Not working: Residents of a Hillbrow building observe the country’s lockdown in March. (Photo by MARCO LONGARI/AFP via Getty Images)
South Africa’s economy has been put through the wringer over the past two years.
Covid-19 caused the already sickly economy to contract more than 6% in 2020. Since then, it has started to recover, but this process — frustrated by more waves of infections, a slow vaccine roll-out, fresh bouts of load-shedding and civil unrest — has been slow. And even as the economy tries to dig itself out of the slump, the job crisis has deepened.
The pandemic-induced economic slump has been bad for many South African businesses, further stoking uncertainty. And although some have emerged more or less unscathed, the crisis has been a boon for some of the big corporations.
Cas Coovadia, chief executive of Business Unity South Africa, said all types of businesses, big and small, have suffered as a result of Covid-19, but some have fared better than others.
“Larger businesses with appropriate business models have had the capital to manage their way through the crisis better than small and medium businesses,” he said. “But it also depends on the sectors. So if you take the tourism and hospitality sector, even the large hotels would have felt a significant impact.”
The big get bigger
But trader and analyst Simon Brown said there is strong evidence that a lot of larger stocks, particularly in the retail and services spaces, “are coming out of the pandemic in a far stronger position than they entered”.
He cited a recent trading update from food service group BidCorp, which, at the beginning of December, reported higher profits than the company saw prior to the pandemic. Sales in the group’s emerging markets division, which includes South Africa, were above pre-pandemic levels.
“They are coming out of this crisis much stronger and better positioned than they went in,” Brown noted.
Grocery retailer Shoprite has also recorded good results despite the pandemic and July’s civil unrest, which saw significant damage to 2 013 of its stores. In 2021, the group’s earnings before interest, taxes, depreciation and amortisation shot up to R15.1-billion, an impressive 58% increase compared to 2019.
For some companies, the pandemic was what they needed to kick into a higher gear. “Companies get lazy. Things are going along fine. Staff complements may get a bit bloated and margins are perhaps not what they could be,” Brown said.
“What the crisis has done is meant that those companies have had to get rid of assets that weren’t of high quality. They’ve sold those and used the cash to pay down debt. They’ve looked at staff complements and, in many cases, cut back on staffing.”
Larger stores such as Shoprite have also managed to increase their dominance over smaller retailers because of their power to negotiate the Covid-constrained supply chain, Brown added.
“It’s the classic case of the big ones get bigger and the small ones get squeezed. We see, for example, Mr Price, which says it is gaining market share. It is not picking that up from a big competitor like Pepkor. I think they are picking it up from the smaller independents,” he said. “So we have definitely seen the big get bigger and, at the same time, get stronger, with better-looking balance sheets and better-looking debt.”
First National Bank portfolio manager Wayne McCurrie said most big companies have survived the pandemic. “Most companies are back to where they were pre-lockdown … The majority of the companies have survived this, so it is actually not such a bad outcome,” he said, noting that many of the companies in the hospitality sector haven’t been so lucky.
But, McCurrie said, it is difficult to say whether companies that have surpassed their pre-pandemic results would have done so anyway. “We don’t know where they would have been had the pandemic not occurred.”
Analysts say July’s riots were partly related to poverty. (Photo by Darren Stewart/Gallo Images via Getty Images)
Margins expand, jobs contract
The downside of companies becoming more agile to survive the pandemic is that many have had to embark on retrenchments to do so, he added.
“Virtually all South African companies have had to restructure their cost bases because of the crisis. So unfortunately, a lot of people have been retrenched and the companies have not hired them back yet,” he said. “So margins have expanded. But we have 2.1-million less jobs than what we had before the crisis even though companies are more-or-less prior to the crisis — if not better.”
Coovadia conceded that changes to South Africa’s labour market had enhanced productivity, benefiting employers.
“The world of work has obviously changed as a result of Covid. At the very best, we are going to have some sort of a more flexible, hybrid way of working,” he said.
“And there is absolutely no doubt that employers have seen that they can actually manage their businesses quite productively with different types of labour and with less labour. In some ways Covid demonstrated that we could become more productive if we are operating differently.”
Coovadia said changes to the world of work will present problems for labour. “Just as businesses are having to adapt, I think labour is going to have to adapt. Unions are going to have to adapt. Unions are going to have to look at how, in a hybrid form of working, they still ensure they represent their members effectively and that members are not exploited.”
The current state of the labour market — in which high levels of unemployment have become entrenched — lends itself to exploitative conditions, trade union federation Cosatu’s parliamentary officer Matthew Parks said. “There is huge pressure and workers become afraid to assert their labour rights. That is a huge problem.
“Many workers were afraid to go to work last year because of the pandemic. Often they were told that if they did not go to work they’d be dismissed. Some workers chose not to go to work, choosing to protect their lives, but it meant that they lost their jobs. So workers have really borne the brunt of it.”
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