South Africa’s President Cyril Ramaphosa announced a R500 billion stimulus package to deal with the economic impact of COVID-19.
The country embarked on an economic response that can be divided into three phases.
The first phase began in mid-March when it declared the coronavirus pandemic a national disaster. This included a broad range of measures to mitigate the worst effects of the pandemic on businesses, on communities and on individuals. The measures included tax relief, the release of disaster relief funds, emergency procurement, wage support through the UIF and funding to small businesses.
“We are now embarking on the second phase of our economic response to stabilise the economy, address the extreme decline in supply and demand and protect jobs,” Ramaphosa said on Thursday night.
“As part of this phase, we are announcing this evening a massive social relief and economic support package of R500 billion, which amounts to around 10% of GDP.”
The third phase is the economic strategy we will implement to drive the recovery of our economy as the country emerges from this pandemic.
The impact of the coronavirus requires an extraordinary coronavirus budget – of around R500 billion – to direct resources towards fighting the pandemic, said Ramaphosa.
He said this would include reprioritisation of around R130 billion within the current budget.
“The rest of the funds will be raised from both local sources, such as the Unemployment Insurance Fund, and from global partners and international finance institutions.”
The country’s national treasury is working with the World Bank, International Monetary Fund, BRICS New Development Bank and the African Development Bank on various funding transactions.
“The funding will be used, in the first instance, to fund the health response to coronavirus, explains Ramaphosa.
An amount of R20 billion will be directed at addressing the government’s efforts to address the pandemic.
The nation-wide lockdown has had a negative impact on the revenue of municipalities at a time when the demands on them are increasing.
Support the vulnerable
Ramaphosa said additional funding of R20 billion would be made available to municipalities for the provision of emergency water supply, increased sanitisation of public transport and facilities, and providing food and shelter for the homeless.
Poverty and food insecurity have deepened dramatically in the course of just a few weeks.
“To reach the most vulnerable families in the country, we have decided on a temporary 6-month Coronavirus grant,” said Ramaphosa.
The state will direct R50 billion towards relieving the plight of those most desperately affected by the coronavirus.
“This means that child support grant beneficiaries will receive an extra R300 in May and from June to October they will receive an additional R500 each month.”
All other grant beneficiaries will receive an extra R250 per month for the next six months.
In addition, a special COVID-19 Social Relief of Distress grant of R350 a month for the next 6 months will be paid to individuals who are currently unemployed and do not receive any other form of a social grant or UIF payment.
The Department of Social Development will issue the requirements needed to access and apply for this funding.
The coronavirus crisis will lead to many people losing their jobs.
An additional R100 billion will be set aside for the protection of jobs and create jobs, said Ramaphosa.
Since the declaration of a state of national disaster over a month ago, the government has put in place a range of measures to support workers’ wages and assist companies in distress.
The country has also set aside R40 billion in income support payments for workers whose employers are unable to pay their wages.
“We continue to provide assistance – in the form of loans, grants and debt restructuring – to SMMEs, spaza shop owners and other informal businesses,” he said.
The value of this assistance to date is over R100 million.
An additional amount of R2 billion will be made available to assist SMEs, spaza shop owners and other small businesses.
The IDC facility to support companies to procure or manufacture personal protective equipment has been utilised in the past few weeks, with the finance of R162 million approved to date.
R200 billion business package
While these measures provide obvious relief to many companies and workers, it is clear that there is a far greater need across the entire economy.
“We will therefore be introducing a R200 billion loan guarantee scheme in partnership with the major banks, the National Treasury and the South African Reserve Bank,” added Ramaphosa. “This will assist enterprises with operational costs, such as salaries, rent and the payment of suppliers.”
In the initial phase, companies with a turnover of less than R300 million a year will be eligible.
It is expected the scheme will support more than 700,000 firms and more than 3 million employees through this difficult period.
Forge a new economy in a new global reality
The President said the crisis will not last forever, and the day will come when these measures are no longer needed.
“Until then, however, we must ensure that all of our people receive adequate support. The scale of this emergency relief programme is historic.”
The President added that a phased approach would be taken to reopen the economy.
“We will – and we must – do whatever it takes to recover from this human, social and economic crisis. Our country and the world we live in will never be the same. We are resolved not merely to return our economy to where it was before the coronavirus, but to forge a new economy in a new global reality,” he said.
“Our economic strategy going forward will require a new social compact among all role players – business, labour, community and government – to restructure the economy and achieve inclusive growth.”
“Building on the cooperation that is being forged among all social partners during this crisis, we will accelerate the structural reforms required to reduce the cost of doing business, to promote localisation and industrialisation, to overhaul state-owned enterprises and to strengthen the informal sector.”
He said the country’s 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. Our new economy must open new horizons and offer new opportunities.”