/ 21 April 2020

South Africa’s Covid-19 economic stimulus plan — opportunity out of crisis

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(Delwyn Verasamy/M&G)

President Cyril Ramaphosa’s “radical” new economic plan has found favour with many business and political leaders who have identified the coronavirus pandemic as an opportunity to fundamentally change the economy and create greater equality.

“This is a crisis that we must take full advantage of and not allow to go to waste,” said Black Business Council president Sandile Zungu in response to the address. 

In announcing R500-billion worth of economic spending and loans, Ramaphosa on Tuesday allocated the bulk of the funding towards propping up businesses, subsidising wages and creating new jobs. He talked about a “new social compact” in the clearest indication yet that Covid-19 money will speed up government spending on service delivery, while trying to keep businesses afloat. 

Ramaphosa had been coming under increasing pressure to do something about the massive economic effects of the national lockdown, now into its fourth week. The cost of this has been estimated at R14-billion a day.

His answer was an “extraordinary coronavirus budget” that gave R20-billion for the immediate healthcare response — which he called the main concern — and found R130-billion inside the country, from entities such as the Unemployment Insurance Fund (UIF), as well as promised funds from international financial institutions.

R40-billion has also been set aside for income support for workers whose employers are unable to pay their staff.

A further R100-billion will be set aside for the protection of jobs, as well as to create jobs.

Politicians and business leaders welcome announcement

Democratic Alliance leader John Steenhuisen said the announcement would bring much-needed relief to millions of South Africans and that the president had the party’s support both in rolling out the interventions and in longer-term economic reforms without which the R500-billion package would be short-lived and, ultimately, wasted.

Steenhuisen said it was “encouraging” that Ramaphosa had spoken about approaching institutions such as the World Bank and the International Monetary Fund for low-interest, unconditional loans for Covid-19 relief.

He also welcomed the announcement of a phased reopening of the economy.

The scale of the crisis for business was laid out in data released by Statistics South Africa (Stats SA) earlier on Tuesday. The data found that nearly half of the businesses that had been surveyed may not have enough money to continue their operations beyond the current five-week lockdown. Only 29% of businesses said with certainty that they would survive the lockdown.

A third of businesses surveyed had already laid off staff. 

The Stats SA data shows the extent of the damage that Covid-19, and the subsequent isolation period, has had on the economy, and on business as a whole. In this era of uncertainty and market volatility, as global markets plunge under the pressure, the only certainty that remains is that the economy is headed for an even deeper contraction. 

To support businesses during this time, Ramaphosa announced various measures as part of the government’s R500-billion stimulus package. The largest single intervention is a R200-billion loan scheme to help businesses pay salaries, in co-ordination with major banks, the treasury and the South African Reserve Bank. 

The Black Business Council’s Zungu said the council hopes to meet with banks to flesh out the details of the loan-guarantee scheme, and that the loans will provide much needed relief, not only for large businesses but also for spaza shops and other businesses in the informal sector.

Companies with turnover of less than R300-million a year can participate. This, the president said, should support 700 000 firms and more than three million employees. 

Bonang Mohale, chancellor of the University of the Free State and the chairperson of Bidvest Group said that the president’s second phase of the stimulus plan demonstrated “extraordinary leadership in grappling with the fact that pandemics such as Covid-19 can and do push communities and populations further into poverty and that we, all, collectively, have to make sure that the most vulnerable are indeed protected”.

Business Unity South Africa chief executive Cas Coovadia said the pandemic has made the inequalities present in society all the more stark, and businesses have not been spared. Coovadia called for a kinder market system, in which the economy is more inclusive and inequality, unemployment and poverty are addressed. 

“Government is going to have to look at what structural change can be implemented to enable that [inclusivity], and labour is also going to have to look at how the unemployment issue can be resolved,” he said. 

The Inkatha Freedom Party (IFP) welcomed Ramaphosa’s announcements, saying that the support package was necessary to stabilise the economy and protect jobs, while assisting the most vulnerable South Africans.

However, the party expressed some concern about the ability of the government to ensure that the money reached those it was destined for.

IFP spokesperson Mkhuleko Hlengwa said Parliament needed to ramp up its oversight capabilities and ensure sufficient checks and balances were put in place to monitor the roll-out of assistance.

Hlengwa said the party welcomed the additional support announced for unemployed people who received no support from the UIF or the South African Social Security Agency, as well as the intervention to assist in the private sector.

More money to help people on grants and without work

As well as helping businesses and workers, the R500-billion plan came with money for people on social grants and who are not in work. 

A grant of R350 a month for the next six months will be paid to individuals who are currently unemployed and do not receive any other form of social grant or UIF payment, Ramaphosa said. 

The new grant is, however, tricky to administer because recipients will not already be registered with the department of social development.

Increasing the money received by child-support grant beneficiaries — who will now receive an extra R300 in May and R500 more each month from June to October — has been touted as the most clear-cut option to provide relief to impoverished people amid the crisis.

After the announcement, Caroline Skinner, the urban research director for Women in Informal Employment: Globalising and Organising, told the Mail & Guardian that the new grant is “a positive development”, and one that some analysts had feared was a long shot because of the lack of a database of unemployed and informal-sector workers.

But Ramaphosa said the department will announce the requirements needed to access and apply for the new grant in the coming days.

Skinner said the grant “will make a difference” insofar as it will attend to the urgent need to get food on the tables of people on the edge of destitution. But she noted that it is “critical” that these measures be accompanied by greater efforts to work with informal traders so they benefit from this extra business.

On Tuesday night, the president also announced that an additional R2-billion will be made available to assist small, medium and micro enterprises; spaza shop owners and other small businesses.

Greater support for the “smaller players” in the sector will allow them to start their businesses back up again in the aftermath of the crisis, Skinner said.

Watch the president’s address again: