67 minutes of reflection after 67 hours of mayhem
Herman Singh reflects on the recent civil unrest in South Africa and the impact it will have on businesses going forward.
I sit today, on Mandela Day, reflecting on the remarkably dramatic and most violent events of the past week. I am attempting to make sense of these tumultuous events as I provide guidance to my clients, friends, and family. Madiba would undoubtedly have turned in his grave at these events, all of which flew in the face of the policies and principles that espoused.
Our reputation as an investment destination is shot, the rule of law has been undermined on a grand scale, criminals elements act with impunity, a reliance on the taxi industry for security services was concerning, the over-exuberance of private militia was evident, price gouging of the poor has commenced, we have lost billions of rands in infrastructure and merchandise, many small black owned businesses were ruined, race tensions ran high and I could go on for another paragraph.
We have a nation that is in the trauma ward emotionally, and both personal and business confidence is at an all-time low.
The coming together of communities is what we do as a nation, because we are very resilient, but is no cause for celebration. You cannot celebrate the fire brigade putting out the fire every day. The fires must stop, and the habitual arsonists must be jailed or convinced to turn to less fiery pursuits.
We were on our knees macro-economically coming into this week due to the impact of Covid-19 and now lie with our faces in the dirt. The government's going to need to create a coalition of those willing to turn the country around. This will include civic associations, the opposition, unions, religious organisations, business – both big and small – and individual taxpayers.
There is sufficient common ground now. The taxi associations protected malls because that is the reason for their existence. They move people there for shopping and work and take them home with their purchased goods. Destroy the mall and there is no taxi industry – simple. We have these interrelations throughout the country that must now be leveraged in a virtuous circle.
A crisis committee of leading minds in the country should be formed to inform and advise the cabinet. South Africa had one of the largest home construction programmes in the world with the much-maligned RDP houses in the 1990s. It's time to replicate that with the largest job creation programme in the world.
My advice to businesses
How should business leaders be thinking about their business plans for the next 12 months? In a nutshell, my advice is no surprise: brace yourself for tough times ahead. As with any crisis, there will be winners and losers, whiners and climbers.
Some sectors will boom in this crisis, including engineering, construction, and private security services. There will be some replacement of transport equipment destroyed, of course. There will be a big growth in the uptake of business insurance, although all insurance in the country will become more expensive. The tsunami of claims will affect short-term results for these firms.
Perversely GDP will grow in the short term as both inventory and infrastructure will be replaced. But confidence has been destroyed, so insipid growth is likely for the next year. Raising funds offshore will be expensive as our risk premium rises. Most of the hot money has fled so the rand should still be stable to the extent that global macroeconomics are.
Many businesses are not coming back, and even some of the malls will be left in ruins. Those that are rebuilt will feature infrastructure light designs and be de-risked by featuring higher physical barriers, tighter access control, lower stock levels, more click-and-collect services (especially for electronic goods which have a high value weight ratio), greater security staff, more non-lethal mitigations, lower cost shop fittings, improved firefighting equipment, etc.
Expect far more decentralisation, with smaller units and smaller, closer and less formal community markets with lower rentals and less infrastructure than the norm in most of Africa. These smaller businesses will be owned by members from the communities themselves.
There will be a reassessment of the over-centralisation of services and infrastructure. Expect to see lower inventory held and it being more distributed. Factories will improve security and will deliver directly to stores, which will also be smaller. Lower cost products will be held. Consumers will be even more reluctant to physically go to malls and so ecommerce, with its courier services for last mile delivery should get a solid second wind with more exponential growth.
The rollout of internet and broadband services into lower income areas will accelerate exponentially too to support this. Sales of electronic products will drop due to the large-scale looting that has already happened. Fashion will move to more secondhand clothing and perhaps clothing rental for occasion wear.
Banks will be very ill-advised to replace damaged ATMs going forward. The time to demonetise the economy of cash is now and the combination of mobile wallets and debit cards is the obvious solution. So, make it cheap and broadly accessible. The only people using large volumes of cash going forward should be those avoiding tax or engaged in illicit activities.
This has been the experience across Africa and should have arrived here by now, but for the entrenched behavior of cards, ATMs and cash. This is a great incentive to move behaviours fast. The end of cash-in-transit heists and ATM theft beckons!
Unemployment will unfortunately accelerate after this as will consumer spending especially on durable goods. Sales will crash due to a lack of inventory anyway. More expensive transport will arise due to vehicles travelling in convoys and travelling with armed escorts. This will be compounded by much higher inflation as stock shortages impact and the damage to both factories and the inbound logistics system creates downstream effects.
Unfortunately, most of this will impact the poor the hardest. The price of bread in Alexandra went from R26 a loaf to R64 once transport costs were factored in. Expect the state to intervene to manage prices downwards, to avoid triggering food riots in the future.
Government deficit will rise even further as new budget items are created to support communities and businesses and to rebuild some damaged state infrastructure. More financial relief will be needed, and the state will be moving closer to one of the largest UBI programmes in the world. The much-mooted Universal Basic Income is closer to realisation in South Africa than anywhere else globally.
Expect much tighter scrutiny of social media and a tightening up of the rules for access and use. More content filtering and monitoring will occur as we better manage the mass transmission of fake news and incitement to violence. Greater penalties will be applicable and the platforms themselves will come under pressure due to litigation.
Emerging leaner and meaner
I am sure that there will be the usual rush for the exits as many families go through the perennial wave of emigration after every crisis in South Africa. I am not going anywhere. I could make a living anywhere in the world, but chose to remain in South Africa to make a difference.
I am cautiously optimistic that we are through the worst of this and that although the road is upward from here it is a far brighter one than we have seen thus far. The positives outweigh the negatives going forward.
It was always going to be this way – as we saw in the events in Moscow in 1991 when the hardliners made a last desperate stand and tanks fired into the Duma, the national assembly. The Russian people rose to defend democracy. t may not have gone well since as they would have hoped, but our dynamics are much better than theirs were.
Having fought this good fight so far, I feel that we have survived the worst and emerge leaner and meaner without the malevolent elements engaging in mass bleeding of the fiscus. We are more united and ready to compromise and innovate for a greater South Africa to bring to life the long-held dream of a multicultural non-racial, democratic South Africa and a better life for all.
We cannot fail. We are the grand experiment for the world. Let us demonstrate to the world how our united Mzansi tribe can build a better model for humanity.