How do you support an economy that is in recession and is facing deeper contraction due to the unprecedented economic harm due to a pandemic? That question will be answered tonight as President Cyril Ramaphosa announces South Africa’s much anticipated social and economic recovery plan.
According to research by the Institute for Economic Justice, the South African government has so far sourced R41-billion to fight Covid-19. But this has not been enough, because the government has been spending more than it earns. Therefore, now it does not have money to inject into the economy.
There have since been reports about the government sourcing more money from elsewhere.
“I think, given our financial situation, which has been precarious before this, we need all sources of financing that we can get. If we can get the new development bank [to] loan us [money] we need to get it,” says Isaah Mhlanga, chief economist at Alexandra Forbes.
“We should not let the crisis go to waste. It’s [an] opportunity to reimagine South Africa in a way that it saves the broader majority, to solve unemployment, poverty and to have better economic growth,” he adds.
Mhlanga says the plan should immediately offer relief to the poor, who might have lost their jobs.
ANC economic policy head Enoch Godongwana says that although the ANC and the South African Communist Party had discussed the need for a stimulus package “in generic terms”, the detailed discussion around what steps should be taken were being dealt with by the economic cluster ministers within the government.
Finding money, but without losing sovereignty
Godongwana says the ANC was open to government borrowing from the International Monetary Fund (IMF) or World Bank to fund a stimulus package, provided that the loans did not come with conditions that interfered with South Africa’s policies.
“There has always been caution on the part of the ANC and its partners over the World Bank, since day one. From 1992, we have said that we cannot afford to not engage, but that we should be vigilant and not undermine the policy space for ourselves. That we carried through into the Reconstruction and Development Programme and are speaking the same language now.”
“I don’t know the details. The economic cluster ministers have been working on something for the past two weeks,” says Godongwana.
Cosatu spokesperson Sizwe Pamla says the union federation understands that the current level of lockdown — which costs the economy close to R14-billion a day — cannot be sustained indefinitely.
“What we are expecting is for the government to start looking at protocols on how to reopen the economy gradually, responsibly and safely,” he says.
“If we reopen (the country) on April 30, it doesn’t mean that the virus will be gone. It will be with us for some time, so we need the government to work on that now, identify which sectors go first, so that we can work together and make this thing work.”
Pamla says the federation expects Ramaphosa to make further announcements about improving the capacity of the Unemployment Insurance Fund (UIF) to administer applications for emergency payouts. Other state agencies, including the South African Revenue Service and others that have better capacity and are more efficient, needed to be brought on board urgently.
The federation also expected Ramaphosa to provide some clarity on the government’s progress towards drafting a new budget, as the economic effects of the Covid-19 outbreak and the lockdown meant the budget passed earlier this year was now a “fantasy document”.
Although the idea of approaching the IMF has previously been taboo within the ANC, the extent of the effects of Covid-19 on the economy appears to have shifted the thinking of the governing party and its alliance partners.
The conditions attached to loans given by China elsewhere on the continent also appear to have made the ANC and its allies more wary of borrowing from that quarter.
Pamla says Cosatu wants the government to avoid taking “extortionate” loans from China — what he terms “loan-shark type” loans — and to ensure that any loan taken from multilateral institutions did not entail “selling” the country.
He adds: “We are on board with what the president is trying to achieve. If he can ensure that we get the money without handing over the country, that will be a success.”
After the ANC’s national working committee meeting on Monday, the governing party said it echoed Ramaphosa’s sentiment that “we must do whatever it takes” to confront the Covid-19 crisis.
The ANC said it shared Ramaphosa’s concern that the measures currently taken by the government were insufficient and, as such, expected the government to announce an “effective stimulus package” to respond to the crisis.
Cosatu and the ANC both expected Ramaphosa to announce an economic intervention in the form of increased social grants over a number of months, or a once-off basic income grant, combined with relief for workers in the informal economy, to ensure that “nobody is left behind”.
One of the key questions being considered by the government is how to increase the safety net for informal-sector workers, who do not qualify for the relief set up by the department of employment and labour.
In response to the lockdown, and the inevitable effect it would have on workers, the department set aside R40-billion from the UIF that can be accessed by employers who have had to temporarily lay off their workforces. As of April 16, the fund had paid out R1.1-billion to struggling workers.
But only eight million workers are registered with the UIF. The country’s employed labour force is more than double that.
One proposal to fill this gap is the introduction of a special grant for informal-sector workers.
A report outlining measures to provide targeted support to these workers was tabled in the first days of the lockdown. It notes: “If it is assumed that this sector experiences a 75% loss of income over the lockdown period, for households [that] rely on income from the informal labour market, this could result in the rate of food poverty more than doubling over the next three weeks.”
The report, which has been considered by a number of departments, proposes that child-support grants be increased. This is the “quickest, simplest way to reach the poorest South Africans”, the report concludes.
It further proposes a special Covid-19 grant be implemented to ensure that those who do not receive child-support grants are also covered.
The economic consequences of the coronavirus and the subsequent lockdown have been catastrophic for the world’s most unequal country. The national lockdown also came during a recession and with South Africa receiving its latest junk status downgrade. That means the government has to come up with an economic plan with very little in the way of capital to actually drive such an idea.
So far, the South African Reserve Bank (Sarb) has taken big steps, cutting the repo rate by 200 basis points — bringing it down to 4.25% — and announcing it will purchase government bonds to inject liquidity in the secondary market.
For its part, the government has speeded up procurement to ensure that critical sanitary supplies are purchased by municipalities and municipal entities. It has also provided critical aid to businesses that may face losses due to the closure of the economy and the restrictions in people’s movement.
To pay for these first steps, the government has said it will move money inside its own budget towards the healthcare sector. Because there isn’t enough money here, it has also said it will look for money from international financing institutions.
“We could see healthcare getting more money and maybe funds being taken away from sectors such as arts, culture and sports,” says RMB analyst Matete Thulare.
He adds that the large corporations and small businesses may receive tax breaks, “given the fact that jobs and companies are on the line and we can’t have two sides of the coin folding in this economic crisis”.
On Tuesday, Caroline Skinner, the urban research director for Women in Informal Employment: Globalising and Organising, told the Mail & Guardian her “hope beyond hopes” is that this element of the proposal will be announced by the president.
“There is a critical need to inject income into these households. Because we know that there is a high correlation between being poor and working in the informal sector, without this support we are pushing a big group into destitution,” Skinner said.
“So it is really a critical and urgent need.”
To support the informal sector beyond the pandemic, Brett Hamilton, visiting lecturer in corporate finance at the University of Stellenbosch Business School proposes that the government introduce various measures that are best suited for the informal economy. These include easing up conditions for funding, formalising the sector through the availability of adequate infrastructure and upskilling informal workers for the sector to be more sustainable.
This will further “assist in the transition of unskilled workers from the informal economy to skilled workers in the formal economy”.
What opposition parties expect
Opposition parties represented in Parliament have called on the president to help people financially to keep confidence in the lockdown, and that it is working to keep communities safe.
There is already evidence that many people have grown tired with the restriction of movement, as well as the closure of industries and non-essential sectors of the economy.
In parts of the country, the looting of shops, store delivery trucks, and consignments of emergency food-assistance parcels have been documented, as mainly poorer communities struggle under the lockdown.
The Democratic Alliance has called for social welfare grants to be increased by R1 000 across all grants categories for the next three months. This would add an extra R50-million to the social-grant bill. “It would be the most significant support the president can and should announce. It would immediately alleviate the now widespread hunger being suffered by many.”
Geordin Hill-Lewis, the DA’s finance spokesperson, says: “This intervention would ultimately cost far less than the initial price tag, with much of it coming back into the fiscus as tax revenue, due to the multiplier effect, as long as the government reopens the economy soon.”
The idea is that people would spend the money on essential items, kickstarting the economy.
The DA is also calling on the president to invest more in health interventions, including track and trace programmes, more personal protective equipment for healthcare workers, and free facemasks for every South African who needs one. This, the party said, would have a less negative effect on the economy.
The Inkatha Freedom Party’s Nared Singh says Ramaphosa must announce plans to invest in more testing for Covid-19.
Singh also says the president must be aware that public confidence in the lockdown, although initially supportive, is wearing thin. “He needs to immediately deal with the thousands of people who are saying they don’t mind dying of the Covid virus, but they don’t want to die of hunger. I’ve written to the president saying that all these lofty statements about R500-million for hampers mean nothing to the people on the ground.”
But Singh warns of the complications around cash-in-pocket interventions. It could mean a rush on grant pay-point locations defeating the purpose of limiting physical interaction and social distancing. “What we don’t want is people crowding pay points. How do we create that balance? There would also need a plan devised to stagger payments so that there is no rush.”
The United Democratic Movement’s Bantu Holomisa says he notes the precarious position Ramaphosa finds himself in. “I don’t want to take a chance and make a guess myself. But the president needs to throw people a lifeline with a rescue package.”
On Wednesday, Parliament is expected to receive a briefing from the treasury on the economic effects of Covid-19 and the subsequent lockdown.