Mike Schüssler
THE unrest and looting in South Africa have resulted in 200 shopping malls being destroyed or damaged. South Africa has 2300 shopping malls with a replacement value of about R160 billion to R165bn in 2016 prices.
So with 8,7% of all shopping malls (200 out of 2300) destroyed or damaged the replacement value of those damaged or destroyed would be about R14bn.
Final goods Inventory for the non-financial private sector was valued as R634bn at the end of the first quarter of this year. Using the same 8,7% the value of goods destroyed and or looted would be about R56bn. So, the value of goods looted is far higher than the buildings that housed them.
Retail is these days a massive warehouse for final goods. But warehouses and the rest of the supply chain has also been impacted.
About 6000 trucks pass Tugela toll plaza in the middle of the N3 every day. A 50 000 litre fuel tanker carries R800 000 of fuel. A container truck with televisions in it can be loaded with close to R2 million in flat screen TV’s.
Every day the value of goods that travel on the N3 highway alone is estimated to be between R2bn and R5bn. (Some trucks will have no load on the return their journey, so the average is likely to be around R3bn a day.)
Closing this highway impacts the supply chain and goods do not arrive on time for manufacturers to make their goods or in shops before expiry date. So the four day closure means around R12 bn of goods did not arrive at their destinations so far. Other roads have also been impacted.
The numbers are truly staggering, and the economic impact will be felt for some months to come. This is on top of the global supply constraints where container transport costs have shot up by 400% on a year ago.
On the supply chain the mess is going to take weeks to clear and the destruction of warehouses in the Durban area will create problems for months.
Another impact is the modern factory uses the complex global supply chain as a car is built from about 1800 parts made all round the world. The “just in time” methods to reduce costs for the factory crumble when the whole truck and sea freight system do not work. Even Transnet freight rail has instituted force majeure. With no trains or trucks working and the harbour at less than a quarter capacity in Durban, manufacturing around the PWV and Durban-Pinetown hubs will be severely impacted.
The losses will be well over R70bn to the economy by my estimate.
Confidence and business survival will cost SA much more.
While that sounds bad the problem is that this is the tip of the iceberg. The big impact will be confidence.
Confidence of consumers is needed when buying durable items like houses, cars and furniture. You want to know that where you stay is safe while jobs are available. If you are not sure then you do not buy. I expect that impact to last for months, and the knock-on impacts will be huge too.
Then business confidence is needed for business to invest in both new and “brown field” projects. A business needs confidence to employ or hire people. The losses here should impact even current hires as many a business will struggle to get back on its feet.
With Covid lockdown already eating into reserves of business and government ability to help, many a business will struggle to get up again. Jobs will be lost as well as clients, making it even harder for some to come back.
The loss for business will not just be a confidence shock but an income shock for which business will require that losses will first be made up before further new investments. The fact is profits of business is a requirement for future investment and that track record is taking a second hit after the lockdown hit. It is not the first hit that kills you but the second.
Uninsured small business owners have lost everything and are likely to not restart (at least not in the same place). Moreover many of these areas have had xenophobic violence before so some have seen this before in some inner cities.
Confidence for both consumers and business will also be hurt with fuel and food shortages. There will actually be tactical business decisions not to open or start a planned new project.
Tourists’ want confidence in the sense that tourists want a good time and a warm feeling about the place they visit; so our travel and leisure industry will be impacted again.
Government will see tax revenues drop from business failures and from fewer people employed. This means government expenditure will be constrained while budget deficits will be larger than forecast.
As the deficit increases the rating agencies will see this as negative and SA will get another downgrade or two, increasing the cost of capital which again will impact on growth and businesses and consumers’ ability to invest or spend.
The same of course will be the case for government. Government will have to curtail spending for a much longer time.
* Mike Schüssler is an economist and FairPlay expert panellist.
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