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LEVEL 5 LOCKDOWN IMPACT: Businesses are closing down

Posted on May 6, 2020 by Staff Writer

Rateweb | South Africa

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As the economy stutters into level four of the nationwide lockdown, most businesses in the formal sector feel that they cannot continue to operate, a survey has revealed.

A rapid response survey conducted by Stats SA during level 5 lockdown has revealed that four in ten businesses interviewed were unwilling to re-open beyond COVID-19.

Businesses were asked how the current crisis affected their operations in level 5 lockdown.

42,2% of respondents indicated that they are not confident that they have the financial resources to continue operating through the COVID-19 outbreak.

According to Bradley Cooper an economist: “The reason why most businesses will fail to reopen is largely due to the fact that they had no safety nets put in place in the event of and Act of God disrupting businesses.”

Cooper adds that most businesses will be starting afresh once the economy has fully recovered.

“Some businesses may not open even after the complete lifting of lockdown. Most businesses will adopt a wait and see approach first.

“Sadly some businesses will have to seek to raise capital first, meaning they have to borrow and chances are that interest rates might also go up which will ultimately affect the full opening of the economy,” he said.

Business to decline by 60%

According to Bloomberg, business activity in South Africa’s manufacturing industry fell to a record low in April, when the nationwide lock-down aimed at curbing the spread of the Coronavirus pandemic brought output to a near standstill.

Projections are that sectors like tyre and rubber products, accommodation, rental, tourism, and nonmetallic minerals like cement will decline by more than 60%.

This means that products in these industries will highly likely go up as operational costs are naturally skyrocketing.

Projections are mining and quarrying, transport, storage, and education will decline by between 30% and 60%.

Additionally, Treasury notes that the economy might contract by up to 16.8% this year.

Low Turn Over

The Stats SA report also suggests, five in six businesses surveyed experienced a drop in turnover over the reference period

When asked how long business can continue without a turnover, 54,0% of respondents indicated that can survive without a turnover but for not more than 3 months.

If the curve fails to flattened and lock-down restrictions relaxed further in the next 3 months, there will be a massive knock-on the economy.

In terms of workforce size, 50,4% of respondents expected no change, while 36,8% anticipate a decline.

Respondents indicated that they have implemented a range of measures to cope with the impact of the pandemic on their workforce.

Part of those measures includes decreasing working hours and laying off staff in the short term.

Most businesses (65,0%) anticipate that the COVID-19 pandemic will impact their business substantially worse than the 2008/09 global financial crisis.

Only 4,3% of respondents indicated that the impact will be the same.

An additional survey conducted by StatsSA revealed that 93,2% of the respondents were very concerned about the possible economic collapse of the country due to the COVID-19 epidemic.

More than half (60,1%) of respondents were extremely concerned about the impact of COVID-19 on their own health.

National Treasury’s modeling shows the best scenario expects a 27% decline in income from production, income, sales, and other taxes.

Under Level 5, South Africa lost more than R1.5 billion in taxes from the ban on alcohol and tobacco sales.

R258 Billion lost

Edward Kieswetter, SARS commissioner told Parliament’s finance portfolio committee recently.

In terms of beer sales, SARS has under-recovered R664 million month to date.

With regards to wine, SARS under-recovered almost R300 million.

In respect of spirits the revenue services lost over R400 million while the ban on cigarettes cost R300 million.

“So year to date, our under-recovery from these activities amounts to R1.5 billion and we’re just through the first month,” he said.

Alcohol sale remains banned under level 4 while the ban on tobacco was lifted.

Cumulatively, Kieswetter estimates that annual revenue loss will be staked at R285-billion.

“That is a function of the sluggish economy, but also the impact of lockdown.” he said.

This disastrous loss will greatly affect the Treasury and widen government’s budget deficit.

Kieswetter adds that the major concern from a revenue perspective is the downward trend of economic activities.

Further, he adds that the loss of economic capacity due to businesses closing and job losses constitutes a huge worry.

“Many businesses will simply not be able to operate profitably at reduced capacity and will fail completely,” he said.

Repositioning the Economy

South Africa’s President Cyril Ramaphosa has also added his voice to the dire state of the economy.

The head of state likened the situation faced by South Africa after to post war situation.

“Covid-19 has brought about the total destruction of the economy. The economy, as we speak now, is under a great deal of stress.

“We now collectively must respond to how we will rebuild and reposition the economy.

“How do we reconstruct our economy after coronavirus, knowing it has dealt a huge blow?

“I’m characterising the coronavirus like a post-war situation.

“We have been fighting an invisible enemy and now we must start planning for a post-war situation,” said Ramaphosa.

Indeed, the situation facing South Africa is peculiar and it requires a collective effort to resuscitate the economy.

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