To Reflect and Rebirth


The unemployment rate will blow out to some unthinkable percentage, and the economy may shrink by between 2% and 7% this year. It will probably be the worst economic year in four decades. Tax income will fall off a cliff - not only because companies and individuals not because individuals are earning enough but also because government is offering tax breaks to keep the economy afloat.

Eskom's debt will also increase due to the high demand because of the lockdown. Government has to ramp up spending to cope with the crisis and has borrowed so much more to pay for services and salaries right when its bonds have been stripped of their investment rating. Its bonds are now deemed riskier and investors will demand higher interest rates.

Its expected that our debt burden will balloon to 91% of GDP by 2023 and that's bad news for the economy. The less bad news is that 150% is the new 100%, analysts say. Already during the past weeks, concerns over emerging markets' ability to service their debts saw the rand and its peers plummet.

Unlike many other countries, however, most of South Africa's government debt is denominated in rand. A currency crash won't have the same devastating impact on our debt burden than elsewhere. For now, despite our junk rating, there remains some confidence in government's ability to pay back the money.


The oil price crashed almost 50% over the past month. While nothing can be ruled out in a world where toilet paper is suddenly a hot commodity, it seems highly unlikely that oil will recover any time. South Africa is among the countries that will benefit most from this - oil is by far our largest import.

This means that despite the 20% fall in the rand over the past month, inflation is basically dead in South Africa. Lower fuel prices and transport costs (among the biggest inputs determining food prices), along with a dearth of demand in a recessionary economy, will kill off any signs of inflation, paving the way for a new normal in interest rates.

The Reserve Bank has been overly conservative in keeping rates high, but it seems a grudging "thank you" is in order. Its time to shine is now, and households and business should save billions in interest rates cuts in the months to come.


Lofty plans for a new South African national health system will probably fall victim to new post-virus realities. There won't be any money left for it. The SA government faced the same challenge as other countries: a killer virus that spreads fast. Measured against other countries with vastly more resources, its action was among the most decisive in the world.

History will show that South Africa became the first country in the world to impose a strict shutdown before a single death due to the virus. This saved the lives of countless people. It also came at a massive economic cost, and poorest citizens are suffering worst. The state is not moving fast enough to feed and help them.

But the way in which government managed to lock down a massive country, pumping out reams of new regulations along the way to do this within a legislative framework, often with due consideration of long-term consequences, shows that the state machinery is still in working order. In the next issue we continue on this topic and go into more vast details about all the possible outcomes during this pandemic.