As South Africans grapple with their first full week of quarantine, the devastation that three weeks of an almost wholesale shutdown will have on the economy, jobs and livelihoods is becoming a major concern.

The first casualties are already evident – retailer Edcon announced last week that it had cash available to pay March salaries, but not suppliers. Whether it will re-open after the lock-down remains to be seen.

Edcon’s difficulties like those of SAA, Mango and SA Express are well documented, but there are hundreds if not thousands of South African businesses that do not have the cash-flow required to survive three weeks of shut-down.

Thus the jobs bloodbath that began earlier this year will pale in comparison to what could materialise if businesses fail in large numbers. And this is the formal economy.

South Africa’s informal economy is a substantial employer, with roughly 5 million people occupied in 2017, according to this International Labour Organisation report published in 2018.

“This is a large segment of the South African workforce,” noted Rhodes University associate professor Mike Rogan at the time.

People working in the informal sector include those working at small corner shops or hair salons; informal employees in formal firms or private households who do not have social protection or job security; and those who are self-employed in activities such as street trading or waste collection.

These workers are utterly vulnerable, with no access to UIF, an overdraft or even a loan from family. As is often the case in South Africa’s very unequal society the burden will be borne by the poorest in the society – black people, and especially black women.

This impending crisis has brought together almost 50 of South Africa’s top academics and economists. They have presented a raft of economic interventions to SA president Cyril Ramaphosa which aim to 1. support households and communities, 2. protect workers, 3. sustain businesses, 4. strengthen public health interventions; and 5. strengthen the economy. 

“It is widely predicted that the virus will trigger a global recession, due to collapsing demand and the supply shocks this crisis will entail,” the letter reads. “It is estimated that South Africa’s GDP could contract by between 1.8 and 7%, with devastating impacts on jobs and livelihoods. This looming crisis requires large-scale economic interventions.

“For example, the United Kingdom, France and the United States have injected resources totalling 18.9%, 13.6% and 10.7% of GDP into their economies.

“The measures announced by the South African government, although welcome, do not match the scale of the challenge.”  

The economists express their concern that while some efforts are underway, they may not be comprehensive enough, or implemented fast enough to prevent economic collapse.

They invite the president to consider, among others, the following range of interventions.

Households and communities

The social grant system is one obvious mechanism to provide immediate support to lower-income households. A grant could be in the form of a special Covid-19 grant, a top-up to existing child grants, or a universal basic income grant.

The economists also suggest payment holidays from municipal taxes, rent and mortgages, and other debts owed, and a ban on evictions from houses, including on farms.

Food security should also be addressed through the roll-out of food packages in stressed neighbourhoods, working with community groups.  

Protect workers

Workers, the economists suggest should be guaranteed their wage payments for the full duration of the lockdown, while unemployment benefits should be extended to casual and informal-economy workers.

Sustain businesses

While the funds contributed by the Rupert, Oppenheimer and Motsepe and other families are welcome, the size of the Solidarity Fund, as it has been dubbed, will fall well short of what is required. 

Thus the economists suggest significantly expanding business access to low-rate emergency loans. This, they add, would require low-cost liquidity provision by the South African Reserve Bank.

In addition, businesses should be able to take a temporary payment holiday from municipal taxes, rent and mortgages, and other debts owed.

If the low-cost loans and payment holidays are insufficient it may be necessary to provide additional tax relief – beyond the measures already announced by Sars for small businesses. (These include deferrals on a portion of provisional tax payments owing in the next financial year; deferrals on a portion of PAYE payable and expansions to the Employment Tax Incentive).

Strengthen the economy

The economists also propose monetary policy measures to guard against capital flight, ensure access to affordable credit, and ensure sustainable government bond rates. A “helicopter drop” of funds to households – for example, R1000 for each individual for a period of four months – could complement the grants they have suggested.

They also believe that it will be necessary to review the current Medium-Term Expenditure Framework which requires considerable budget cuts, including in wages and healthcare.

Aside from some important public health suggestions, the economists also suggest that government provide free mobile data and public internet access, to keep the public informed and curb the spread of fake news.

What they have not proposed

The letter to the president does not include any suggestions for how this will be funded. As it is, government debt is set to balloon and there is limited room in the fiscus for further borrowing.

In the current low-inflation environment, one option would be for the South African Reserve Bank to embark on an aggressive programme of Quantitative Easing. Desperate times call for desperate measures. BM