 Welcome, everyone, to this afternoon's fireside chat. My name is Simona Schottel, and I am a research associate at UNewider, where I have been mainly working on issues related to informal work and structural transformation, and lately on the impact of the COVID-19 pandemic on workers' livelihoods. It is my great pleasure to introduce to Harun Borat, who is a professor of economics at the University of Cape Town in South Africa, and one of the leading labor scholars in the field of development economics. Welcome, Harun. Great to have you with us. Great. Thanks, Harun. We will be chatting about the impact of COVID-19 in South Africa, the effects on labor markets, the effects on the economy, and the economic measures the national government has taken to confront these. I'm very happy about this opportunity and have probably way more questions than we will be able to address within the next 20 minutes or so, but I know that many of you in the audience may also be curious about specific issues, so I encourage you to drop your questions in the Q&A function, and I will, depending on how it goes, easily take them along as we are discussing or otherwise leave some time towards the end to address your questions. Maybe for those of you who are not that familiar with the South African case and maybe missed Harun's or Tim's earlier presentations today. So South Africa is one of the countries that have been most heavily affected by the COVID-19 pandemic, and the country has one of the largest caseloads worldwide and are just emerging from the third wave that's peaked in July 2021, with yet higher infection rates during the first and second wave. This being said, the country's policy response has been one of the earliest instructors in global comparison. A national lockdown came into effect in late March 2020, including strict stay at home orders that were strictly enforced, including an involvement by the South African Defence Force. The strict lockdown lasted for two months, but restrictions remained relatively rigid by international comparison up to late September 2020. So before I was starting to go into how the pandemic and those restrictions impacted the economy in South Africa and labor markets, Harun, what I would like to start with is how have you personally experienced these first months of the pandemic hitting South Africa? And what was the moment you realized the magnitude and the severity of the pandemic shock and the need to conduct research to form policymaking with regard to that matter? Yeah, Simone, so that's a multi-layered question. I mean, I think like many of us personally, we all sitting in front of our screens and now just look back and wonder what happened in the last year. So there's all that sort of work arrangements that have changed and all sorts of things in that context. I think when I think in the early months, if you like, of the Wuhan incident sort of from January and February, I don't think any of us realize the extent of the pandemic until it probably hit Italy. And I recall sort of this quick succession of events that went from the personal to the institutional to then the national level. And you saw that very, very quickly with the president and instituted the national lockdown. And suddenly we were trying to figure out in a daily basis what this meant. But I do think that governments, I mean, responded surprisingly quickly. I mean, if you think of the average developing country government and the tools that have available to themselves to actually deal with the crisis of magnitude. I mean, I know we may have questions looking back. Hindsight is perfect, but I think the response has been very, very proactive, not perfect. Imperfect and proactive is probably the best I can describe it. Right. Yeah, that makes perfect sense. And as you said, it was quite like, I think for all of us in around January, February, when we actually realized that this was going to be big kind of and despite this, I think you brought out the first working paper already in May 2020 with a number of DPRU colleagues where you already gave some first early assessment and also some roadmap for the post lockdown period, so to say. And I wondered, like, how much you were able to use those results to maybe also inform policymaking, whether you were involved in any direct discussions with government and also from what you just said now was over, like, perfect, what would we know now, at least, whether there would have been any other advice for you would have had to face how to react differently? Yeah, I mean, there was, you know, that working paper. And I think a lot of us were, you know, when we got sucked into sort of COVID or pandemic economics started trying to think through what may be important elements of policy strategies, but also analytical each heads for thinking about the pandemic. So if you look at that early working paper and perhaps colleagues on this and listening in could come in as well, at least in our in our little way, we try to sort of break it up into three components. One was the fiscal response. So the stimulus package that was required of government, what are the types of things they needed to do? And we can talk about later, but that's evolved, right? In terms of how we originally thought of it and how we think about it now. The second was was the obvious sort of descriptive statistics from our vantage points, like you, Simone, the labor market, poverty and inequality, of course, the other factors, but that was very clear that you needed to keep an eye on what the consequences were for thinking about both the employment wage effects and so on. The third was sort of linked to what extent has economic activity changed? And so what we tried to do in that working paper was I think inspired by the work from home paper done by the World Bank. So globally, how many people could actually work from home? And it turns out that we were able to think through using South African data, what we call the physical interaction in there. So using, you know, the state of well, using the US Department of Labor coding and actually bringing that into the QLFS to say, well, there's a code in that questionnaire, which is about how physically fighting each of them from somebody in the workplace. Do you have regular physical interaction with somebody at your workplace? We added a component. Do you travel to work back and forth in public transport? That allowed us to create from this only coding database a physical interaction index. So we should have had three elements going like the public sector response, what is the labor market? And let's call it the wealthy effects. And then the third was some attempt to think creatively about the COVID labor market, right? Where suddenly physical interaction at the workplace was an important component of how sensitive the job was to infection, frankly. And we then use those three to answer your question to try and engage with policy effects, both on the fiscal side in terms of looking at employment effects and where we're there for policy responses may need to go to. And then, thirdly, if you were thinking about lockdowns and that was perhaps the early attempt, although frankly, I don't think it worked because it's really hard to operationalize. If you think about lockdowns, maybe you could link lockdowns to a physical interaction index score. Right, yeah, things this makes a lot of sense. And I think already in this early work, you spotted a few really core topics like the impact it would most likely have on vulnerable workers and workers in informal employment. And I think this came also out in your later work, like the one that you just released this year and that Tim presented earlier today. Was there any other surprises to you? Like when you now had this more richness of data on the pandemic, so in actual ways of QLFS, was it that came as a surprise to you in that sense? Yeah, so I think the one thing is the, so I think initially given none of us probably have ever lived through a serious pandemic, right? Perhaps three Ebola at one context, but I mean, this is like no other. The extent to which you may have expected scarring or destruction in the labor market, as big as it was, was probably not as big as the pandemic's sort of global impact would have suggested initially, right? If that makes sense. So I mean, if I just, I gave the numbers earlier today, but essentially we recorded a net job loss of 1.4 million, but a decrease of 8% in quarters one through four of 2020. Now, if you think that the Great Recession saw about 800,000 or 900,000 jobs lost, right? I would have actually a priori expected more from the pandemic, more job losses. So that was a little bit surprising. I guess what hasn't been surprising is the fact that the vulnerable have seen greater job losses. So whether you're in the informal sector and domestic work, that has not been surprising. Of course, because we don't think about pandemic labor markets, right? The thing that we didn't expect or think about at all was, which I mentioned earlier today as well, was the collapse in hours of work. So suddenly, right to the idea that it first sent workers home and the hours switched to zero and they may have stayed employed, they may have seen the income shot, right? So I think those were some surprising elements, certainly from the data we've seen there. Right, I guess one important element also in buffering the shots was the kind of government relief measures that we already briefly touched on that the South African government implemented relatively quickly, which included both the top of already existing grants, but also the introduction of a new COVID grant that you quickly mentioned, I think, also earlier today already. And this was actually designed to reach individuals who hadn't been covered otherwise, like vulnerable workers who hadn't been covered by any of the other existing schema. And something interesting that I read in some of your research was that this grant actually also reached households in the top results of the income distribution. So it's quite different from the normal poverty elevation measures that we're normally thinking about. And in principle, it could be a quite big point of critique regarding the government response in a high inequality context as a South African one. But I think if I understood what you have in your work correctly, you try to take on a bit more of a nuanced perspective saying that this COVID relief measures are not just poverty elevation measures, but actually try to compensate workers that were most affected. And something I think I found quite striking in your earlier presentation today was that you have this kind of polarized effect of job losses at the bottom of the distribution and then income losses more towards the top of the distribution. And I wondered how you see this, how you see the government program with regard to, in some cases, also providing elevation to workers more at the top. And maybe another related question, and you and also my earlier work, we worked on the emerging middle class in South Africa. And I wanted what actually happened to those guys in the middle and whether we should be concerned with some hollowing out or whether it was that those workers tend to be in this more stable, formal type of employment that were actually relatively secure even in the pandemic context. Yeah. So I mean, those are great questions. So let's, I mean, so the first, at least, so if you think of the earlier point is we, but the three areas of that original working, I think areas one and two, the school measures and looking at the labor market. So one of the things at least, I've probably tried to front load and battle lots of people about because it was our instinctive response to go as South Africans to the social grants, right? And say, well, you have to top up the social grants. Tech, agreed. The difficulty was this was a pandemic that affected those in the labor market, right? And so there was a real danger that if you, and so eventually I just settled on a network, right? If you were an informal sector mechanic in an urban township in South Africa, right? Clearly you were gonna be negatively affected by the pandemic, right? So you'd be forced to close down because of lockdown, right? But if you were not on grants, so if you didn't have access to a child support grant or an old age pension, that topping up of the grants would not reach you, right? And so there was a big danger that given that this was a negative labor market shock that those individuals in the labor market who were affected negatively by the shock but didn't have access to grants, right? Because this was a child support grant. It was all the age pensions, right? That's what they were for. You would not, government would not reach you. And so enter then the idea of the COVID sexual relief of distressed grant. And if you read it carefully, it's very much about the criteria that you have to be unemployed or in the informal sector and not on any other grants, right? So it's very much a sort of gap-based support. So that was the reason. If you look at the results, you're exactly right, that you end up reaching, so it's less progressive than the CSG or old age pension and so on, more the CSG, right? It's a new grant firstly. So remember, government's trying to figure it where on this, but still fairly strongly progressive. And the mistake that's offered is that because your high inequality society reach, it talks about your middle, missing middle story, right? Because you're a very high inequality society, when you reach into the seventh death aisle, these are still vulnerable hustle, right? By definition. So effectively, we're quite happy if you look at the absolute numbers, right? It's 4,000-rand per capita. If you look at the seventh death aisle, as long as you reach up to there, you actually find in terms of no leakages. I think you're right. Eighth, ninth, and 10th is the way in which the machinery of the state is to, if the grant is extended as it has been out so much, you have to ensure that you cut out access to those of the eight, obviously to the 10th. But I think I'm hopeful that we built in a support mechanism designed for labor market vulnerability, right? The tradition in South Africa in terms of sort of, let's call it the welfare, vulnerability support has been purely on the basis of age or child support, which is great, but nothing to deal with the labor market shock, right? And I think we now have elements of that in the COVID grant. Right. Yeah, I think that makes a lot of sense, and it's a great way of looking at it and providing future perspectives. We actually have a question on the chat, and maybe I can just administer it to you, which concerns a bit the data quality in QLFS. Specifically, it is about the movement from face-to-face interviews to telephone interviews from 2019 to 2020. And the question is whether or how that's agencies are dealing with this in South Africa, or maybe she also knows something globally or how it has impacted data collection and data quality, I assume. Yes, I mean, we, in fact, a lot of the researchers at the DPR, you're looking into that, I mean nationally as well, around the switch. And I think I speak under correction, but the switch was going to happen anyway for Statistics South Africa. And so I think, you know, COVID hastened that switch anyway. There's enough of a pre-calibration on the Song Statistics South Africa site to make sure that we don't have any bias in the results. I think that's the kind of follow-up work as more and more of this data comes up into making sure that the kinds of numbers you're seeing, right, are still representative of a trend that makes sense. You are messed up completely because of the shock, right? I mean, so we're in uncharted territory, but you've, at one level, you've almost got a double shock. You've got the move to telephonic based surveys and then you've got the pandemic as well. And I'm fairly comfortable from the numbers and the trends I've seen, at least in terms of proportions, right? That thing seems to be out of whack, if you might, I can feel like it's good to stay in East Africa. Right, and I assume maybe for QLFS as it's a cross-sectional data, it might be less of a concern than when trying to collect panel data, given that you've seen much higher attrition rates with phone interviews in many surveys. Yeah, exactly. Yeah. I mean, we don't have a coverage issue in South Africa. So, you know, access to a telephone is close to 100% cell phone coverage, right? It's over 100%. So, at least you don't have that concern. And to be interesting to see at a stratification level, so you're looking at rural areas or smaller towns, if that's the case, and I think that's what they've got to start figuring out as that's the case. Right. Maybe the last issue I wanted to touch upon, like we have talked about the government response measures and relief measures and different grant programs and economic stimulus, and I mean, it has been a massive stimulus package in terms of money that went into it, kind of a thing. It was kind of close to 50 billion rounds or something like that. And considering South Africa already had a relatively high debt-to-GDP ratio before the pandemic, and I think with the pandemic and the decline in GDP, it rose to just below 80% or something like this. And we know strains at higher debt can pose on a country's long-run growth trajectories. And I just wondered whether you wanted to give some more medium to longer-term outlook on how to approach this, what key policies may be needed to kind of recover from this economic damage. And yeah, where you see the main agencies there. Yeah, so I mean, so I think what we started out again, I presented these numbers earlier today. I mean, we started out at a pre-pandemic deficit to GDP ratio, which for South Africa was already very high, the sort of 7% deficit to GDP ratio, 6.8. That was the highest we've ever seen and that was almost a, well, it wasn't almost, it was a consequence of the state capture years, right? A massive overspending by government departments and certain enterprises and so on. But then with the pandemic and these huge injections from government as they were required, you see the spike. I think we were looking at, you know, 15, 16, 17% deficit to GDP ratio, it was unbelievably high. We then got the revenue from the commodity super cycle, particularly platinum prices that have gone through the roof and that's now been a massive kick into the revenue side. And so deficits are now, I think at the moment, we're looking at a 9.3% deficit to GDP ratio, which suddenly seems actually like Lirvana compared to where we were. The difficulty now is that you've still got damage to the economy, as you know, right? Recovery's type, employment recovery is even worse. And so does government go the route of expansion and fiscal policy in a really tight environment where 20% of expenditure by the fiscal cases on the interest burden. And that's a very dangerous place to be, right? So effectively the interest burden is what drives fiscal policy thinking and the danger that comes with sort of further welfare enhancements that effectively may see us shuffle parts of the expenditure items for say a basic income grant paid for by cuts in education and health costs, right? It's something that's a real, real concern, right? Especially if you need to be thinking of fiscal policy as that instrument for investment expenditure rather than pure consumption expenditure. I think it's that kind of dynamic that's going to be debated and coming with always quite the secrecy in South Africa. But my sense is that the switch at a micro level needs to move in terms of fiscal policy move from hassles now towards firms and incentivizing firms from the full size spectrum, right? From informal survivalist firms right through to registered firms. I like to make the point that it should range from ensuring that micro enterprises and townships have storage facilities, right? Through to EPZs for large formal registered firms. And that scale of sports, sort of good supply side economics is probably what's going to lead us to more sustainable growth, I think. Right, great. Thanks so much. I think we're out of time. So let us close on this note and this I think very important call for policies targeting this segment of firms. And yeah, I think there will be a lot of scope for more research in the future to come. And yeah, remains to be a topic that will stick with that for quite some time. Thank you so much for your time and for the very interesting discussion. And thanks to the audience for listening.