Interest rate cut a double-edged sword

The nation’s economic prospects are flirting dangerously with a cliff that has no visible bottom. The extension of the lockdown has left some members of the community without a full month of economic activity, leaving businesses and consumers playing catch-up in their bids to stay afloat.

A full percentage point cut in the interest rate is viewed as a welcome relief, but comes with an equally negative trade-off. While a lower interest rate eases the cost of debt repayments, car payments and home loans, it makes South Africa less attractive to those expanding their investment portfolios. Those approaching retirement too will be getting less from their accumulative savings before they exit the workforce.

Former executive committee member and 15-year veteran of the Roodepoort Chamber of Commerce and Industry (ROCCI), Wessie van der Westhuizen shared his thoughts on the rate cut, saying, “It will help, but unfortunately not enough. The cut is a mere droplet. Job losses and business liquidations will be at a level we haven’t seen in our lifetimes.”

The public will be looking to government to take decisive steps in the coming months that serve the interests of all South Africans, but this may not be so easy. “The government is facing a Catch-22. Directly, relief programmes should be sped up, and from an economic point of view, reform should be prioritised. Low tax collections, high debt and an overloaded workforce will not help though,” said Wessie, who is an accountant, tax practitioner and senior partner at Willems & Van der Westhuizen Financial & Business Solutions.

Once the lockdown ends and trade can resume, it may present the public with an opportunity to be more conscientious with its buying patterns. Asked how the Roodepoort community could recover together, Wessie responded, “Support small and medium businesses in our own area. This sometimes might mean stopping at two shops instead of one large retailer, but the difference to job creation in the community will be dramatic.”

He also sees a possible silver lining to the expected turmoil of the months to come, saying, “There will also be a huge number of new opportunities. Entrepreneurs will excel and survive. Some of the biggest companies were built after the previous recessions.”

An economy is not a never-ending party that one gets invited to, but an engine that needs constant work and input to avoid it stalling. One can only hope that those who have been elected are skilled mechanics capable of getting our pistons firing.