20 April 2020
How are you doing coping, coping and surviving?
I’m not an economist and if you are reading this, my guess is neither are you. Good. Let’s continue. There is a deluge of information being pushed into our conscious at the moment that speaks to the global depression, global recession, socialism vs. capitalism, universal basic income, the green movement and even minimalism. All of these ‘isms’ are stratospheric in thinking and don’t relate to yours and my everyday existence. The question that I’m now looking for an answer is “How does this affect me, my family and my bank account?”
Let me unpack some of the bad news, the way I see it, which hopefully will lead us to a silver lining. WARNING: This is not a motivational piece; it’s a DE-motivational post that should give you awareness so you can act accordingly.
All this talk about a V-Graph, a U graph and flattening curves is mute. What is significant to me is how long this economic downturn, curve and flat line will last. Looking back at the 2008 economic crisis that was spurned by poor banking regulations and some fairly dishonest business leaders, is no-where near the size of this global setback brought on by the pandemic at hand. After the 2008 crisis South Africa lost approximately 850,000 jobs, which took 11 years to claw back to the 2009 numbers. The current unemployment figures are sitting pre-Covid at 38%. Some smart people are estimating this will slip to roughly 50% in the coming months. During the 2008 crisis and aftermath we also had the joy of experiencing the Zuma administration and its cronyism that has also pushed us to the brink exacerbating the entire situation. Covid pulled the proverbial trigger on an unstable situation.
The American government has allocated what looks like close to 10% of the annual US GDP to the financial relief and support efforts. That means that if every single person stopped producing work and every single business closed down the package could sustain everyone for 36,5 days [10% of the year.] This is not accurate as not everyone will stop working, the unemployment rate is nowhere near SA’s and some businesses will actually increase in size and add jobs to their payroll. Some of the European countries are allocating about 15% of GDP to the effort. Unfortunately South Africa does not have the resources of these developed countries and by early counts is only able to allocate 1% of our GDP to rescue efforts – 3,5 days in total. [Again, not an accurate number, but you get the grim point.]
Take these numbers and add a Dollar exchange rate of 18,9 [correct at writing] and the economy is going to strain massively under the leash of reduced consumer demand [less people with money to spend], retrenchments and expensive imports. So, what does this mean for us? If you are fortunate enough to walk away from the lockdown with a job that pays what you were earning before this trauma, then consider yourself lucky but be aware that your disposable income wont go a far as it did back in first quarter of 2020. It may be a few months before the current imports hit the shelves of your local store so don’t be fooled that things cost the same in the coming weeks as retailers and importers have hedged the last imports at pre-corona rates.
The best way I can explain the pain the top few percent of South African earners will feel is as follows; those beautiful Spanish Avocados that you buy from Woolworths will cost upward of R50 each. That’s going to make for an expensive Avo on toast.
So what you can you actually do now to prepare for this decrease in your buying power?
With the forced #stayinside you have undoubtedly seen a saving in fuel, gym memberships, double almond cappuccinos and those social dinners that cost 3 bags of groceries. According to change management theory a habit takes 21 days of repetition to gain traction. If you have seen a similar trend in your own household and can keep this habit going you can save a substantial amount of money of the coming years. Now this is not a lesson on wastage and rampant consumerism but perhaps buying local seasonal food and cooking a few times more a week could put a few thousand Rands back in your cash flow. Reduce your medical aid packages, downgrade your Internet connection and don’t upgrade that iPhone
Be ruthless with household cost cutting. Set a budget and treat it like the 10 commandments. Turn your sieve into a bucket and save money for the second wave of this pandemic. This will not only allow you to make it through the coming months but perhaps will even see you save for an early retirement filled with R50 Avos!