Business Maverick

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Government’s massive economic injection to deal with Covid-19 crisis – reactions

The R500bn South African relief effort – as a ratio of GDP – ranks among those of developed nations such as the US. (Photo: Adobestock)

Ramaphosa promises ‘radical economic transformation’ of the economy and gives the ‘green light’ to urgent structural reforms. The devil, as always, will lie in the details – and the management of petty politics and factionalism.

On Tuesday night (21 April) President Cyril Ramaphosa promised South Africans an economic response that was equal to the scale of the disruption it is causing. 

In this regard, the government certainly came to the party.

The president announced a “massive social relief and economic support package” of R500-billion, which amounts to around 10% of GDP. This puts the South African relief effort – as a ratio of GDP – among those of developed nations such as the US.

The relief effort falls into three distinct phases – the first being the declaration of a National State of Disaster, which was accompanied by about R13-billion worth of tax, unemployment and SMME relief measures. 

It soon became abundantly clear that this was but a drop in an ocean of need.

The second phase of measures, announced on Tuesday night, focused on additional financial support for the health effort, the relief of hunger and distress, support for companies and workers and lastly, the phased reopening of the economy.

The R500-billion bill will be partly financed by South Africa – R130-billion will come from a “reprioritised” Budget, and the balance will be from the IMF, World Bank and other development finance institutions. 

The third phase of measures, which was arguably the most interesting, received the least attention. This, said the president, “is the economic strategy we will implement to drive the recovery of our economy as the country emerges from this pandemic”.

Central to this recovery will be measures taken to stimulate demand and supply through interventions like the substantial infrastructure build programme and the speedy implementation of economic reforms. 

Further details will be outlined in the coming days. Whether South Africans wait with bated breath depends on your level of optimism.

“The promise of structural reforms and inclusive economic growth has not been forthcoming under the new regime, despite promises over the last two years,” says Annabel Bishop, chief economist at Investec. “Central will be the removal of various economic obstacles.”

Turning to government’s most pressing priority – the need to arrest the social devastation so clearly evident over the last week – government presented a unanimous front in announcing bold measures to ensure that the poorest of South Africans don’t starve to death.  

This, more than anything else, was SA’s Covid-19 ticking time-bomb.

Hence the child support and old age grants will be temporarily topped up and the government will provide the unemployed with R350 a month for the next six months. 

This, says Busi Mavuso, CEO of Business Leadership SA, will form the centre of the stimulus package announced and will put money directly into the hands of the people. 

“This supports the circular flow of money in the economy and will protect jobs in the long run,” she says.

The coronavirus crisis has and will result in a jobs bloodbath.  

Thus, an additional R100-billion will be set aside for the protection of jobs and to create jobs, Ramaphosa said. Of this, some R40-billion will be used for income support for workers whose employers are not able to pay their wages.

In addition, a further R2-billion will be made available to assist SMMEs – in the form of loans, grants and debt restructuring.

What is notable is that this will extend from spaza shops to businesses with a turnover of up to R300-million a year. 

Government has significantly widened its definition of an SMME. 

In addition, the government will introduce a R200-billion loan guarantee scheme in partnership with the major banks, the National Treasury and the South African Reserve Bank.

This will assist enterprises with operational costs, such as salaries, rent and the payment of suppliers. 

It is expected that the scheme will support more than 700,000 firms and more than three million employees through this period.

Government is also working on additional support measures for vulnerable and affected sectors like the taxi industry.

“Government has focused on supporting the most vulnerable, and that was essential and is welcomed,” says Zwelakhe Mnguni, the chief investment officer at Benguela Global Fund Managers. 

“In the short term, the rand could strengthen as foreign money comes into the country, but longer-term the rand could go in the other direction if we take too long to gather pace in production.”

In addition to previously announced tax relief measures – such as the deferral of provisional tax payments – a four-month holiday for companies’ skills development levy contributions was announced, as well as the fast-tracking of VAT refunds and a three-month delay for filing and first payment of carbon tax.

The previous turnover threshold for tax deferrals is being increased to R100-million a year, and the proportion of PAYE payment that can be deferred will be increased to 35%. 

Businesses with a turnover of more than R100-million a year can apply directly to SARS on a case-by-case basis for deferrals of their tax payments.

No penalties for late payments will be applicable if they can show they have been materially negatively impacted in this period.

A small sweetener, in the form an additional 10% tax deduction for donations to the Solidarity Fund, was also announced.

These tax measures should provide at least R70-billion in cash flow relief or direct payments to businesses and individuals. 

By all accounts, this is just the beginning of measures designed to assist companies and kickstart economic growth. BM

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