It's going to get a lot worse before it gets better for SA's economy
JOHANNESBURG – Covid-19 and the anticipated 2020 recession is set to bring opportunities and challenges to institutions, some institutions will collapse while new institutions will emerge and provide solutions to Africa and the global economy.
The South African Reserve Bank unanimously decided to axe its key repo rate by 100 basis points to 5.25 percent during its March 2020 meeting, surprising markets who expected a smaller 50 basis point cut, amid growing uncertainty over the impact of the coronavirus on the already fragile economy. It was the second cosecutive rate cut so far this year, bringing borrowing costs to the lowest since December 2013. Policymakers said low inflation had created space for monetary policy to respond to deteriorating economic conditions.
European Central Bank president Christine Lagarde tweeted: “Extraordinary times require extraordinary action. There are no limits to our commitment to the euro.” She said: “We are determined to use the full potential of our tools, within our mandate. It will buy government and company debt across the eurozone, including that of troubled Greece and Italy.”
The ECB has launched an emergency €750bn (about $820bn; £700bn; R14.145 trillion) package to ease the impact of the coronavirus pandemic. These measures are protective to their economic challenges and also to make their businesses to remain strong and competitive to the global markets economy. In simple terms, the ECB has set de-risking solutions for their economy by launching bonds instruments.
The South African economy's undesired contracting exposes the National Development Plan propositions as not aligned with our structure of the economy, which demands the current leadership to restructure the economy and introduce economic reforms to assist in developing the economy to be holistic, balanced, collective, sustainable and with equitable opportunities to all South Africans.
Leading an unequal society it’s a great exercise for all South African democratic presidents and no one has done it better yet, it continues to be a complex problem and that needs all of us to reflect on the kind of South Africa we need to live at and when we need recession every year, characterised with volumes of losses in investments, we can proceed with this character of an economy but when we need change. We will be expected to adopt a Gross National Happiness model that will require the government and private sector to provide a long-term plan, with five-year plans that have reasonable priorities that are not more than five.
The South African economy is now expected to contract 0.2 percent in 2020 (vs prior 1.2 percent growth), before expanding 1 percent in 2021 (vs prior 1.6 percent) and 1.6 percent in 2022 (vs prior 1.9 percent). Current forecasts point to inflation at 3.8 percent in 2020 (vs prior 4.7 percent), 4.6 percent in 2021 (unrevised) and 4.4 percent in 2022 (vs prior 4.5 percent). The bank reiterated that monetary policy cannot on its own improve the potential growth or reduce fiscal risks and urged the government to implement prudent macroeconomic policies.
South African corporates, state-owned enterprises (SOEs), pension funds will need to mitigate transactions committed and provide de-risking solutions and financial engineering solutions to protect investors funds to still have desired expectations in terms of interest rate of return contracted for listed and unlisted investment allocations.
The Reserve Bank's Monetary Policy Committee has taken a great decision in deciding for a 100 basis point interest rate cut, to partly assist in affordable institutional credit facility servicing.
Manufacturers are on the front end of the global trade and finance economy and the purchasing managers index (PMI) as a witness for the decisions they are making about spending, that directly affect global growth.
The global markets has portrayed deteriorating PMI highly from February 2020 that has a negative impact on the global gross domestic product (GDP) growth for 2020. In Africa, South Africa portrays a deteriorating PMI from November 2019 to February 2020, Zambia deteriorating since September 2020 to February 2020, Ghana and Kenya shows elements of improvements and Uganda showing consistent elements of improvements from March 2018 to date.
The PMI at the eurozone deteriorated from March 2019, Germany exhibiting similar elements with the eurozone, Italy deteriorating from January 2019 till now, Russia from September 2019 till February 202.
While China is showing a great deal of PMI deterioration since February 2020, Japan impacted from September 2019 till now and Hong Kong PMI aggressively went down from June 2019.
The predicted global economic recession and the coronavirus outbreak finds South Africa in a revised GDP growth rate at below 1 percent by the International Monetary Fund and the World Bank Group and the recent predicted growth of 0.2 percent for South Africa, as revised, re-affirms Miyelani Mkhabela's Economic Forecasts for 2020 predictions that, “It's going to get a lot worse before it gets better” for the South African economy.
These challenges will require South African institutional investors and its corporates to review their investment strategy and introduce viable system models to make them adjust to complexities facing the country and the broader global economy. The prevailing direction of deteriorating economic trend in purchasing managers index is a clear sign that recession need to be prioritized on our board meetings and strategic planning reviews by both public and private sector companies.
The 2008 global financial crisis teaches us to proactively be reflecting and being mindful of the future impact highly likely to be worsened by the coronavirus pandemic and these require us to be focused our attention on designing de-risking models to assist in preserving the system.
The coronavirus pandemic negative impact on emerging markets like South Africa and the rest of the Africa markets will be very costly, while the anticipated recession will worsen the poor economic development locally and globally. Countries will also need to continuously monitor and evaluate both their GDP and Gross National Happiness. The Gross National Happiness emphasises that, if the government cannot create happiness for its people, then there is no purpose for that government to exist and the state shall strive to promote those conditions that will enable the pursuit of Gross National Happiness.
The Gross National Happiness is a holistic, balanced, collective, sustainable and equitable economic model desired to achieve a reasonable and equitable distributed level of wellbeing and a better life for all.
We need to design an attractive economy and businesses that will be resilient and adapt to geopolitics and natural or environmental challenges that have changed how the global economy relates and trade in 2020. Indeed the global society is discipline and this coronavirus made us reflect on the good values our communities have.
The global economy and the South African economy plummeted, leading to most corporates seeking corporate finance and derisking solutions to protect their assets from recession and Coronavirus negative effects to their business headline earnings and profits expected.
Miyelani Mkhabela is a Director and economic Strategist at Antswisa Transaction Advisory Services, contactable at : [email protected] / +27 61 4433 199 / Twitter:@miyelani_hei