At the time of writing (14 May 2020) we entered our 49th day of lockdown, with President Cyril Ramaphosa announcing that most of the country, except those areas with high rates of COVID-19 infections, would move to Level 3 of the lockdown by the end of May. The two most important questions are: • How long will the lockdown or some variation thereof continue? • What will the long-term consequences for our economy be? We do not think the long-term supply capacity of South Africa will be permanently reduced. Our infrastructure will remain in place, shopping centres will still be standing, and we do not think mortality will be so great as to reduce the skills capacity in the country. What is uncertain is what happens to demand. If the lockdown is prolonged, unemployment and corporate bankruptcies are certain to increase, reducing demand levels and thus the speed of the recovery after lockdown – hence the need for decisive action to ‘bridge’ the lockdown period and keep as many businesses running and people employed. Nobody has clear answers. We often refer to moments in life such as these as ‘a marathon and not a sprint’. COVID-19 is not a sprint, nor simply an ordinary marathon. Rather, it’s like the Comrades. The period that we have gone through up to now, social distancing, lockdown level 5 and level 4, has been much like training for the event. We have now readied the healthcare systems in the country, the population broadly knows what is expected of them, but the race is yet to start. We are now gathering in the streets of Durban with a long 90kms ahead of us. The training is over and, in order to get to the end, we need to balance our energy (i.e. the economy) against the inevitable hills (COVID-19 infection peaks) of the long road ahead. Without the energy – the fuel in the tank, so to speak – it’s virtually impossible to cover the distance, let alone climb the many hills that lie before us. All the runners in the race have a different strategy: there are the elite TV runners at the start, those that aim to win, and then the majority that aim to get to the finish line in time to take a medal. The government now needs to clear the path for the race to run efficiently. The training has been done – to date we have flattened the infection curve in the training phase – but now the real race starts, and it will be a long race. The only way that we get the majority of the field to the end of the race is to get the economy back on track to provide the impetus and energy to get over the hills and the infection peaks that lie ahead. This needs to be done smartly, taking into consideration the health guidelines and looking out for each other. The runners need a plan; they need to know there will be regular drinks stations along the way to provide that energy. So now, as we line up at the start with the smell of deep heat in our nostrils and the sound of the Indian myna birds shrieking in our ears, we need to rely on the government to clear the road ahead, to make sensible and rational decisions to let the race run through its ups and downs so that the majority of us arrive in Maritzburg before the cut-off, not having sacrificed more than was absolutely necessary.
Brian Thomas, Co-Portfolio Manager, Laurium Capital