Covid-19 crisis is an opportunity to drive change

In his address to the South African nation on Tuesday 21 April, President Cyril Ramaphosa announced a bold stimulus package that is equal to the challenges confronting the country. 

He projected the character of a transformational leader that is at once conscious of the dangers that are threatening the country today, and the importance of using the crisis to stake a positive legacy. 

The Covid-19 pandemic is a test of leadership. It distinguishes between real and inauthentic leaders. Crisis situations can bring out the best or the worst in leaders. Real leaders rise to the challenge of the moment, exuding authority and projecting a distinctive voice to calm the storms. Sham leaders, on the other hand, wilt in the face of storms and go with whatever the masses are demanding.

As Oliver Wendell Holmes noted, a great leader represents a strategic point in the campaign of history, and part of the leader’s greatness consists of his or her being there. Covid-19 is a defining event in world history, and certainly in the history of South Africa. The stimulus package of R500-billion unveiled by Ramaphosa is at a scale we have never seen before as a country.

As set out in his address, part of the money will come from reprioritisation of government spending and other local sources such as the Unemployment Insurance Fund. The rest of the funds will be raised from global partners and international financial institutions, notably the World Bank (WB), International Monetary Fund (IMF), BRICS Bank, and African Development Bank.  

Much of the detail will become clearer when the Finance Minister, Tito Mboweni, delivers an adjustment Budget in the near future. 

When a country stands on the edge of a precipice, pragmatic and thoughtful solutions are needed.  

There has been opposition in some circles to South Africa approaching the IMF and the WB for financial support. Those who have baulked at the prospect of securing funding from these bodies have not proposed any credible alternatives.  As a shareholder in both institutions, the South African government has the prerogative to approach these institutions for help if it deems this necessary and based on its national interests and calculations, including favourable lending terms. 

In any case, South Africa has shown an interest in only one of the four facilities, namely the emergency financing facility, in the IMF’s toolkit to assist countries to respond to the economic impact of Covid-19. The emergency financing facility provides loans of up to $50-billion to low-income and emerging markets without the need to have a fully-fledged programme in place, the usual structural adjustment conditions, and at very low interest rates.

It bears noting that even countries with economies stronger than that of South Africa have previously utilised the lending facilities of these multilateral bodies. One such country is China, which has sourced funds from multilateral development banks to finance its economic development. China has nearly 100 major economic projects that are funded to the tune of $12-billion by the WB. 

In December 2019 the WB approved, in the face of opposition from the US Treasury, $1-billion to $1.5-billion of annual loans to China at low interest rates for the next five years. It would have been impossible for South Korea to recover from the currency and banking crisis of 1997 if it had not sought the IMF funding. This created a sense of urgency for structural reforms, and this crisis helped South Korea to build resilience. As a result, it was able to ride the global financial storm of 2008.

Other countries that are driven by pragmatic considerations, and less by parochial ideology, to propel their development are India and Egypt.  Both countries are significant borrowers from the WB. Recently, 14 Latin American and Caribbean countries approached the IMF for emergency facilities totalling $4.48-billion. Likewise, the IMF approved the disbursement of $109-million to Rwanda to help the country deal with its balance-of-payments problems stemming from the outbreak of Covid-19.  What’s more, the WB approved $50-million in instant funding to Kenya to support the country’s response to the Covid-19 pandemic. 

In his speech, Ramaphosa struck the right balance between, on the one hand, the necessity to undertake structural reforms to tackle long-standing economic challenges and, on the other, radical economic transformation. The latter should be distinguished from the opportunism of using progressive rhetoric as a cloak to enable the looting of public resources. 

Today South Africa has a rare opportunity to fix bottlenecks in its economy, drive major economic change in its state-owned enterprises, remove constraints to doing business, and accelerate the inclusion in the mainstream of the economy of small and medium enterprises. The country has a better chance to correct the missed opportunities for economic transformation that have been a sore point for South Africa’s black majority since the dawn of the democratic dispensation.

This includes building capabilities for a thriving health and education sector, improving socio-economic infrastructure, supporting the development of new economic sectors, and achieving greater participation of groups that were previously excluded from ownership of the economy. The country can pull together to foster greater social renewal and a new shared value for building South Africa on a better foundation. Creating a caring society that affirms human dignity should be a cornerstone of social renewal.

Part of social renewal will require that South Africa takes a closer look at its underbelly of inequality and social exclusion: jumpstarting and remodelling the economy needs to prioritise the poor who live in squalor in informal settlements and townships. During the lockdown, we have seen how our fellow citizens suffer indignity as they are squeezed in suffocating settlements on the margins of economic centres. The psychological and other forms of violence visited on them daily will haunt the country for many years if their social conditions are not improved urgently.

Many societies that have gone through tough economic times, either as a consequence of wars or economic depressions, have managed to lean on adversity and rethink their development models. This was the case for the United States in the wake of the Great Depression in the early 1930s, which forced the federal government to sign the Tennessee Valley Act that spawned large scale infrastructure programmes, including the construction of roads, bridges, and electricity generation; as well as manufacturing of agricultural inputs and modernisation of the countryside.

Europe and Japan emerged from the Second World War with paralysed economic structures and weak industrial capacities. In both cases, governments played an interventionist role – in some cases in coordination with markets – in setting out new economic and industrial foundations. Western Europe’s economic recovery in the post-war period was supported by a massive US-led effort in the form of the Marshall Plan, and Europe relied on this support to drive its state-led industrial development.

The state we are in today is akin to that of war. We should transcend conventional thinking and become more imaginative in using public policy instruments and financing mechanisms to overhaul the flawed foundations of our country’s social and economic structure. 

There are three critical success factors for delivering greater impact with the stimulus package. The first is in the design of the various projects that the government has earmarked for support. It will need to choose its delivery partners very carefully, and co-create solutions with the private sector, social enterprises, and not-for-profit organisations.

The district development planning model will play an important role in coordinating the delivery of support at the municipal level. This will be important for managing projects that are generated on the back of the R20-billion municipal allocation. 

Second, there is a need to strengthen the capabilities of the state to enable it to be more innovative and agile in driving change. 

Finally, urgency will be key, especially when disbursing support to the most vulnerable groups in society who would want to see money flowing to their pockets so they can use it to cover basic needs; and this should be done with utmost care and in a manner that affirms their dignity. If we squander this opportunity there may never come another one. As Winston Churchill once quipped, never waste a good crisis. DM