By Piet Mouton, CEO of PSG and it board

We would like to make the following points on Covid-19 –
Firstly, please note that these are the current thoughts of the PSG Group Board. Even though we have read numerous articles, have listened to experts from both sides, are constantly thinking about the consequences of the pandemic and obtain input from all those around us, none of us have a medical background. We are also aware of the fact that the President may address certain or all of our concerns this evening.

PSG Group is a company that employs more than 20,000 people throughout various industries within our group. We pay salaries, we pay taxes and we have contributed positively to our economy for the past 25 years. We as PSG Group lie awake at night as we have a major responsibility to all our employees and their families, to our clients, our suppliers, our bankers, our Government and ultimately to the people of our country. To remain quiet during this crisis is unfortunately no longer an option for us and silence will certainly not be of benefit to anyone.

We must start by congratulating President Ramaphosa and his cabinet on the quick and decisive way in which they acted to address the pandemic. It is great to see that our leadership and country can act swiftly and with purpose. That we can stand together to achieve a common goal. We understand from various medical opinions published in the media, that we have potentially bought enough time to be as ready as one can be to face what may come. Mr. President, whatever we say hereafter is not to criticize your administration or question your actions. You are between a rock and a hard place and we do not envy your position. It is not an easy task to balance different concerns.

But here is the issue as we see it – the lockdown and especially the potential extension or failure to adequately relax restrictions are causing severe damage to what is left of our fragile economy. The longer it takes to come out of the lockdown, the worse it will be going forward for every citizen of South Africa. Alternatively, if we have a system whereby we move in and out of lockdown depending on the number of infections, this too will have a similar disastrous effect. The only option is a continued lockdown of the elderly and frail until the virus is contained or a vaccine becomes available, while the economy operates as close to normal as possible.

Please understand us correctly – we are NOT arguing economy over lives. BUT the truth is that lives are inextricably linked to the economy. Our survival and wellbeing depend on whether and how quickly our economy recovers.
Our economy is struggling, and we are running at a significant budget deficit with already worrying levels of debt, high unemployment and struggling parastatals. We do not have the means to provide meaningful relief packages on a sustainable basis without further loading the debt burden to such an extent that we may never be able to repay it, or struggle to do so. South Africa has recently been downgraded to junk status and has been assigned a negative outlook – so any new debt will become even more expensive. We entered this Covid-19 war already wounded.

Government’s primary source of income to address the pandemic, drive relief and provide stimuli for economic growth is one of the things that is under attack…namely tax collection. More than 80% of tax revenue is derived from personal tax, corporate tax and VAT.

Many businesses earn no revenue at the moment, while others do very little:
o As a result, significant less VAT and corporate tax will be collected: o Businesses have stopped paying their rent and other suppliers as they simply cannot afford to – resulting in a very negative economic spiral and ever-decreasing VAT and income tax revenue.
o As far as individuals are concerned, they too have stopped paying rent, servicing debt and consumer spending is down significantly as a result of the lockdown. Again, less economic activity means less VAT. – We can expect most companies that survive the lockdown to make significantly lower profits, if any, for the year – so very little corporate tax will be collected. Similarly, tax losses will also have a negative impact on future year tax revenue for Government. – According to Stats SA, 42% of formal sector business surveyed fear they will not have the financial resources to survive and 85% have already seen a decline in revenue.
o There will be significant job losses – which translates to the loss of personal tax revenue, loss of spending power for the individual and an increase in Government grants to be paid.
o Most of our SMEs do not have surplus reserves – many of them will close forever with a consequent loss of jobs and tax. Relief funds may assist a few, but most will unfortunately not make it.
o The decrease in interest rates is understandable given the state of the economy, but it will not be enough to assist most SMEs and will do very little for the man in the street – and again tax collections will suffer.

It is therefore clear to us that Government will experience a significant decline in tax revenue resulting in the already noteworthy budget deficit widening even further. We must ask ourselves realistically – where is the money going to come from to revigorate the economy and pay for an ever-increasing social bill? Less people will be able to contribute to the South African treasury and far more will become utterly dependent on it. Yes, the Solidarity Fund, to which we also contribute, is a worthy initiative to assist but may not be enough. According to a recent study, the economy is losing R13bn per day during the lockdown, and we will still lose billions even if we partially open or totally open up the economy. On Tuesday evening, President Ramaphosa announced a R500bn economic support package representing 10% of South Africa’s GDP. This will comprise various measures and will seemingly be funded by the likes of the World Bank, the IMF and the BRICS Development Bank, as well as the reallocation of previously set budgets and the utilization of UIF reserves. Although an admirable effort, realistically we need to be clear it will in the end mainly be a relief intervention directed towards preventing a fullblown humanitarian disaster rather than an economic stimulus. Again, a further increase in debt of this magnitude will unfortunately have dire long-term consequences for our economy and our country.

We understand that COVID-19 will be part of our reality for the foreseeable future. In the President’s announcement on Tuesday, he hinted at a phased relaxation of the lockdown restrictions of which the details will only be announced later today. We don’t want to deter from the President’s message, but we are trying to convey a reality as we see it and to emphasize that South Africa cannot afford to long or to slowly to revert normal activities.

My father, who I greatly admire, taught me that you cannot just sit back and complain if you don’t have a better solution. Furthermore, it is of no use that I nod my head to everything proposed by Government, but behind closed doors differ as so many people in the business community do. No one wants to make unpopular statements and become a target on social media for those who will later also be the first to claim what should have been done. This has never been our style.

We therefore publicly request Government to carefully consider the extent of further restrictions and the urgency to return to economic activity. We believe South Africa should act much faster in lifting restrictions to rejuvenate the economy. We agree with scientists that we should protect the elderly and those with compromised immunity with continued isolation protocols in place for them. We too have elderly loved ones, as well as friends who suffer from cancer and other diseases that make them especially vulnerable – and we want them protected. The rest of us, however, need to get back to work. We agree with Government that a lot more testing should be done as we move forward. Further, we need to understand that in the absence of any vaccine for the disease in the short to medium term, we need to obtain herd immunity sooner rather than later.

We acknowledge that this means more people will be infected and that some may become very ill. There will undoubtedly be a cost of lives, but we’re afraid that if we are bluntly honest with one another we are heading for an immense cost of lives in any event. If not from Covid-19, from starvation, social unrest, crime and a myriad of other chronic diseases which will follow. The fabric of our society will also be severely affected and damaged – polarization of people will be driven to the extreme. Just one example where it is very evident, is the closing of schools – those with digital means can home school to some extent while the poor are again left behind and exposed – and an educated youth is our future. The consequences are severe no matter which way we argue it.

Please do not consider our abbreviated opinion as being heartless – it is exactly because we care about the well-being and the future of our citizens, our children, your children and our country which we all love that we’re speaking up. It will not help if we sugar coat our message today to appease a specific group or endear ourselves to the popular view. We need to be honest about what lies ahead if we want to win the war – not just against Covid-19, but against the hardship that will follow. We are a South African company heavily invested in South Africa. We continue to invest our shareholders’ money, to support Government efforts, to create jobs and to assist in growing the economy for the benefit of all stakeholders. In theory and on paper one can therefor plan a release of restrictions over several months, but in practice, given the state of our economy, we unfortunately do not have the luxury of time to do so.

South Africans are resilient, entrepreneurial and hard-working human beings. Together with Government we can overcome Covid-19, we can get our economy going again, we can lessen the impact of future hardship and the future cost of lives… BUT we need to act faster to relax restrictions and reignite our economy on which all of our lives ultimately depend