South Africa

ANALYSIS

Hard lessons of hunger for the governing ANC – and a multi-billion rand funding hole

South African President Cyril Ramaphosa (Photos: Phill Magakoe / Gallo Images via Getty Images | Jeffrey Abrahams / Gallo Images via Getty Images)

Amid talk of a ‘new economy… founded on fairness, empowerment, justice and equality’, President Cyril Ramaphosa on Tuesday evening announced a wide-ranging socio-economic package in which South Africa’s poor and vulnerable emerged as significant beneficiaries. But exactly where the touted R500-billion will come from is not quite certain.

The temporary social grant increases for the next six months are unprecedented. The R445 monthly child care grant immediately almost doubles with the extra R300 due in May, and effectively more than doubles from June to October when an extra R500 is added. Other social grants are bolstered by R250 a month for six months. And a special Covid-19 grant of R350 a month for six months will go to those unemployed, but not yet receiving any grant support.

What is not quite clear are the details.

The qualifying criteria and applications process for the R350 monthly Covid-19 grant would be outlined by Social Development. That’s the department fingered in the now-public acknowledgement by government of its inadequate food parcel distribution.

And as Social Development teams up with the Solidarity Fund to deliver 250,000 food parcels in the next weeks, the South African Social Security Agency (Sassa) is implementing a technology-based system within days to speed up food assistance through vouchers and cash.

Details also are sketchy on the financing of what Ramaphosa called a “massive social relief and economic support package of R500-billion” in phase two in the plan to stabilise the economy.

Politically, that number is important: it amounts to about 10% of gross domestic product – and that puts the South African Covid-19 mitigation measures in the same ballpark as the stimulus packages of the UK and United States. Percentage-wise.

But of the R500-billion Ramaphosa talked about, R370-billion is not necessarily readily available, but must be redirected from the Unemployment Insurance Fund (UIF) or borrowed. Only R130-billion has been secured through rejigging the 2020 Budget in line with what Finance Minister Tito Mboweni indicated on 14 April.

Included in the R500-billion are tax relief benefits of R70-billion to small businesses which may now apply for the deferment of tax with a new increased threshold of R100-million turnover. Rather than new financial support, it’s cash that stays in SMMEs pockets — although that’s also vitally important.

In addition, R200-billion is secured in a loan guarantee scheme between the South African Reserve Bank (SARB), National Treasury and the major commercial banks. Companies with less than R300-million turnover can apply for assistance with operational costs and salaries. It’s estimated this will benefit 700,000 enterprises and some three million workers.

 

Not only has the global airline industry been grounded by the Covid-19 pandemic, in South Africa the hard coronavirus lockdown has blown the 2020 Budget to bits.

 

To make up the R500-billion magic number Ramaphosa announced in his 30-minute address to the nation, some R100-billion must be borrowed.

That will be from the International Monetary Fund (IMF), World Bank and — ideologically more palatable to the governing ANC – the Brics New Development Bank and the African Development Bank.

Ramaphosa called these “global partners and international finance institutions”, confirming all had been approached. In direct reference to the IMF and World Bank, which have established rapid financing mechanisms for Covid-19, the president said:

“Some of these institutions have created financing packages that are aimed at assisting countries that are having to address the coronavirus crisis like us.”

At least R20-billion of such borrowing would be directed to the fight against the Covid-19 pandemic, from community testing to hospital beds and personal protective equipment for health workers.

Another R20-billion will go to municipalities for emergency water supply — already 14,737 of 18,875 water tankers have been delivered by the national water and sanitation department although only 7,689 are fully installed, Parliament’s co-operative governance heard — increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.

Again details of the municipal Covid-19 were sketchy and have been kicked down the road to Mboweni’s adjustment Budget. No date was given, but it’s on record that this will not wait until the traditional announcement in October.

Much of these measures come on the back of what’s now known as the “first phase” of the economic response, including SMME support — if registered and compliant with all regulations and laws — R40-billion the Unemployment Insurance Fund has made available through the special Covid-19 Temporary Employer Employee Relief Scheme.

Politically, Ramaphosa cleared the way for this borrowing at Monday’s ANC extended National Working Committee (NWC) meeting. It’s a win for Ramaphosa, Mboweni and Enoch Godongwana, the ANC economic transformation honcho.

Earlier in April, the Alliance Secretariat of the ANC, Cosatu and South African Communist Party (SACP) said in a statement that approaching the IMF and World Bank was a no-no in the interest of protecting South Africa’s sovereignty.

But those who may feel they had to backtrack ensured that they publicly could claim credit for the social grant increases and support, plus measures for the unemployed and small businesses. In a post-ANC NWC statement, the party’s Secretary-General Ace Magashule said the meeting had supported “providing greater capacity to the UIF… expand and ensure effective food security to indigent households and to widen the social net of current social grant recipients”.

SAA was much more of a pickle, unlikely to have found agreement. Cabinet kicked down the road any concrete decisions on the future of the flailing national airliner, saying the inter-ministerial committee “should meet and further process this work”, according to Tuesday’s official statement on the Cabinet meeting.

 

For Ramaphosa, Tuesday evening’s address to the nation was focused on ensuring his administration is firmly seen to be acting.

 

A subsequent statement from Public Enterprises said a consultative forum with organised labour and non-unionised staff associations had been established with the aim “to ensure a new financially viable and competitive airline emerges from the business rescue process”.

Not only has the global airline industry been grounded by the Covid-19 pandemic, in South Africa the hard coronavirus lockdown has blown the 2020 Budget to bits.

As the SARB estimates, 370,000 jobs have been lost in the formal economy where unemployment has remained stubbornly high – 38.7% on the broad definition that includes those too disheartened to even try looking for a job – others put jobs lost at around one million. The SARB has forecast an economic contraction of 6.1% as the country is firmly in recessionary territory.

Mboweni scraped together just over R261-billion in savings over three years for Budget 2020. And that included politically unpalatable cuts to the public wage bill totalling R160.2-billion by 2023, with R38.7-billion in savings raised in 2020 when the government does not pay the last of the three-year public service salary increases.

That the finance minister and his team at National Treasury have found R130-billion for this economic stimulus package is astounding. The cost of these reallocations will only fully emerge when Mboweni makes that revised budgetary statement to the nation – at a date yet to be determined.

For Ramaphosa, Tuesday evening’s address to the nation was focused on ensuring his administration is firmly seen to be acting.

And he stood by his choice of a hard lockdown as “absolutely necessary”.

“While the nationwide lockdown is having a devastating effect on our economy, it is nothing compared to the catastrophic human, social and economic cost if the coronavirus could spread among our people unchecked.”

The DA and IFP have welcomed the socio-economic package — as has labour federation Cosatu:

At a time where we are struggling because of shrinking resources, this drastic effort by the government is welcomed and laudable”.

DA interim leader John Steenhuisen said the package would bring much-needed relief.

“Many of the measures announced tonight echo those the DA has been calling for to safeguard not only the lives but also the livelihoods of millions of South Africans hit hard by the lockdown to contain the spread of Covid-19. The president has our support in rolling out these interventions.”

IFP national spokesperson Mkhuleko Hlengwa said he hoped the socio-economic challenges would be overcome collectively.

“We are cautiously optimistic the additional funding and relief measures will indeed reach the individuals this relief package was intended for. We, therefore, urge Parliament to ramp up its oversight capabilities…”

The EFF said in a statement posted on Twitter that while it welcomed the “core of the measures” it would await the details. But it remained opposed to the IMF and World Bank because their “loans come with restrictive conditionalities which will deprive South Africa of its fiscal and monetary policy sovereignty in the future”. 

The EFF said it was opposed to any lifting of the lockdown and “reopening of the economy that will place our people in danger”.

Tuesday’s address to the nation was Ramaphosa’s fifth in just over five weeks amid the unfolding Covid-19 public health emergency. On Thursday, it’ll be number six – this time to address South Africa on the incremental easing of the lockdown regulations on a basis of risk analysis to “reopen the economy”.

The politician and president, who is known to like controlling the optics, pushed the social compacting he’s hooked his presidency on since stepping into the Union Buildings in February 2018.

“Our new economy must be founded on fairness, empowerment, justice and equality. It must use every resource, every capability and every innovation we have in the service of the people of this country,” said Ramaphosa. DM

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