Counting the economic cost of the lockdown
Let’s explore some of the likely economic consequences:
- Government tax collections for the 2020/1 fiscal year are likely to undershoot by R200-R300 billion, according to economist Dawie Roodt;
- According to Rapport, government is considering a one-off wealth tax to help it bridge the fiscal gap created by the loss of revenue caused by the lockdown;
- Increased sin taxes on cigarettes and alcohol are also mooted as targets for government to help cover its widening fiscal gap;
- The budget deficit is likely to reach a record-breaking 12% (rather than the 6.5% estimated in the latest budget);
- The ban on cigarette sales is estimated by Tax Justice SA to be costing R35 million a day in lost excise revenue, or R1.225 billion for the 35 day lockdown period, and has created a flourishing black market, with potentially billions of rands in illicit sales taking place;
- The economy is likely to fall between 6% and 10% in 2020 due to the lockdown;
- Between 600,000 and 1 million jobs have been lost, though the exact figures will only become apparent in the coming months;
- The 17 million poor South Africans drawing social grants is likely to multiply by at least 1 million, based on estimates of job losses caused by the lockdown. Government has also promised to provide additional cash to recipients of grants, raising the expected cost for 2020/1 from R203 billion to around R225-R240 billion;
- Municipalities face a revenue crisis in the coming weeks as they are expected to struggle to collect rates and taxes, as well as electricity sales;
- E-tolls and other road toll collections have already collapsed due to lower road traffic, impacting the source of funding for road maintenance;
- Fuel levies, which generate about R80 billion a year through fuel sales, is likely to fall by 10-15% in the current fiscal year;
- The technically bankrupt Road Accident Fund, with assets of R11 billion and liabilities of R341 billion) is funded through a special RAF levy. The ban on all but essential travel will further damage the financial health of this fund.
- There is likely to be a wave of defaults on bank loans, possibly between 10% and 15% for some banks with large mortgage loan books, which poses a threat to the solvency of banks. Banks are exposed to each other through cross-lending to the tune of about R200 billion, with a further R900 billion in loan exposure to the state. The failure of one bank, while by no means certain at this stage, would create a contagion effect through the entire financial system. Should this happen, this would require bail-outs by the Reserve Bank, underwritten by the SA taxpayer. This is according to Russell Lamberti, economist at ETM Macro Advisors;
- SA’s debt as a percentage of GDP is likely to reach 80% in the next two years (up from the current 65%);
- The government estimates that 1,600 small businesses are likely to close permanently as a result of the lockdown, though most economists believe it will be much higher;
- Death rates as a result of increased poverty are likely to increase, possibly by 300,000, based on Greece’s post-2008 financial crisis when the economy contracted more than 20%, according to Dawie Roodt.
- The court system is likely to be jammed for years with cases involving force majeure claims and foreclosures on private property owners; a number of urgent cases are already being brought to the courts by Solidarity and AfriForum (attempting to overturn race preferences in the distribution of relief aid to tourism businesses), and threatened by the Fair-trade Independent Tobacco Association (seeking to overturn the ban on cigarette sales); the Democratic Alliance and business organisation Sakeliga (seeking to overturn the ban on the sale and distribution of cooked food);
- Some insurers have amended company policies covering business interruption due to infections and the outbreak of contagious diseases, which will leave many entrepreneurs high and dry (when they thought they were covered).
- Though mines are allowed to operate at 50% capacity (coal mines supplying Eskom and oil refineries are allowed to operate at full capacity), this could result in the loss of thousands of jobs and the curtailment of new expansion projects.
This horrific tally of the human and economic cost of the lockdown demands a public response to government.