Business during a surreal pandemic Quarter 1 2021

By HAPPY MASONDO, Published in COVID-19 Opinion

As Amanda Gorman uttered these words at President Biden's inauguration, "[w]hen day comes we ask ourselves, where can we find light in this never-ending shade?", it certainly felt like she had read all our collective minds and captured the sentiments of a multitude of individuals the world over.

This "never-ending shade" brought on, in the main, by the consequences of a hard lockdown in many countries, including our own, in response to the coronavirus pandemic, has seen multiple business enterprises, especially those Small, Medium and Micro Enterprises (SMMEs), decimated.

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Three months following the declaration of the hard lockdown in South Africa, several reports showed that over 90% of SMMEs were struggling to continue to operate. Despite an easing of the hard lockdown the damage was done, and the National Development Plan's anticipation that SMMEs would significantly increase GDP and generate around 90% of new jobs in South Africa has evaporated.

Pandemic Exposes Systematic Inequalities

While it is relatively easy to lay all the blame on the onset of the coro-navirus pandemic, it is perhaps fair to say that the global economy was already in the throes of a recession. The fact that income inequalities in many countries had increased to historical highs was merely highlighted by the pandemic, which led to even greater damage to the world economy and those already marginalised. The World Economic Forum, Global Risk Report 2021, 16th Edition states:

"The damage from COVID-19 has been worsened by long-standing gender, race, age and income inequalities. Disadvantaged groups went into the crisis with lower resilience as a result of disparities in well-being; financial stability and security; and access to healthcare, education and technology. Previous editions of the Global Risks Report have highlighted that income inequality, despite declining on a global scale, had reached historical highs in many countries."

There are indeed a multitude of businesses for which a hard lockdown meant that they were completely unable to operate and could not even pivot to an online offering of their services. It remains to be seen if those businesses that are attempting to revitalise will ever adequately recover.

It is particularly difficult in South Africa when the aged and decrepit electricity infrastructure repeatedly requires unscheduled maintenance, further interrupting business operations. The national electricity grid continues to be under enormous pressure and, at the time of writing, stage 2 rolling blackouts were well and truly in full force. To state the obvious, until both Medupi and Kusile are at full capacity, over 4000 MW each, our electricity supply will remain unstable and left to the vicissitudes of an electricity infrastructure long past its "sell-by date".

Inevitable business collapse

Many businesses have since shut down and it is difficult to anticipate their return to the mainstream of the economy, once the pandemic has dissipated and/or as and when the countrywide mass vaccinations have begun to take effect – assuming that the efficacy of the vaccines is not reduced by new mutated strains of the virus.

The World Bank's view of these developments (The World Bank, "Covid-19 to Plunge the World Economy into Worst Recession since World War II", 8 June 2020, Press Release of the World Bank) is that the "swift and massive shock of the coronavirus pandemic and shutdown measures to contain it have plunged the global economy into severe contraction, the forecast being that the global economy will shrink by 5.2%, representing the deepest recession since the Second World War".

If this is true, it behoves us to anticipate similar economic outcomes as those seen in the aftermath of World War II, including "economic systems in many countries [being] permanently altered." (Kesternich Iris, Siflinger Bettina, Smith James and Winter Joachim, "The Effects of World War II on Economic and Health Outcomes across Europe", Rev Econ Stat. 2014 Mar 1; 96(1))

In South Africa, we have already witnessed a crisis in many sectors and industries, including manufacturing, finance, construction, fitness, beauty and mining. The hospitality industry has been hard hit with hotels remaining half empty, even during the December peak season, a trend that continued into early 2021, exacerbated by events such as the Africa Mining Indaba being a virtual event.

Household brand Musica is but one that will no longer be seen in South African shopping centres. Owner, Clicks is to shut down all Musica shops in May 2021, due to the fact that "it has been operating in a declining market for years owing to the structural shift globally to the digital consumption of music, movies and games from the traditional physical format... [t]he inevitable demise of the brand has been accelerated by Covid-19, which resulted in the rapid decline in foot traffic in destination malls where Musica stores are located." (Phillip Xolisa, "South Africa's Clicks switches sound off at retailer Musica as Covid speeds up inevitable demise", theafricareport.com, 2 February 2021)

In the transport and tourism industry, two bus companies, Putco and Greyhound suffered the same fate. Fewer passengers, increased sanitisation and staff PPE costs, as a result of COVID-19 restrictions, saw Putco retrench over 200 staff members. And Unitrans, the owners of Greyhound/Citiliner, announced that, after 37 years in South Africa, it would cease to operate on 14 February 2021. At the time of writing, the Democratised Transport Logistics and Allied Workers Union (Detawu) had urged Unitrans to submit the section 189 process to the CCMA.

Government's alcohol ban has had a devastating impact on the economy and the ripple effect may yet take a further toll on the stuttering economy.

On 20 January, Heineken South Africa, which employs 1 000 full time employees, said it would cut 70 jobs and put new investments into South Africa on hold because of the impact of the bans on alcohol sales and trading restrictions. This comes after the company announced in August 2020 that it would no longer build a planned R6bn brewery in KwaZulu-Natal.

SA Breweries also announced in mid-January that it had cancelled a planned R2.5bn investment in South Africa in 2021.

Actions and Reactions of Business

Despite this "never-ending shade", it is pleasantly surprising to come across businesses which are able to provide a ray of hope in the face of the global recession. The fintech sector in South Africa appears to have been unaffected by the hard lockdown and, in fact, appears to have realised rapid growth.

SMMEs have benefitted significantly from the support and the technological enablers emanating from the fintech sector. In essence, the fintech industry provides mechanisms through computer programmes and other technology to provide funding and financial services, amongst others, to SMMEs, enabling them to operate seamlessly online within 48 hours, or a shorter turn-around time. A typical SMME may successfully be awarded a contract to deliver goods and services to a large institution and/or a government department, but lacks the necessary capital to deliver on the contract. The fintech funding solutions have seen SMMEs receive much needed capital to upscale their businesses, even during the hard lockdown.

The view is that SMMEs may provide a vital stimulus to the South African economy. South Africa's current reality was pointed out by the International Monetary Fund (IMF), in their virtual meetings with South Africa in January 2021, as part of their routine staff visits with the country's government leadership, and observed that:

  1. The COVID-19 pandemic has worsened South Africa's growth and fiscal vulnerabilities and, therefore, the government is rightly prioritising the response to the pandemic.
  2. South Africa should reduce large fiscal deficits and debt levels through containment of the wage bill and avoid ill-targeted subsidies and transfers to inefficient state-owned enterprises (SOEs).
  3. South Africa should advance its structural reforms that will raise long-term growth.

It could well be that the decimation of the economy, resulting from the effects of the coronavirus pandemic, will find its revival shots from the SMMEs with the support of the fintech sector, and other sectors operating in the SMME space.

An even better shot in the proverbial arm of the South African economy came in early February. Bloomberg Online revealed that the Ford Motor Company "will plow $1.05 billion into a plant in South Africa its biggest-ever investment in the country as the carmaker scales back in other regions including Brazil and Europe. The upgrades to the Silverton plant near the capital, Pretoria, will boost the site's annual capacity by almost a fifth to 200 000 units and create about 1 200 direct jobs…The outlay will support production of a new Ranger pickup truck starting in 2022, both for domestic sales and exports. " The more surprising good news, which really goes against the grain of businesses shutting down, is that although Clicks will be shutting down all of its Musica branches, "[t]he store closures will not result in job losses, in a country where the official unemployment rate is in the double digits… [because] "the group's health and beauty, and pharmaceutical and health medicine distribution divisions have all performed well, according to the company's latest trading update." (Phillip Xolisa, "South Africa's Clicks switches sound off at retailer Musica as Covid speeds up inevitable demise", theafricareport.com, 2 February 2021).

Conclusion

Perhaps the pre-emptive actions of the fintech sector in continuing to support and fund SMMEs, and those of the Ford Motor Company, amongst other conglomerates, will provide the antidote to this 'never-ending shade', and our economic recovery from this deep depression.

Let those who can, follow advice from Nic Haralambous ("How to Start a Side Hustle: A playbook for a new economy", February 2021), who is of the view that this is as good a time as any to start a side hustle and make an extra income from it, hopefully employing others in the process. We should continuously seek out and find creative solutions to the massive problems facing South Africa and the world. It seems to me that mental strength and resilience are qualities of the human race that we must use to turn the seemingly endless negatives into positives.

Masondo writes in her personal capacity.