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South Africa’s $13 Billion Virus Stimulus Is Way Shor...

Newsdeck

Newsdeck

South Africa’s $13 Billion Virus Stimulus Is Way Short of Target

A medical worker wearing personal protective equipment (PPE) speaks with a patient at a walk-in and drive-thru coronavirus testing facility in Pretoria, South Africa, on Thursday, Jan. 7, 2020. The resurgence of South Africa’s coronavirus outbreak coincided with a record number of excess deaths in the third week of December, suggesting a far higher death toll from Covid-19 than reflected in the latest health ministry data.
By Bloomberg
03 Feb 2021 1

(Bloomberg) --A 200 billion rand ($13 billion) loan program, one of the linchpins of President Cyril Ramaphosa’s plans to shore up a South African economy devastated by the coronavirus pandemic, may not even reach 10% of its target.

By Roxanne Henderson
Feb 3, 2021, 1:33 PM
Word Count: 494

Banks have distributed 17.8 billion rand since the initiative started in May through to Jan. 16, the Banking Association of South Africa said in a statement on Wednesday. At the current rate, only 18.9 billion rand will be allocated under the plan, it said.

Ramaphosa’s administration last year unveiled a 500 billion-rand support package by reprioritizing spending from existing budgets, setting aside 100 billion rand to protect and create jobs, and 50 billion rand for welfare. Banks were roped in to distribute loans guaranteed by the government to help small- to medium-sized businesses navigate through the crisis, starting with 100 billion rand of disbursements before doubling up.

“Demand for the scheme remains significantly below the original expectations,” the banking association, which includes lenders such as Standard Bank Group Ltd. and Nedbank Group Ltd., said. “Participating banks expect applications for the scheme to slow-down further in the coming months.”

By the time the program was ready to be rolled out, businesses were already reeling from one of the world’s strictest lockdowns, instituted in March, and had made arrangements with their lenders.

South Africa is among a few outliers where bankruptcies increased in 2020

With the country going through different levels of restrictions since then to contain the Covid-19 outbreak — from a ban on alcohol sales to curfews and keeping people off beaches — many companies and consumers are still struggling to cope. Company liquidations last year soared to the highest level since 2012, according to government data.

Debt Shy
“Business owners remain reluctant to incur more debt, due to the challenges presented by inconsistent policy and regulation, uncertain business conditions and a weak economic outlook,” the association said. The slow pace of economic reform, unreliable electricity supply, lack of inclusive growth, and weak consumer and business confidence is hindering the need for credit.

Many companies also fail to qualify under the initiative’s criteria, even after some of the rules were relaxed to drive demand. The nation’s largest cinema chain last month filed for business rescue, a form of bankruptcy protection. Playtex, a 60-year-old underwear maker, went into liquidation last month, costing more than 700 jobs, according to Johannesburg-based news website IOL.

As of January, banks had received 48,366 loan applications of which 27% were approved and taken up, 46% were rejected, and 5% are still being assessed. By Nov. 21, banks had approved 17.49 billion rand in loans and 47,159 applications.

“The Covid-19 Loan Guarantee Scheme on its own cannot address all of the financial and business challenges facing small enterprises, many of which pre-date the pandemic,” the banking body said. “Government will have to implement other business and financial support programs.”

© 2021 Bloomberg L.P.

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  • An application to FNB was rejected as we had apparently not ‘suffered enough’ as a result of the Covid lockdown. We were however offered a bank loan at favourable rates. It is obviously not in the banks interest to offer low interest government backed loans to clients from whom they can profit. Fox/ henhouse scenario

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