strange as it may sound, but it counts in our favour that the labour force in South Africa is indeed relatively concentrated. About 72% of all employment is with larger employers and it is encouraging that these employers have a better chance of surviving this economic downturn. While it is not a good statistic per se, it can be helpful in times of major economic turmoil.
- We probably have one of the best, if not the best, central banks in the world. The Reserve Bank is better positioned than almost any other central bank to bring relief to our economy. Years of responsible monetary policy mean that the bank now has more room to manoeuvre and ammunition to deal with the problem than any developed country has.
Finally – South Africa will no doubt suffer tremendous pain as a result of the impact of the virus on global economies, but when we compare our situation with that of many other countries, even developed countries such as those in the European Union (EU), then we must realise that we will probably be better off – relatively speaking. However, we must realise that this crisis is going to force us to start reviewing policy in the aftermath of this crisis because what was “business as usual” before the crisis will simply exacerbate our situation.
* All information was correct at the time of publication.