covid19 and lockdown and the impact on economies. with a ... · only three countries to have...

Covid19 and Lockdown and the impact on economies.With a special view on jobs and employment.A little on work as we know it.

The World economy

▪ Forecasts The SA economy

▪ Government troubles.

▪ A few signs of a turn around and resilience.

The unemployment crisis we forgot in lockdown. Some changes after covid19 in the work place.

▪ Can we make use of them

Institution 2020 2021 2022 2023

IMF -4,9 5,8 3,5 3,6

World Bank -5,2 4,2 3,2 3,3

OECD -6 5,2

Capital economics

-4,7 2,8

UN Economics -5,7 1,5 2,5

Oxford -4,5 5,8

Average -5,2 4,2 3,1 3,5

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GDPGDP per capita

2019 = 100 then this is what average indicatesWorld GDP surpasses 2019 level in 2022 againPer Capita World surpasses 2019 level in 2023.World 9% lower in 2023 than IMF forecast 1 year agoAll forecast show worst decline since great recession for

2020.2021 average indicates best growth since 2011. (even 2007 possible)

Only three countries to have positive growth of larger economies in 2020.9 out of the 10 largest declining countries had relatively large lockdowns,Not only is this the worst year on record for many countries many forecasters have indicated that downside risks are a real possibility to these forecasts in many cases.We should never see this again but while the recovery may start V shaped there are debts made and industries destroyed.

8/29/2020 Economists Dotcoza 5

Some countries were already in a weak growth cycle like SA, Saudi Arabia, Norway, Thailand, Mexico, Uruguay, Chile and Italy.▪ Oil exporters, commodity exporters, Tourism destinations for example.

Others like Philippines, Spain, Italy already locked down early (before March 20).

Also remember that countries depend on one another they are not Islands.

Al GDP data here is year on year as some countries do not report quarter ago data that is seasonally adjusted.

SA in 2nd quarter is my forecast

8/29/2020 6Economists Dotcoza

• Many countries are expecting an expanding of manufacturing in July.

• More than 50 is expansion.• SA positive (above 50)• So everyone is expanding

BUT FROM WHAT BASE?• But the point is that the worst

is now over for most economies and the World economy is embarking on a recovery.

• The recovery will take time.

Oil recovered but not fully yet even with less supply due to major reduction in demand

Copper recovered fully but now hesitates somewhat……

Hit very hard and going into this we where not healthy to say the least. Highest Unemployment rate in the world before crisis, Government spending out of control. What now?

SA per capita GDP in 2nd

quarter will be similar to the level in 2000.We will bounce back but the total recovery will take years – about 6 to 9 years for 2019 levels and 11 to 14 years to go back to 2014 levels. The average South African will afford fewer goods and services than before.That means a lot for durable goods such as cars, houses and furniture especiallySmaller cars more likely and fewer cars. Same with houses and furniture.

Shift to cheaper services to continue for things like restaurant meals, fast food instead of sit down, Barbers instead of hairdressers.BTW in per capita terms we were richer in 1975 to 1990. And from 2002 onwards!

Bet most people did not think that electricity would be such a strong performer in the 2nd

quarter.Yes government is likely to add will Finance and personal services will have less of a decline.But GDP did decline by over 40% on annualised basis in 2nd quarter.

We are seeing a massive bounce back but will SA make up the lost production this year or next year. That is very unlikely but the first part of the recovery is strong and that was expected and is a great sign for much our economic activity

Day to day businesses survive as their normal sales are larger than normal cost of sales excluding depreciation of assets.Thing is this can be the basis to form a large revival of SA INC!

Confidence is very important for growth. For the longest time in SA history politics have been seen as a constraint.This can be turned around but confidence takes time. It is however easier and has better returns than spending For example change Visa regime to allow all in with no Visa requirements, lift FICA requirements on all bank accounts for small bank accounts of under R15k say.

SA Government however does not have Room to help much.

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The growth of debt as % of GDP is a problem and the level is a concern when we are compared to our peers.The SA number here is for end quarter 1 from the BIS. Our government estimates are now for over 80% for 1st quarter 2021!

SA is expected to have the 2nd largest deficit this financial year of the large economies listed in the Economist magazine.

▪ SA deficit is forecast to be 16% of GDP now - only the UK will a larger deficit.

SA will see the deficit to GDP stay high for another two years at least

▪ Forecasts are for 11% (9,3% gov) in 21/22, and 9% (7,7%) in 22/23

SA gross government debt to GDP will reached 100% by 2024



50,5 53,0

81,8 82,086,0 87,4 86,8 84,8

81,877,9

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56,663,5

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97,2106,1

114,1

121,7128,4

134,8140,7

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Per cent of GDPActive scenario Passive scenario

South Africa went in with a massive problem



South Africa arrived with double the unemployment rate of any large economy.ALL SACU countries are in the high 12 unemployment rate countries in the World.The country should have been looking for the least disruption to its economy as this crisis is not going away.


Most countries will not have seen the full impact which we know will worsen as employment is a lagging indicator around the world.Some countries did see drops but this is due mainly to massive injections of cash into businesses to hold on to their employees. SA did similar with UIF but that money is running out fast as SA paid out well over R40 billion by mid August from end April.We also know that SASSA is paying our R9 billion per month extra.We think insurance and private sector gifts have added at least R4 billion a month

.


I do not know of ANY country that has gone into a economic crisis with such a high unemployment rate.The impact of the Lockdown and the silly rules are all detrimental to the biggest socio economic problem that our country faces.Basically SA unemployment rate doubled in 25 years.From 16,9% to 30,1%!

No country in the world has lived with an unemployment

rate of 20% and more for more than 2 decades.

With nearly 11 million adults already unemployed SA is already in the world worst economic crisis.

Economic policy has 4 pillars in all countries. Inflation, growth, employment and income.

▪ Government should be measured on these 4.

SA unemployment rate is fully a fifth higher than the US rate during the great depression! (US reached 25%)

Unemployment is our biggest failure and is already at depression levels.

I believe that SA is in a depression when I look at the unemployment numbers.



The minimum wage was implemented in Jan 2019 and since then 150k in jobs seem to have gone by end 1st quarterThis resulted in 1,1 million more unemployed in 15 months. (due to more job seekers entering market)The year to the 1st quarter 2020 saw the largest increase in the number of unemployed since the 2009 global crisis.This means when SA entered Covid19 lockdown it already had large unemployment crisis

Did we forget about the unemployed in the lead up to the current crisis?It is likely that more people will die from broader unemployment crisis than Covid19 over time.

NIDS CRAM did a survey which showed that 3 million people lost their work (temp and permanent combined)

TERS paid over 9 million payments in less than four months.

▪ NEASA members indicate that some 20% of employers have not been paid for April with higher numbers for later months.

▪ Some such as informal employees and self employed do not get UIF payments.

SASSA received over 7 million applications and paid 4 million so far for unemployment relief.

While I would take some numbers with a pinch of salt (SASSA is open for abuse).

I honestly now believe that AT LEAST 4 million in TOTAL lost at least some of their income – that is combined informal, formal, self employed.

▪ From car guards to lawyers have seen income declines.


The personal service industry has seen 2,62 million payments. (Restaurants, hairdressers, beauty shops fast foods, advertising etc)

The broad trade industry (i.e. retail, wholesale) saw 2,22 million payments.

Building industry saw 497K TERS payments. Manufacturing, professional services, travel and

mining also saw large numbers. In total 9,1 million payments.



Every working person using rail or bus would make 2 journeys per day working and that means 41 a month.However due to leave, holidays and sick leave this decline to around 35 journeys a month.That is 831 000 less than last year this time for the June quarter.According to tracking company Tom-Tom & others there were still around 50% less vehicles on SA Roads in metros

I think a reasonable number would be between 1,3 million to 3,3 million jobs lost on a permanent basis.

This will be right across SA sectors but with personal service, construction, travel and trade very hard hit.

So adding new entrants to the labour force by next year the best case is for 36,2% unemployment.

Worst case is 44,6% Probable case is 40,6% all by March quarter 2021. But we should see decline in these high numbers by about 300

to 600 basis points within 15 month after March 2021.▪ These estimates are for the standard unemployment rate.


Unemployment

Quarter 12020

Quarter 12021

Low estimate

30,1 36,2

Estimated job losses

30,1 40,6

High estimate

30,1 44,6

Unemployment

Quarter 12020

Quarter 12021

Low estimate

39,7 46,1

Estimated job losses

39,7 49,7

High estimate

39,7 53,2


Official unemployment rate forecasts

Expanded unemployment rate forecasts

Every year about 600 000 net new people enter the adult population.

Most seek jobs and enter Labour force.▪ SA labour force very low by

international standards When SA loses jobs this adds to this

job growth pressure. The SA employed to adult

population is among the lowest in the world.

SA rate often higher than countries at war, civil disorder and strangely probably even countries without government like Somalia!

No major country has had 40% plus unemployment so that will be a first for SA.

This is the real crisis. Covid had nothing on this in terms

of scale and the life years lost.

SA unemployment rate has been 20% or more since 1996!

Of all the countries in the back of The Economist (mag) SA only one that has EVER seen unemployment of over 30% in standard terms!

By March 2021 the expanded number of unemployed would have increased from 10,8 million to 12,9 million a 2 million increase even if we use lower estimate of job losses.

WILL SA BECOME the 1st

modern economy with 50% broad unemployment?



• SA has one of the lowest employment ratios in the world.

• For males over 15 years it has been the lowest in the world for over a decade. (Muslim countries often do not allow women in paid employment)

• This means SA cannot afford to see a drop in this level as 40% of adults in employment is very low.

• This more than anything else is the reason for inequality as only people with Work will get a substantial income.

• If this drops it will also destroy not just the tax base but the consumption and small production base.

• 34,8% is our medium forecast!

SA will be 1st country under 38% of adult population employed not in civil war.

At 34,8% of adult population employed would mean a smaller tax base both VAT and PIT.

At this level less than one in four people will earn an income. (this is not sustainable and will result in mass hunger)

▪ 23,3% to be exact

Massive political upheaval. SA will be in crisis mode

permanently. More migration of skills and

tax base due to increase in uncertainty and crime.

We will have to make radical shifts for which the current government has little appetite and leadership may not risk political capital needed.


This is the worst unemployment crisis in the world already and with unemployment already at depression levels this is the biggest SA economic problem.


Money can’t fix this!Because it will not work and we are running out of money quickly.

A lot was on the way but Covid19 speeded it up, and it may just be the best surprise for some South Africans.



Yes of course more people work from home. The office worker will change due to this.In the US from 32% to 48% for office workers says Forbes.We will see this trend in office admin, analysis, business process etc.Technology is now developing at a rapid pace.Lumber prices in US at record highs as people renovate homes for WFH

Gets much work done at home. (Maybe not all) Will this be the start of the internationalisation

of the office and services?

▪ Many new forms of work will see “outsourcing”.

▪ From architects, accountants, analysts to journalists and sales lead generators, web design, IT and even lab technicians.

▪ May will bring down some wages in 1st world again.

▪ This is a serious option for South Africans who are skilled in some form or another.



The same is true for casuals in SA, they payment of their wages declined the most when compared to monthly and weekly according to BankservAfrica data.Data from some other places also show that temporary and beginner jobs were often first to go in UK, Spain etc.The same will take place here were we have seen many lose their part time and temp work

Manual and unskilled labour may lose out if offices go. (the tea lady, cleaner etc)

With remote work people will buy less fuel and cars. (Uber drivers, forecourt attendants, public transport)

There will be a shift in where people buy from close to work places to closer to home places.

▪ Shift the where retail rents will come from.

▪ This will hurt city centres and commercial districts hard.



In UK the boom reached 55% on a year ago basis.In SA we have no figures but some statements say that some online firms nearly doubled in size overnight.So Uber drivers become couriers.Shop till people become dispatchers and warehouses become the hot property to have….. Higher education will become global and

online say many magazines.

• In just 27 years the share of workers in Agriculture has dropped from about 44% to 28%.

• Service workers have risen from 31% to 49%

• In SA over 80% of workers work in services already!

• Labour force participation rates have peaked too even while less young people are around.

• Hardly any country is still at 3000 hours per year average.

• Yet we do produce more.• Clever production

techniques but also mechanisation helped.

• Now we are on to robotics and AI when we will work even less but produce more


South Africa like many other countries needs to understand that manufacturing is robotising and needs more fixed capital than ever per job. Agriculture could offer some hope in the total supply chain but we need to be realistic that it is not ever going to help much.

But the flip side would be a general higher inequality as unskilled workers face retrenchment. Higher skilled go into other services with more international angle


We do not have all the answers but we have at least some trends and some insight to current trends.

covid19 and lockdown and the impact on economies. with a ... · only three countries to have...

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