100,000 South African businesses at risk of closing permanently – Economist
Between 100,000 and 200,000 South African businesses could be shut down permanently due to the impact of the COVID-19 coronavirus.
This is according to Efficient Group economist Dawie Roodt, who told MyBroadband the crisis will damage an economy that was already crippled before the virus hit.
In recent days, several large South African companies have announced measures such as salary cuts and 4-day work weeks in an effort to prevent job losses due to effects of the ongoing national lockdown.
The SA Reserve Bank added that its current estimates suggest South Africa could lose about 370,000 jobs in 2020, on a net basis.
It said that roughly 1,600 firms would become insolvent as the economy contracts.
A crippled economy
Roodt explained that the South African economy was already in dire straits before the virus came into play.
“The South African economy was in a recession before the virus, so it was contracting in any event,” Roodt said.
The country’s GDP shrank by 1.4% in the final quarter of 2019, following an adjusted 0.8% contraction in the third quarter.
“We actually were in crisis and now we have a crisis on top of a crisis, and we were losing jobs in any event,” Roodt noted.
“The average South African has been getting poorer every year for the past six years and our unemployment rate just keeps on going up every year,” Roodt added.
Thousands of businesses could close
Roodt acknowledged that it would be very difficult to make an estimate of what can be expected for the country after the economic situation has normalised.
Using previous crises, such as the 2008/2009 recession, he superimposed this on his current economic model to make rough estimations on what could be expected in terms of job losses.
Given the information at hand, Roodt expects South Africa’s economy to contract significantly this year.
He estimated that 1 million jobs could be lost in South Africa in 2020, with the effects of the coronavirus outbreak taken into consideration.
“My expectations at the moment is that the economy will contract by approximately 5% in 2020, so the recession will be extended and will run very deep,” Roodt said.
“That inevitably means many people will lose their jobs and based on previous crises, I expect that more than a million people will lose their jobs.”
Based on a figure of 1 million, and assuming the affected businesses employ an average of 10 people, that would equate to 100,000 businesses closing down in 2020.
“If your assumption is that small businesses employ five people, then 200,000 businesses will close down in 2020,” Roodt said.
“I believe these are conservative numbers that I’ve given you and I think there’s a good possibility that these may actually be worse than what we expect at the moment,” he added.
COVID-19 is not the biggest killer
Roodt said that he supports the government’s implementation of the lockdown, particularly when it came to decisions by the President and Health Minister.
He noted, however, that South Africa would have to start asking serious questions about economic growth and the relationship between poverty and mortality rates.
“The single biggest killer on this planet is not COVID-19, or measles or cancer. The single biggest killer on this planet is poverty,” Roodt stated.
“If you look at countries that are poor, life expectancies in those countries are all low.”
Wealthier countries with better-performing economies showed higher life expectancies, Roodt explained.
“If that is your approach, then without a doubt we have to put emphasis on economic growth, because in time, that is going to be the answer to just about all our problems in South Africa,” Roodt stated.
He said that South Africa could consider alternatives to a total lockdown, such as isolating the vulnerable, elderly, and people with certain underlying conditions to protect them from the spread of the virus.
This is because according to COVID-19 mortality figures from across the world, these individuals are much more likely to die from the virus, than younger and healthier people.
Roodt said that the less-vulnerable population could then continue to work to help the economy grow.
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