After a rough 2019, most people hoped that 2020 will be a better year for them. Hopefully, a year full of achievements and fulfilment of goals.
Then came the microscopic, lethal and cataclysmic coronavirus beckoning on our doorsteps and just like that all the hopes for a positive year were flushed down the drain.
2020 has pushed the economy to the brink of collapse, with millions facing unemployment and business closures inevitable.
Even with all that, the rich are growing more affluent when the world around them is collapsing. Let’s discuss how it has been possible for rich South Africans to make money during COVID 19.
A bailout is an injection of money from a business, individual, or government into a failing company to prevent its demise. While the rest of the world finds itself sinking in this ocean of economic distress; the rich have the ultimate safety net, the government.
The 2020 COVID-19 pandemic has threatened the stability of many businesses in South Africa, among them are the big corporations like Edcon. These companies are a critical part of the economy and employ thousands of people so if they were to fail, the fallout would have dire consequences on the economy.
At the wake of COVID 19, President Cyril Ramaphosa announced that the government had set aside 500 billion rands to save the economy. And a substantial amount of these funds will obviously go towards bailouts due to the pressure and damage being faced by companies.
Jones Gondo, a credit analyst at Nedbank Group Limited said that at this point, “The contingent risks are beginning to crystalize because these entities are unable to withstand this economic shock we are in. The choices have become binary: either bailout or closure.”
Bailouts mean liquidity for the rich throughout this crisis. The Land and Agriculture Development Bank is one such company in dire need and actually in the process of receiving a government bailout.
A government bond is a type of debt-based investment, where you loan money to a government in return for an agreed rate of interest.
On 8 May, on the JSE the National Treasury announced that it would increase the amount on offer at weekly government bond auctions by a combined 1.93 billion to cover the COVID 19 stimulus.
The rich and elite with excess funds are pumping their money towards the government and who better to have you in their debt than your own government.
This is because unless it collapses, you are assured of full returns on investment. The best thing about government bonds is that they are safe and in most cases, a risk-free investment with good interests guaranteed.
One reason why the rich always keep an eye on the stock market is that it allows them to make the most out of what’s about to happen. As statistics began to grow in China and the other parts of the globe people sold off shares and started short selling the market.
Millions were made and some of South Africa’s rich are counted among the big names who profited the most.
COVID 19 knocked on our doors and humans went panicking in the same way they always do in every other crisis.
While the rest of the country activated the panic mode, people started panic buying on groceries and household stuff, the wise rich calmly went out shopping for shares in some of the biggest corporations in the world.
This is a good time to invest in long-term opportunities and so the rich made the most out of this “Black Friday moment”.
Everything in life is negotiable and the Coronavirus crisis has created just the right conditions for businesses to negotiate for better deals. Deals on everything from the prices of suppliers to discounts and just about anything else that they deem open for negotiation.
Coronavirus has pushed a critical number of companies, already weakened by five years of flat growth to bankruptcy.
This is indicated by the number of bankruptcies in South Africa which rose to 140 companies in March of 2020.
Most of the affected companies are in the aviation, construction, hospitality and tourism sector and also in the textile industry.
While these industries are down and out during this pandemic, most of these companies actually still have better prospects in the hands of more liquid and capable people.
The foresighted, wise and rich South Africans took to buying such companies and for some, getting rid of competition for only a fraction of the usual amount
The prices of property used for hospitality, leisure activities and also high valued residential property have drastically dropped in price due to the decrease in demand during this Lockdown period.
The loss of jobs has also led to a situation where people are forced to sell off their properties at prices that would have been considered as peanuts in the pre-COVID 19 pandemic times.
While the seller may be at a loss, the deal is definitely a great bargain on the side of the buyer given the low-interest-rate environment.
The latest interest rate cut of 2020, which brought rates to a 50 year low means massive savings to investors who should capitalize on these markets as they await the conditions to bounce back to normal.
Experts predict that more than one million people will be left unemployed in the aftermath of the Coronavirus crisis. Among these are highly skilled and experienced individuals who will add great value to organizations that are open to hiring.
The best part, for the employers, is that now they can offer a lower amount of salaries to both existing and newly recruited staff but still get the same level of commitment and productivity.
The job market will have little growth of employment opportunities in the post-Covid 19 era meaning that employers will get to employ people for less making it much cheaper to run businesses.
Employee performance will likely also improve despite the poor remuneration because who would want to lose their job at such a time right? Welcome to the world of capitalism!
The South Africa Reserve Bank cut its key repo rate by 50bps to 3.75% during its May meeting. The move has brought borrowing costs to its lowest level on record, during the coronavirus crisis.
In simpler terms, what this means is rich people with a good track record can simply borrow money from zero to little interest. So at a time when the ordinary man is trying to hustle for his next meal, the rich one is getting the cash injection to invest more and grow financially at very little cost to his coffers.
The South African rand and the economy, which were already weak, took a massive blow from the coronavirus crisis. Moody’s downgrade did not help matters where investor confidence is concerned either.
A considerable number of individuals and companies took to moving their money to tax havens to store value. Most rich people have diversified currencies to less volatile currencies like the Swiss franc, US dollar and cryptocurrency.
Deputy Finance Minister David Masondo noted that in the wake of COVID 19 investors fled South Africa and other emerging markets to the safety of the US dollar.
During such times, African governments always look to projects for example infrastructural projects, to increase economic activity.
Pitch sessions have been held for infrastructure projects development in preparation for the inaugural Sustainable Infrastructure Development Symposium of South Africa (SIDSSA).
While others find this infrastructural development controversial as to the extent of their benefit to the masses, there is one group that is a guaranteed winner of these projects.
The business owners who get the contracts are undoubtedly the biggest winners in these contracts with the government. When other players in their field are on shutdown, they remain in action, with great business returns and thus afloat.
As Corona started sinking its claws into other countries, i.e. spreading out of China, South Africa experienced a massive drop in the prices of raw materials due to a decrease in demand.
As is common in a recession, demand for raw materials is low therefore prices plummet. Oil, for example, plummeted from US$53 a barrel to US$23.
The rich who are sitting on cash invest into the future by purchasing these raw materials at a massive low only to sell them at more than double the prices when prices go up to their normal market value. Imagine the enormous profits to be made here.
Undoubtedly, most businesses find themselves on the brink of collapse during this coronavirus crisis. They are the few exceptions, however, which are flourishing better than they ever did.
With the increased demand on cures for colds, vitamin C tablets and the intensifying search for a coronavirus treatment or vaccine, pharmaceuticals are amongst the thriving businesses in the country.
Food, product delivery, amazon, online entertainment are also among businesses that fared really well amid the pandemic and those with shares in such company surely reaped in abundance.
Over and beyond, with the increasing demand for products like hand sanitizers, protective masks, fresh vegetables distribution, the economy has witnessed a rise in new startup businesses which have thrived in the coronavirus environment.
In the new Corona world, most people, including some rich people find themselves in sinking ships. Just like at sea, the boat has to lose a few things to stay afloat.
For most; premium properties, art and collectables are among the first items people sacrifice. Rarely do these items go on the market but I’m sure we can all agree that these are special and unique circumstances.
Those seeking to patch up holes in their sinking lose valuables and those who are afloat picking them up. So, this pandemic created a pathway for the rich to accumulate wealth at the same time scoring on that villa or painting that they have long desired.
Coronavirus may be a major blow to many, with the South African economy taking the hardest hit but amidst all that, it’s quite obvious that there are others who are finding this environment favourable enough to grow financially.
While it’s mostly the rich with fat, overflowing pockets that are flourishing, they are ways for the ordinary person to also grow even during these conditions. A little research, good investments and learning a new skill can go a long way as a financial security measure in the post-Covid 19 eras.