As South Africans, we’ve got used to being let down by our leaders. But we have had a few moments where our political leaders have made us proud to be South African – the release of President Mandela, his inauguration as president, and President Mbeki’s, “I am an African speech” are three occasions that made me proud of our political leaders.

I don’t know how history will record President Cyril Ramaphosa’s speech on Monday night, but it certainly made me feel proud of our political leadership. I feel proud because our political leaders were prepared to make a tough decision in the interests of humanity. I feel proud because our leaders considered and listened to scientific evidence on the likely impacts of Covid-19 if we did not take serious action. And I feel proud that, while not perfect, the decision considered the economic implications for all South Africans, including the most marginalised among us whose voice seldom gets the ear of political leaders.

I am no health expert, but I understood the health policy options in the face of Covid-19 to be one of:

1. Bury your head in the sand and blame someone else, as President Donald Trump and his ilk have done; or
2. Play Russian Roulette and hope for some herd immunity effect to solve the problem. Luckily science saved the day and the British changed course; or
3. Listen to the expert virologists, epidemiologists and related scientists, study and understand the lessons that can be learnt from others and “flatten the curve”.

Thankfully, on the health policy choices, Ramaphosa and his colleagues made a bold and decisive decision which should change the course of Covid-19 in South Africa. Have they done so with the economics?

Ramaphosa’s announcement of a lockdown was accompanied by a range of economic policy measures that will be debated in the next few days. I have written previously about what would be needed:  Op-Ed: Covid-19: Bold programmes are needed to mitigate the economic crisis, and appealed for decisive action to address the relationship between the health strategy and the economy, and to deal with the economic fallout that has been and will continue to be wreaked by Covid-19. So, how do the measures announced stand up to the challenge?

Three preliminary points are worth emphasising.

First, as I have argued earlier, we have to understand that we are not dealing with a “normal” economic crisis in which economic policy tries to raise the level of economic activity to counteract something in the economic system that is leading to a reduction in economic activity. What we are doing through the lockdown is actively to suppress economic activity! But this is a temporary phenomenon. Once the virus has run its course, economic policy will have to boost the level of economic activity.

Our short-term economic strategy should, therefore, aim to limit the damage caused by the virus and provide economic agents – firms, workers, households – with as much protection as possible to ensure that firms do not shut down (because we are suppressing economic activity and stopping them from operating), workers do not lose their jobs, and households’ living standards do not plummet. For the households, we should be sure to protect the poorest households, but we should also protect the middle classes.

If we sacrifice the living standards of the middle classes, we undermine our long-term ability to finance public expenditure, staff the professional occupations that keep the economy functioning, and run our public and private institutions. So, we should be providing a “bridge” to these economic agents, who are having to face extreme stress through no fault of their own. Once the virus has run its course we will need to provide the economy with a stimulus package, but for now, the stimulus would be counterproductive. So, timing is everything – we don’t want a stimulus package now but we will definitely need it when the health matters settle, as they will. The link between the “bridging strategies” now and the stimulus we will need is critical.

Second, any evaluation of the economic package has to be assessed against its ability to support or undermine the health objective of “flattening the curve”. If the economic package works contrary to this objective, it would have failed. So, if by our economic strategy and from a moral perspective, we place an itinerant informal worker who earns just enough every day from her work to feed her family in a dilemma where she has to either break the lockdown, risking her and everyone else’s health, or not feed her family, not only would we have failed morally, but we would have undermined the health objective.

Third, these are extraordinary times and we should act, from an economic policy perspective, not on the basis of some or other preconceived ideological position but with a clarity of purpose to get through the immediate crisis and to rebuild our economy. We should be robust, interrogate the options, ensure that we make the best use of our economic resources, not act on policies that we cannot resource, but we should also be bold. The cost of inaction is literally a matter of life and death.

So, how does the economic policy package announced by the president stack up?

Ramaphosa announced a Solidarity Fund that we can all contribute to, which will be led by two very reputable South Africans. In normal circumstances, I worry about the limitations of private welfare initiatives. But, these are not normal times, so I will be making my contribution to the fund. The president also announced that the Rupert and Oppenheimer family will each be contributing R1-billion. As a society, we should ask the question: how is it possible to have an economy where two families can control such a large piece of our national wealth? But these are extraordinary times, so I am glad that the president accepted the offer.

Perhaps Rupert and Oppenheimer will use this period of national and international solidarity to reflect on how they accumulated this wealth and offer to hand it all back to the national purse – as a small contribution to redressing how it is that they accumulated this wealth.

The president reinforced that action will be taken against businesses that hike prices on an unjustified and unethical basis and profit from the challenging times that we are in. In the coming days, I would hope that the minister of trade and industry and competition will be announcing some measures for monitoring this, including perhaps having a hotline so that action of this sort can be reported, investigated and quickly prosecuted. We need to stamp this behaviour out quickly because inaction only fosters the incentive to behave in this manner.

The president announced that the government is developing a safety net to protect workers in the informal economy from the dilemma that I outlined above, and which I raised in my earlier article. A few very competent people are working on how this could be done. This is a very important initiative, and would go a long way toward protecting workers in the informal economy and other types of workers who, because of their vulnerability, fall between the cracks.

I made a case, in the earlier article, for a “13th cheque” to be paid to recipients of the old-age pensions. The argument was that pensioners are a particularly vulnerable group who will be affected by Covid-19 and, once the virus spreads, this group will have high mortality. Moreover, we have a very efficient and effective system in place to pay such a grant. The economic policy package announced by the president does not have any specific targeted payment to this group. I think the case for this measure is compelling. We have 3.56 million pensioners receiving this grant, they get a monthly payment of R1,860. The total cost of a once-off 13th cheque is therefore R6.5-billion. While I understand the difficulties of our public finances, a once-off payment of this sort would significantly cushion the impact of Covid-19 on poor households, and provide protection for pensioners.

I also argued for policies such as “mortgage holidays” and “car payment holidays”, etc. to provide liquidity to households and individuals. The president announced that commercial banks will temporarily be exempted from the Competition Act to allow them collaboratively to consider measures such as this in regard to their customers. We will have to assess what proposals the banks come up with. As a caution, we should be a little sceptical about what the banks will do that is in their interests, and what is in the interests of consumers.

Barry Eichengreen, the famous historian of the Great Depression, argues that, for the USA, a similar suspension of loan payments would be an appropriate policy response for Covid-19. He argues, however, that the banks should be “forced” by the government to suspend loans rather than decide voluntarily what they would offer.

“Hopefully, we are moving fast in recognising that voluntarism and enlightened capitalism, while desirable, may not be enough.”

To be fair to the South African banks, let us wait and see.

The president announced a number of measures, using the tax system, to support firms that would be facing liquidity problems. So, for example, tax compliant firms with turnover of less than R500-million would be allowed to delay 20% of their PAYE liabilities and a portion of their corporate tax liabilities to SARS. In essence, SARS is acting as a banker to these companies by providing four months of interest-free credit.

There are a number of other initiatives that use the tax system in this manner. This is a really innovative approach from the government and should be very effective. I particularly like the manner in which this mechanism works. PAYE is deducted every month from all salaried individuals by their employers and then paid over to SARS. Thus, companies act as collection agents for SARS by deducting from their employees the monthly taxes owing, and then transfer this to SARS. Government is allowing these companies to delay paying over 20% of what they collect from employees for a period of four months. The instrument is very well designed and the government should be congratulated on this.

In addition, there are funds for industry and tourism made up of R500-million from the Department of Small Business, R3-billion from the Industrial Development Corporation and R200-million from the Department of Tourism. Unfortunately, we don’t really know what the full impact of the shutdown and Covid-19 will be. But, these are not insubstantial pots of funds.

As expected, a range of measures, including the Temporary Employment Relief Scheme was announced to protect against job losses. These measures are all likely to be effective, and we’re lucky to have a surplus in the UIF Fund to apply to support employment. But, will it be enough? We will have to see in the coming weeks.

In his speech, the president ended the economic package by highlighting the fact that the SA Reserve Bank has done its bit by reducing interest rates. Unfortunately, because there is such a controversial, but nevertheless, a meaningless debate about the ownership of the SA Reserve Bank, we don’t, as a society, interrogate its decisions sufficiently. While respecting the independence of the bank, it really should bother us that, for an economy that was under as severe pressure as we were prior to the Covid-19 crisis, our interest rates were as high as they were. And, we should have a serious debate about whether, in the context of Covid-19, a 100-basis points reduction is sufficient. I certainly don’t think so. But, the president has no control over the decisions of the SA Reserve Bank, so its decisions are not really a part of the package that he announced.

In summary then, the economic policy package that the president announced has some very promising elements to it. To be fair to the government, this is but Step 1 of the economic policy measures and, as we learnt today, a lot of work is being done to expand the support package. We should be concerned though about whether enough has been done to protect the poor and the middle classes. Further details will emerge in the coming days.

While it all looks promising, the extent to which Covid-19 is going to impact economically on our firms and households will be severe. Let’s hope for some bold measures in the announcements to come. And, we do need a serious debate of whether our monetary policy is appropriate for a country with such pressing economic problems. But that’s a debate for another day. MC