Ramaphosa considers R1-trillion Covid-19 stimulus proposal for SA’s frail economy 

President Cyril Ramaphosa is considering a R1-trillion stimulus proposal that will be at the centre of the government’s economic intervention to limit the catastrophic fallout of an extended Covid-19 lockdown on SA’s economy, which is expected to plunge into a deep recession during 2020. 

The proposed R1-trillion stimulus package, which is nearly the equivalent of SA’s spending budget for fiscal year 2020/21 of R1.95-trillion, was discussed at a Nedlac meeting chaired by Ramaphosa on 17 April 2020 and attended by business, labour and community representatives. 

The proposed package is expected to be similar to the enormous $2-trillion scheme recently approved in the US, as SA’s government might target sectors hardest-hit by the lockdown by offering assistance to financially distressed companies. The assistance might come in the form of loans offered by commercial banks with favourable interest rates and other terms or loan guarantees offered by the National Treasury.  

Targeted sectors under the stimulus package include certain aspects of manufacturing, retail, hospitality and tourism, which are expected to record many job losses because they are not essential service providers, resulting in their operations being shut during the lockdown. 

This is according to Matthew Parks, the parliamentary coordinator for labour federation Cosatu, who attended the Nedlac meeting and said the stimulus package proposal was unanimously endorsed by labour and business. 

“The president [Ramaphosa] has been calling for a massive R1-trillion stimulus fund, which we agree with completely because the economy is already in a recession and unemployment numbers will rise,” Parks told Business Maverick this weekend. 

The stimulus package will target specific sectors during the period of the lockdown and will help boost and rebuild the economy after the lockdown is lifted by the government. 

The proposed stimulus package is expected to be presented at a Cabinet meeting on 20 April – comprising all five clusters of the Cabinet – that will discuss economic and fiscal interventions to the Covid-19 crisis. A special Cabinet meeting on 15 April was expected to come up with an urgent economic recovery plan, but was concluded with no decisions being made. 

Slow economic response 

Ramaphosa’s administration has been highly praised for the speed with which it has moved to address the Covid-19 crisis. But the administration faces growing criticism for the lack of decisive action to deal with the economic impact of Covid-19 and the resultant lockdown. 

As Business Unity South Africa president Sipho Pityana, who attended the Nedlac meeting, put it: “We have an impressive, well-thought-out and well-articulated response to the health crisis. We don’t have a similarly thought-out response to the economic crisis. One wishes that what we see in terms of the health response can quickly manifest in the economic response. Unless we have a credible economic plan, this whole crisis will get deeper and deeper.” 

He expects the lockdown to lead to job losses of between 1-million and 3-million in 2020, an economic contraction and fiscal deficit of up to 10%. 

Funding the stimulus package 

To fund the R1-trillion stimulus package, the Nedlac meeting discussed, among other things, mobilising reserve funds from the government’s entire balance sheet; using surpluses or funds of the Unemployment Insurance Fund (UIF) and Government Employees Pension Fund (GEPF), which are managed by the Public Investment Corporation. The UIF has investments that are worth R139-billion – funds that are more than 70% invested in government bonds and those issued by state-owned enterprises such as Eskom and Denel. At last count, the GEPF had pension savings worth R1.8-trillion. 

The private sector is also expected to come on board to build muscle into the stimulus package. There is an expectation that the private sector will set aside more money to offer loans or financial assistance to distressed businesses – through similar schemes recently launched by SA’s prominent families, the Ruperts and Oppenheimers, which made R1-billion each available to assist small and medium businesses. (Mary Oppenheimer also donated R1-billion to the Solidarity fund - Ed)

Investment banker Martin Kingston said the business community, along with organisations such as the Banking Association of SA and the Association for Savings and Investment South Africa, are having discussions with the National Treasury and SA Reserve Bank about “the extent to which reserves are available in the country”. 

Kingston, who is part of B4SA (an organisation that supports the government’s Covid-19 combating initiatives), also attended the Nedlac meeting. The National Treasury is expected to draw up a budget for the reallocation of public funds to social assistance, health and economic programmes because figures in the February 2020 budget are outdated. 

Funds from SA’s private sector savings (including pension), and investments, which are estimated to be worth about R8-trillion, are also expected to be mobilised for the stimulus package. The mechanics of this aren’t yet known. 

Pityana and Parks said the government might opt for directly using private sector savings and investments, or indirectly, by imploring asset managers to allocate funds to impact investments, which aim not only to generate a financial return for the investors, but also to have a positive social and environmental effect. 

Kingston said the potential use of private sector savings and investments should be done in a way that doesn’t “compromise the mandate of financial institutions and responsibilities of trustees that manage funds and don’t reduce risk-adjusted returns [for savers/investors]”.

Pityana supported Kingston’s views about the need for a cautious approach to using public and private sector savings. 

“We need to be raiding resources wherever we can find them. 

“But the funds must be supplied to an economic strategy that would make the economy sustainable. Otherwise, we would be throwing good money after bad. If we are not clear about a direct economic growth path, then we will not put money in prospects that will see growth and ensure that economic interventions are sustainable,” he said. BM