/ 29 April 2020

Support local businesses to grow the economy

Ebrahim Patel
Ebrahim Patel, the minister of trade and industry. (David Harrison/M&G)

“A crisis either breaks something down or creates unity. So this crisis can convert us into a country or a nation. By that I mean where the pieces work together, not just a country where everyone does their own thing,” says Professor Nick Binedell from the Gordon Institute of Business Science.

The crisis is here. South Africa has, so far, managed to avoid the worst health effects of the Covid-19 pandemic. But the economic cost, calculated at about R14-billion a day, has been huge. The government has announced R800-billion worth of interventions. 

Announcing this last Friday, Finance Minister Tito Mboweni said the country needs to think hard about how it will look when the pandemic is over. The government has been vocal on this being a chance to fix broken service delivery and propel a new kind of economy. Mboweni suggested “manufacturing to make what we need and stop relying on imports from China”. He also said companies should come up with plans that include initiatives such as employing a majority of local workers. 

George Glynos, co-founder and head of research at financial market and analysis firm ETM Analytics, said the need to save money will drive “the principle of trying to do as much as possible with the least amount of resources”.

He said efficiency is going to be critical and that this is what might drive the next boom cycle, thanks to the innovation that will be needed to create those efficiencies. “There [are] going to be changes, but these are going to be nuanced. It’s not like we are going to wake up in a month or two and life as we know it will be over and will all be doing different things,” Glynos said.

Trade and Industry Minister Ebrahim Patel has said South Africans should support locally made products, “because we have had a significant knock on our economy”. The minister said Covid-19 has hurt the economy, jobs, large firms, small businesses and township enterprises. “When we as South Africans buy local goods we bring demand back into our economy and we help the economy to slowly recover,” he said.

Petrus de Kock, general manager of research at Brand South Africa, said there are two ways buying local can help. He said the pandemic has disturbed global production chains, so strengthening local chains will ensure supply. This will also boost the country’s manufacturing capacity and inspire innovation.

“It will definitely help, but it’s not a silver bullet. It plays a major role, not just by boosting economic activity, but when you are manufacturing locally, probably you are also procuring your raw materials locally — your labour, your technology — so it has an [knock-on] effect in the community or on a national level,” he said.

De Kock added that buying local products can help in the country’s “survival and recovery”.

Glynos said purchasing local can help to increase demand, because now businesses are just trying to survive and they are going to use every means necessary. This includes borrowing a lot more, recapitalisation and negotiating terms with creditors.

He said because demand is not high — and it’s not going to be back for a while — to return to pre-Covid-19 economic levels will take at least two to three years, so companies will be working to try to keep themselves viable during this time.

“Executives are going to find innovative ways of conducting business that reduce the cost structure of doing business,” Glynos said. This will result in job losses. He added that working from home will remain in place and retail chains are going to shift towards online models because it would be expensive to keep their staff in an office space.

“The change will be brought out of the necessity to cut costs and rely more on efficiency that can be extracted [from] technology,” Glynos added.

Binedell said there will be management downsizing because many middle-management positions are “a lot about passing on the message”.

“Companies will look at employees and managers with the skills to be digital,” he said.

Tshegofatso Mathe is an Adamela Trust business reporter at the Mail & Guardian