What the President should, and should not say tonight
21 April 2020
President Cyril Ramaphosa should use his address this evening to announce an economic response package that responds to the growing incidence of real hunger and food shortages in South Africa, and to the restive impatience with ‘hard’ lockdown that many South Africans are starting to feel.
This is not a time for the President to shy away from bold decisions and big spending commitments.
What the President should say:
1) The Democratic Alliance (DA) has proposed direct cash support of R1000 per social grant recipient (across all grant types) for the next three months. This would cost R50 billion, and it would be the most significant support the President can and should announce. It would immediately alleviate the now widespread hunger being suffered by many.
This intervention would ultimately cost far less than the initial price tag, with much of it coming back into the fiscus as tax revenue, due to the multiplier effect, as long as government re-opens the economy soon.
2) The DA has proposed a R50 billion loan programme to small businesses. This support should take the form of a low-interest loan for any business, repayment of which will only commence in 12 months. There should be no restrictions on what kind of business will be considered for this loan (no BEE requirements, size or turnover requirements), other than the administrators of the fund must consider the business to be commercially viable and capable of repaying the loan.
3) The DA has proposed large additional budget allocations to funding the health response to Covid-19, including paying for a massive expansion of the testing, tracking and tracing programme. This should cost R10 billion, less than the cost of one day of ‘hard’ lockdown. This should also include extra budget allocation for healthcare workers’ overtime pay, face masks, ventilators, and hospital space expansion. Importantly, it would cost just R600 million to provide 3 free face masks to every South African who needs one. This is a small cost for the huge benefit of slowing down infections, and such a programme should definitely be announced.
4) Finally, the President should announce that government will seek financial assistance from international lenders like the International Monetary Fund, the World Bank, and the New Development Bank. Especially where this funding is offered unconditionally, and with very low interest rates, it would be unforgivable not to make use of these offers. Indeed, South Africa is already late in applying to these funds for assistance, and should do so without delay. This is necessary, because the government simply does not have the money to fund these necessary interventions.
What the President should not say:
The DA cautions the President against any attempt to use Public Investment Corporation (PIC) funds to finance any economic bailout.
Raiding the PIC, as proposed by COSATU, to further delay application for funding from International Finance Institutions (IFIs) will not only be irresponsible but will also be illegal in terms of the PIC Act and its associated investment strategy. Any such attempt will be resisted strongly by the DA and all organisations concerned with the preservation of the pension funds of civil servants.
The PIC has been hard hit by market losses in recent months. To force the PIC to sell out of those positions now would cement those losses and leave the state with a huge future liability.
Any economic bailout should be financed through budget reprioritisation and external funding from IFIs.
A comprehensive economic stimulus is not a matter that can be delayed. The country faces full blown economic depression, not just recession, with devastating human consequences. We are already beginning to see the first signs of what these consequences will be, with South Africans beginning to go hungry.
Issued by Geordin Hill-Lewis, DA Shadow Minister of Finance, 21 April 2020
