Clem Sunter is one of South Africa’s most respected strategists, making an indelible mark on the birth of the new South Africa which followed his High Road scenario of negotiated settlement rather than the Low Road of political turmoil. In this in-depth interview with BizNews editor-in-chief Alec Hogg, Sunter – a prolific author of strategy books who had a successful career at Anglo American – examines the options that governments have as they start to lift lockdowns designed to contain Covid-19. Sunter also shares his assessment of the mixed signals we have been receiving from the data and research produced on the incidence and transmission of Covid-19 and its death rate. Like Stanford professor of medicine Prof Jay Bhattacharya, who also has a PhD in economics and has concluded that the Covid-19 figures guiding government policies need to be reworked, Sunter points to a delicate balancing act between suppressing economies to save some lives and re-opening business to protect others. – Jackie Cameron
Hello to Clem Sunter. Nice talking with you – always – Clem. You’ve updated your scenarios – the one that you put together at the beginning of March – and interesting to see that you’ve added a new scenario to this.
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The reason is simple; that you are seeing governments now making genuine attempts to get over the epidemic. I call the scenario tightrope, because it really is a very difficult exercise for them. They’ve got to balance (on the one hand) not diving into a depression because of basically shutting down the global economy (which was already in a vulnerable state before they shut it down, because of the amount of debt around) and unleashing another round of the coronavirus – which then elevates the pandemic to something approaching what happened in the last century with Spanish flu. So, it’s a tightrope and I call it the tightrope scenario. I think that markets at the moment are fairly positive. It can be done, but it’s going to be trial and error as we see what you can open up without starting the whole virus off again.
When you put together your original scenarios it was a very, very different world – 100 000 infections and 3000 deaths. It’s now 2.5 million infections with more than 150,000 deaths. So, it really has continued apace. But on the other hand – the science has become very noisy. Where are you looking to get the right kind of messages from what all the scientists are throwing at us?
The answer is, Alec – you just don’t know. I troll around all the Internet sites and I read the newspapers and I read specialist articles, but there’s just so much uncertainty around the true nature of this virus. You can start with the number of asymptomatic cases and research in California – which apparently shows that the number of people infected could be 50 or 80 times what is actually shown in cases. But that’s a small sample, so you hold it in your mind – but you don’t know whether it’s correct or not. People have talked (particularly those who’ve suffered from the virus) of having side effects from the virus and again, it just hasn’t been around enough for us to judge what long term side effects there are and probably most important – there has been news that some people have been reinfected and that would be huge if that is the case because, of course – it means that you’re not immune after infection. Fortunately, we’re in a stage of instant news and it’s very, very difficult at the moment to know what to believe and what not to believe.
I have heard (a number of times) a scientist telling me that science does not work at the same pace as the news cycles – I guess we’ve got to get used to that. But, this research report that came from Stanford University – it’s by Dr Jay Bhattacharya who is highly respected there. He’s a professor of medicine and an economist, so he’s got (if you like) the two hats on. Stanford (we know) is probably the most reputable university in the United States. He’s put his reputation on the line – not for the first time – to say that the problem with the data that we’re looking at is that we are overestimating the mortality rate because the denominator is not correct. The denominator is being contracted by only those people who are already showing symptoms but, when they’ve done their research into counties (they reckon they’re representative) they are seeing that many people (as much as 80 percent of people) who do get this virus never show any symptoms. So the denominator – if you use that denominator (according to him) – would mean that the mortality rate is only the same as seasonal flu. That’s quite a statement to make given that everybody is shutting down economies all over.
Absolutely, Alec – and we’ll have to wait to see what the response is because when I wrote that original article the mortality rate was put at between 2 and 3 percent and if it’s like flu – at 0.1 percent – that would make an incredible difference. And obviously the other thing is the actual infection rate and what that is. We will only know over the next few weeks whether this is a valid approach, but it doesn’t alter the fact – and that’s why I wrote the camel’s straw scenario – which is that the world economy was already vulnerable because of the amount of debt around (particularly national debt) and the fact is that the world economy shut down and, as I said in the article, there were scenes of empty shops and the whole tootie. And whether it was for the right or the wrong reason – it happened – and what will be very interesting is to see how quickly you can ramp up the market (the market meaning – manufacturing and services). How quickly can you ramp it all up from this unbelievable state of no activity at all – and you only have to look at stats in the United States (like housing starts and manufacturing) to realise that the figures are terrible in March and it probably will be even worse at the end of this month. So, that deed has been done and it’ll be interesting to see whether that really does trigger a very nasty recession / depression or whether (actually) everything is going to bounce back towards the end of the year. And right now, of course, the Dow Jones and the FTSE and other indices over the past two weeks have shown signs of optimism and that’s why they’ve actually come off the kind of lows in March and we’ll just have to wait and see whether that can be done.
Yes, it’s an extraordinary thing to see. American stocks up 15 percent in two weeks – recovering most of the ground (certainly, the tech stocks have since the smash that they got when Covid-19 started taking off). But if you look at South Africa and India – just as two countries – and this is what I’m trying to get into my head. We know that there’s no way you can social distance in India – people sleep on the streets in India at night, there are just so many people around. Yet, their health system hasn’t been flooded with Covid-19 infections. Also in South Africa – where in many areas there hasn’t really been that much adherence to the social distancing policies or directives – because they just simply can’t. And yet again – we aren’t seeing the hospitals in this country flooded by many of the infections. I’m trying to work that out Clem. Have we been sold another Y2K? You were around 20 years ago – you remember what happened at that point. Have we panicked (as some people are now saying)?
Yes. I totally agree with you about your anxiety on the infection rate or whether, in fact, lots of people are being infected but show no symptoms at all, because you’re quite right – I’ve wondered about this too. Why is it that India and Africa and, to a certain extent South America, have not really had these dramatic scenes that you’ve had in Europe and in America and even in America – it’s New York – so, it would appear that this virus has a great clustering characteristic where; if it’s a cruise ship, if it’s an overcrowded prison, if it’s somewhere where people are seeing each other all the time as opposed to passing each other in the street – then it really takes off. But how can one explain the fact – other than through absence of testing – that we aren’t seeing the same kind of figures in Africa or in India. We’re just going to have to wait and see.
But doesn’t it remind you a little of Y2K?
I was actually on a board of a company called M2K which had to correct all the local authority computer systems ahead of the turning of the clock into the new century. I always remember; there was a concert at Kirstenbosch and I had a phone so that – if everything collapsed somebody could give me a ring. And of course – it didn’t ring as it didn’t happen. But, I feel that there’s more validity to this than just being overdone by the press, because we have seen these incredible scenes in New York (and to a certain extent in England) of really overcrowded hospitals and ICU’s and you don’t see that with common flu. And so, for me, that is a real difference – that you have seen chaos in ICU units. And also, there’s been a shortage of protective equipment – and that never occurs with annual flu – so I just feel this is more real. Now, whether governments have overreacted by shutting everything down – that is a different question, because (of course) a lot of people quote Sweden. But, it didn’t shut itself down; they told people to socially distance and a few other things, but they sort of carried on as usual. And if you actually look at their fatality rates and infection rates – they’re not that much higher than other Scandinavian countries and indeed, other European countries, generally. So that (I’m sure) is going to be debated – whether you could have gone the Swedish route of hoping that there were a lot of undetectable cases and that eventually you achieved herd immunity and you don’t close your economy down or whether you have to go the route that countries like Italy, Spain, France, England and America have gone – which is you shut the place down. That is going to be hotly debated, I’m sure, when the pandemic is over.
But including our country – where we do have a lockdown that ends at the end of the month. If you were advising the government, Clem, what would you be saying to them now about the lockdown?
I certainly wouldn’t be asking them to lift it before the end of the month. What I would be doing is saying to the government, ‘what is going to happen for the few weeks afterwards – in terms of returning to a semblance of normality. what are we all expected to do?’. I see that they’ve published it both in America and the UK – the three phases that will happen after lockdown in order for the economy to recover. We should be doing exactly the same. In other words; you’ve got to prepare companies, small businesses, individuals, old people (whatever) for what comes after lockdown, because at the moment – everybody’s sitting in their homes and they’re not sure what they’re going to do come the day that the lockdown is lifted. So, I would be advising the government to be coming up with the same kind of information that people are getting in America and the UK of exactly what kind of behaviour they expect from different communities; business communities and from individuals – post the lockdown – and it should be done now so that we can prepare ourselves.
I suppose we also have at least got some other countries that we can watch who are a little ahead of us in the un-lockdown curve.
I do not have a very good idea of how Denmark is going about it, how New Zealand is going to go about it next week, Germany apparently is on the news today (that they’re going to allow shops to open). I’m not sure that we’re going to have that many examples by the end of April. The only example is China and, basically, China locked everybody down and has then had a very organised lifting of restrictions – but that’s because it’s a one party system in China. I just feel that a democracy like ourselves will be following more the example of America or Europe and we haven’t got a good example yet of what happens post lockdown in terms of opening restaurants, opening pubs, what the rules of social distancing are going to be – it’s all still up for grabs. And so, I do believe we’ve got to start having that conversation now. I get back to one point, which is – you can’t rule out that this is a very nasty virus and the last scenario you want is for it to come back again in a second wave. And so, the way we get out of lockdown is about walking a tightrope of just opening up – but just make sure you don’t fall into a second wave of the epidemic. That’s going to be a delicate balancing act – and we need information about how to perform in that delicate balancing act and we haven’t got it at the moment. So hopefully, Cyril will meet with all the medical people as well as business people and come out with a manual on how to proceed forward after lockdown.
