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SAICA7 April 2020
Leadership in a time of crisis
Where are we and where are we heading?
André RouxGideon Botha
Agenda
vFebruary 2020 – the good old days André Roux
vTransmission mechanisms: 4 scenarios Gideon Botha
vRecovery: 4 scenarios André Roux
vAnd then what? André Roux
Agenda
vFebruary 2020 – the good old days André Roux
v Transmission mechanisms: 4 scenarios Gideon Botha
v Recovery: 4 scenarios André Roux
v And then what? André Roux
• Technical recession
• Tepid global growth
• Fiscal crisis (triple junk bond)
• High levels of household debt
• Unemployment = 30%
• Poverty and inequality
• Load-shedding
• Policy ambivalence (land reform, etc.)
• Low productivity growth/ rising unit
labour costs
A sustainable and inclusive
economic growth
trajectory of at least 5% for 20
consecutive years
Quarterly GDP growth
-8
-6
-4
-2
0
2
4
6
8
10
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2014
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2015
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2019
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2019
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If only we had known……
AgendavFebruary 2020 – the good old days André Roux
vTransmission mechanisms: 4 scenarios Gideon Botha
v Recovery: 4 scenarios André Roux
v And then what? André Roux
Projected infections based on the four transmission rate assumptions
Worst case
Middle-of-the-road
Best-case
Low-probability
AgendavFebruary 2020 – the good old days André Roux
vTransmission mechanisms: 4 scenarios Gideon Botha
vRecovery: 4 scenarios André Roux
vAnd then what? André Roux
Nouriel Roubini
… the shock to the global economy from Covid-19 has been faster and more severe than the 2008 global
financial crisis and even the Great Depression. In those two previous episodes, stock markets collapsed by 50% or
more, credit markets froze up, massive bankruptcies followed, unemployment rates soared above 10% and GDP contracted at an annualised rate of 10% or more.
But all of this took around three years to play out. In the current crisis, similarly dire macroeconomic and financial
outcomes have materialised in three weeks.
PUBLIC HEALTH RESPONSE
PUBLIC HEALTH RESPONSEExclusive andineffective
Inclusive and effective
PUBLIC HEALTH RESPONSE
ECON
OMIC
STIM
ULUS
Exclusive andineffective
Inclusive and effective
PUBLIC HEALTH RESPONSE
ECON
OMIC
STIM
ULUS
Aggressive/ unorthodox/ audacious
Tepid/uninspired
Exclusive andineffective
Inclusive and effective
PUBLIC HEALTH RESPONSE
ECO
NO
MIC
STI
MU
LUS
Aggressive/ unorthodox/ audacious
Tepid/ uninspired
Exclusive andineffective
Inclusive and effective
GREAT(ER) DEPRESSION GREAT RECESSION(ON STEROIDS)
LENGTHY AND PATCHY RECOVERY
PRE-COVID PROGNOSIS
PUBLIC HEALTH RESPONSE
EC
ON
OM
IC S
TIM
ULU
S
Aggressive/ unorthodox/ audacious
Tepid/ uninspired
Exclusive andineffective
Inclusive and
effective
GREAT(ER) DEPRESSION
• I-shaped cycle - a vertical line
representing financial
markets and the real
economy plummeting
• Faster and more severe than
Great Depression (1929-33)
GREAT RECESSION(ON STEROIDS)
LENGTHY AND PATCHY
RECOVERYPRE-COVID PROGNOSIS
PUBLIC HEALTH RESPONSE
EC
ON
OM
IC S
TIM
ULU
S
Aggressive/ unorthodox/ audacious
Tepid/ uninspired
Exclusive andineffective
Inclusive and
effective
GREAT(ER) DEPRESSION
• I-shaped cycle - a vertical line
representing financial markets
and the real economy
plummeting
• Faster and more severe than
Great Depression (1929-33)
GREAT RECESSION
(ON STEROIDS)
• L-shaped cycle
• Long-term structural damage to
labour market, capital formation,
or the productivity function.
• A sharp downturn followed by
prolonged stagnation.
LENGTHY AND PATCHY
RECOVERYPRE-COVID PROGNOSIS
PUBLIC HEALTH RESPONSE
EC
ON
OM
IC S
TIM
ULU
S
Aggressive/ unorthodox/ audacious
Tepid/ uninspired
Exclusive andineffective
Inclusive and
effective
GREAT(ER) DEPRESSION
• I-shaped cycle - a vertical line
representing financial markets
and the real economy
plummeting
• Faster and more severe than
Great Depression (1929-33)
GREAT RECESSION
(ON STEROIDS)
• L-shaped cycle
• Long-term structural damage to
labour market, capital formation,
or the productivity function.
• A sharp downturn followed by
prolonged stagnation.
LENGTHY AND PATCHY
RECOVERY
• Permanent loss of output in
a number of businesses/
sectors/ industries
• Real incomes only start
recovering in 2022
PRE-COVID PROGNOSIS
PUBLIC HEALTH RESPONSE
EC
ON
OM
IC S
TIM
ULU
S
Aggressive/ unorthodox/ audacious
Tepid/ uninspired
Exclusive andineffective
Inclusive and
effective
GREAT(ER) DEPRESSION
• I-shaped cycle - a vertical
line representing financial
markets and the real
economy plummeting
• Faster and more severe
than Great Depression
(1929-33)
GREAT RECESSION
(ON STEROIDS)
• L-shaped cycle
• Long-term structural damage to
labour market, capital formation,
or the productivity function.
• A sharp downturn followed by
prolonged stagnation.
LENGTHY AND PATCHY
RECOVERY
• U-shaped recovery
• Permanent loss of output in
a number of businesses/
sectors/ industries
• Real incomes only start
recovering in 2022
PRE-COVID PROGNOSIS
• V-shaped recovery
• Feb 2020 outlook looks good
And once the dust has settled?
AgendavFebruary 2020 – the good old days André Roux
vTransmission mechanisms: 4 scenarios Gideon Botha
vRecovery: 4 scenarios André Roux
vAnd then what? André Roux
And then what• The economic fall-out will last years• Synchronised recession• Covid-19 has shattered the myth that the economy must come first.• Leaders will be judged on their responsiveness and the strategic choices
they made.• We might see dislocating shifts in the global power balance. Countries
that emerge stronger (in health, economy and politics), after the pandemic, will move up in the power ranks.• Functional autocracy versus a dysfunctional democracy• Will nationalistic tendencies dominate, creating new barriers? Or, will we
see new, innovative approaches to global trade?
And then what?•Will it produce a high road of greater connectedness, trust and
cooperation, along with strengthened international institutions like the United Nations and the World Health Organisation?• Or will it produce a low road where international institutions are
undermined, and countries become isolationist, protectionist, populist and nationalist?• The current rise in innovations to combat Covid-19 can be
compared to a similar innovation spike during World War II. • Significant and long-lasting effect on global supply chains, which in
turn will have a huge impact on the global economy, businesses and consumers alike. Deeper visibility and collaboration is critical to overcome Supply Chain disruptions.• Energy access saves lives• New world of work??
Competing in the global economy
Dealing with the democratic
surplus
Social capital –depreciation or appreciation?
Generating sufficient
appropriate skills
Generating sufficient savings
Autonomy of democratic institutions
Exploiting the demographic
dividend
REACTIVE/ PASSIVE FACTORS
qCompeting in a crisis-prone global economy
qDealing with the democratic surplus
qSocial capital – depreciation or appreciation?
qGenerating sufficient savings
qExploiting the demographic dividend
ACTIVE FACTORS/ LEVERS
qGenerating sufficient appropriate skills
qAutonomy of democratic institutions
A few positives (South Africa)
• Leadership – make or break• Petrol price• Eskom!
A few positives (South Africa)
• Leadership – make or break• Petrol price• Eskom!• SARB - interest rate
G7 short-term interest rates
Let’s today step out of the normal boundaries of analysis of our economic crisis and ask a radical question: What if the Covid-19 crisis of 2008
represents something much more fundamental than a deep recession?
What if it’s telling us that the whole growth model we created over the last 50 years is simply
unsustainable economically and ecologically and that 2020 2008 was when we hit the wall – when
Mother Nature and the market both said: ‘No more’?
Thomas Friedman
Sometimes things have to get worse before they get better ….
T0
T1
T2
Tn
Vacuum of uncertainty
De Coning
You never want a serious crisis to go to waste
(Rahm Emanuel, Obama’s chief of staff)