Ready to mingle again?

Author: Ntsekhe Moiloa (Snr Portfolio Manager)

The lockdown that we have seen implemented in South Africa as well as to varying degrees around the world, has been contentious. There are emotional voices for and against the lockdowns. The lockdown in South Africa is fact and as investors our task is to think in a measured way about what signs might point to a reopening. The importance of that is to enable us to assess the likely length of restrictions, and to therefore estimate how deep the economic impact might be for the different equity and debt instruments we can put your money to work in.

What metrics should we looking out for in assessing how close an economy is to reopening?

We think that political leaders are going to look at three elements to help them make the case for reopening an economy,

When people are dying and going hungry, the political optics are going to be more important than a cold discussion of the reproduction rate of the novel coronavirus. We think that political leaders are going to look at three elements to help them make the case for reopening an economy, or at least to reduce restrictions.

The first factor is recovery rates. A political leader is going to want to be able to point to good recovery rates as a sign of the perceived success of the health system. South Africa’s economy is ranked approximately 35 in size terms, so we constrained our sample size to the top 70 economies in the world. We ranked the 70 countries according to their recovery rates. New Zealand was the top country with a recovery rate of about 97 percent, while South Africa’s is closer to 50 percent, ranking 38 in the sample. Thus, while South Africa has been lauded for the decisiveness with which it entered lockdown, the health system is only shepherding around half of all cases to full recovery. The converse is that about half of all detected cases are still active and at risk of spreading the virus.

The second factor of concern for a political leader is going to be the absolute number of cases detected, especially as the numbers are displayed boldly every night on television straplines. We found that South Africa’s numbers were quite low when compared to the rest of the sample.

The third and final factor of concern for political leaders is the number of deaths. On this factor, South Africa has a death rate so low that it is far in the tail compared to the other 69 countries.

Taken together, South Africa’s relative success on two of the three factors possibly gives us a clue as to how the government was able to politically justify lowering the national lockdown level to 3, without looking too weak on scientific credibility. The weakness on recovery rates remains the main concern even as temporary beds are established. Winter is ahead but there is an expectation that apart from the Western Cape and to a lesser degree, Gauteng, the country should exit restrictions by December.