Risk-Adjusted Strategy For Economic Activity

Risk-Adjusted Strategy For Economic Activity

Written on 04/24/2020
MJ Minter Inc

Though the national lockdown has shown early evidence on how it has successfully helped to flatten the curve and limit the spread of Covid-19, there are numerous risks if the lockdown is lifted too quickly or without any strategy. 

Below is an excerpt given by government, discussing evidence from the 1918 Spanish Influenza with regards to long-run economic consequences: 

"On the one hand, NPIs constrain social interactions while they are in place, and thus necessarily depress any type of economic activity that relies on such interactions. On the other hand, because the pandemic itself has severe economic consequences, by reducing the severity of the pandemic, NPIs can mitigate the most severe economic disruptions. While an interruption of economic activity may be inevitable, this interruption can be shorter-lived and less extensive with NPIs in place that solve coordination problems." 

Thus, government wants to implement an Alert System that can adapt to different levels of severity depending on the period: 

  • If lockdown regulations are amended to allow some economic activity to resume, it is possible that the infection rate will accelerate and that the virus will resurge. In this scenario, it would be necessary to quickly revert to more stringent restrictions in order to arrest further transmission. 
  • An “alert system” with four to five levels would allow for flexibility and responsiveness and would reduce the need to amend regulations in future. 
  • At each level restrictions would be more or less severe, and sectors and companies would know what activity is permitted depending on the level imposed at any time. 
  • Government would be able to switch between levels with far greater speed and could use mass communications platforms (such as an SMS notification system) to signal this to the public. 
  • Different levels could be imposed in specific provinces and areas based on the risk of transmission. 
  • NB: A gradual transition between alert levels can be implemented where necessary. 
  • Detailed health protocols should be imposed at all levels of alert. 

President Ramphosa has introduced level 4 with effect from 1st May 2020. 

This article is based on an extract from a draft government document