πŸ”’ B4SA’s Stavros Nicolaou on a projected 17% economic contraction; and PPE stock for frontliners

Alec Hogg catches up with stream lead for Business for South Africa, Stavros Nicolaou, to discuss the PPE stock that has been secured, the necessity of good morale among our country’s frontline workers and the projected economic contraction of 17% – as calculated by BSA. – Nadya Swart

Stavros Nicolaou joins us again after being with us three weeks ago. He is the stream lead for the public health sector in Business for South Africa, but his day job is as Senior Executive for strategic trade at Aspen. Last time we spoke we focused a lot on PPE. The situation then was that it needed a source – lots of this for the frontline workers. That was three weeks ago. Can you give us an update?

When we last spoke we were very much in emergency mode, in a situation where we had to get our hands on as much PPE as we could. The global stocks were dwindling, the domestic stocks were dwindling, doctors, nurses, other health care professionals were even threatening a strike – understandably so. So we were very much in that emergency phase and we sort of had a three week horizon to get the levels up to some type of a stable stock situation in the country. So from when I last spoke to you to date – we’ve been able to source around R900 million worth of PPE. That equates to just shy of 50 million pieces of PPE and that includes things like masks, gloves, N95 masks, gowns and the likes thereof. We have got an ongoing order book. Of course, we work very closely with our partners. Some of our partners include the donor funds – such as the Solidarity Fund, the Motsepe Family Foundation, Naspers, the SPIRE fund (which is a FirstRand Bank initiative). So, we work very closely with those partners and, ultimately, the beneficiaries here are the frontline doctors and other healthcare workers who are basically our only line of defense.

Most of this inventory has gone to the provinces. In between all of this, Treasury has issued a note opening up opportunities for other suppliers, which is a very important element to all of this, because we didn’t want to be in a position where we’re the only suppliers. I think you’ve got to open it up – to have other suppliers so that you not only diversify the risk, but also more importantly – we’re now moving into, arguably, a more difficult phase where the economic realities are starting to hit home.

The economic realities are as bad, quite frankly, as when we last spoke. We said the contraction in the economy could be anything between 10% and 20%. Business for South Africa has attached a number of 17% after some significant economic modelling. That’s a number we come out at and it’s a very worrying number. We were already on the back foot because of the two downgrades we experienced and the situation, with its accompanying job losses – some people are saying could be as high as 7 million people losing their jobs – places us in a very, very difficult situation as a country. SARS (the SA Revenue Service) has reported an under collection, that’s expected, forecast of R250bn or more. These are all very, very worrying signs at a very difficult time.

And part of sourcing the PPE, and the PPE were sourced mainly from abroad, is that as part of the next phase we look to diversify into supporting where we can SMEs, black-owned businesses, but more importantly – a new stream of work has been set up in Business for South Africa, which is an innovation come repurposing existing capacity – to get into some of these highly consumed products like PPEs that are going to be with us for some time to come. This is not a two or three month process (like we discussed last time). You can argue that the phase that we are looking at is from let’s say the 15th of March this year until such time as a vaccine is found. You’re going to have different levels of up and down and adjustment. We’re going to have to be very creative around how we commence and follow through on our economic recovery, and it’s not an economic recovery that we can manage on our own, because we are such a globalised community. And it’s also going to mean looking at export opportunities where we can.

There are two issues there that are really concerning. The first of them is the point about health workers; I did have a discussion with an ICU doctor who said that what they realised from elsewhere in the world is up to 20% of them could die from Covid-19, because of the repeated exposure to this virus. The fact that you’ve got all this equipment that is now given to those frontliners would, presumably, massively improve the odds of them not adding to the mortality rates?

You’re making a very important point because, quite frankly, the only line of defense that we’ve got against the virus and its broader manifestations is actually our healthcare workers. It’s primarily doctors, nurses, pharmacists – these are the health disciplines that are most exposed at the moment. And if you either have doctors not properly protected and falling ill, your productivity levels (where you require them on the first line) are going to be severely dented.

Secondly – it was seen in Italy and Spain – the morale starts dropping among many of these healthcare workers and you need a highly motivated cadre of healthcare workers on the frontline to continue on an unrelenting basis – turning the tide against the pandemic. So, you’re quite right. There is concern – it’s going to remain for some time – among healthcare workers, ‘Well, if I’m pitching up at work and I’m not protected, I’m putting my life on the line, is it really worth me pitching up to work tomorrow morning if I cannot be properly protected?’ For me, that was probably the single biggest thing we had to do – secure stock on an emergency basis. It wasn’t done on a perfect basis by any stretch of the imagination, but what we did is – we succeeded, as I said almost 50 million pieces. There’s a long way still to go and we still need to keep building the stock levels up. But what we did, I believe, is raise the morale of the very people that are protecting us most.

Extraordinary. The second point, of course, is the one that you now have raised about the economy – 17% contraction. Those are terrifying numbers – it will take years and years for South Africa to regain that 17% at the current rate of growth. How did you get to that number within your modelling?

Business for South Africa is structured in a way where there are three levels of response. There is the health platform, that I lead, there’s a labour workplace platform – they’ve been dealing with things like the UIF, the Compensation Fund – the third platform is the economic platform. Among the areas that it looked at was integrating their health epidemiological model with the economic modelling – taking this down to a granular level by sector and juxtaposing or overlaying the level for that to work. And when you start overlaying that, you start making projections around how the economy would shrink and that’s how we’ve done it. We’ve also done that level of modelling for another purpose – and we’ve used geo-mapping or geo-spacing – so that when we engage government, which we will on the broad economic picture shortly (the way I understand it), we were able to give a sense of real time data at a granular level – district or ward. Understanding what businesses are set up, what manufacturing plants are set up in those wards – this could give us a sense of how you can also better start to manage the flow of employees back to the workplace to reduce the transmission, but also – I think to give guidance to governments around how potentially you could be unlocking the economy more progressively.

That’s a really useful insight. Thank you. It shows it’s very granular and very well worked through.