The quarantined South African economy and recovery plans

South African Finance Minister Tito Mboweni

A closer look at the economic matter, from a South African context, the economy has faced challenges even before the outbreak of Covid-19. In response to the Covid-19 devastation, on the 21st April 2020, President Cyril Ramaphosa announced an R500bn economic stimulus package.

This will involve an extraordinary health budget to respond to the coronavirus, the relief of hunger and social distress, support of companies and workers and the phased reopening of the economy. In his national address, the President indicated that the government observed that the lockdown is the most effective measure against the rapid spread of the virus.
There was, however, an acknowledgement of the economic implications of a prolonged lockdown which may result in severe rates of poverty and unemployment. Consequently, a large part of the population has to survive on social grants and ultimately there may be fewer taxpayers. Statistics South Africa (StatsSA) put the country’s unemployment rate at 29.1% in the fourth quarter of 2019.

Part of the economic package aims to roll out an extensive set of tax relief and support for workers. The government faces the twin challenge of balancing the need to support the poor and vulnerable without harming the middle class.

Economic outlook

Three major rating agencies in Fitch, Standard and Poor’s and Moody’s, downgraded South Africa’s sovereign credit rating to junk status, due to high debt levels among others. This, together with other political and economic (exchange rates + poor growth) factors have driven the cost of borrowing in South Africa to increase faster than other emerging markets.

Currently, the country has close to R3 trillion in public debt, amounting to about 60% of the Gross Domestic Product (GDP), which could reportedly rise to 73% in 2020/21.

There are some suggestions, especially on social media that the South African Reserve Bank (SARB) print more money or quantitative easing, instead of getting loans from the International Monetary Fund (IMF) and similar institutions. 

On the issue of having currency oversupply, one might just have to look at what happened to our neighbours across the Limpopo River in Zimbabwe, in terms of their currency and inflation. At some point around 2015, the notable 100-trillion-Zim-dollar note was worth just 40 US cents.

Sourcing the funding

The spotlight is now squarely on the minister of finance, Tito Mboweni, who on the 24th of April, addressed the nation through a media briefing on measures to calibrate the economy. Perhaps, let us take a closer look at Mboweni, his character and background in relation to navigating the funding of the Covid-19 socio-economic response package.

Mboweni obtained a Bachelor of Arts (honours equivalent) degree in Economics and Political Science from the National University of Lesotho, further obtaining a Master of Arts degree in Development Economics from the University of East Anglia in England. He is also a former Governor of the SARB from 1999-2009. The observation is that Mboweni is firm and follows prescripts to the letter when executing his duties. Perhaps the above makes him a perfect fit for the finance minister position, this in the midst of the current economic conundrum brought about the global health crisis.  

On the flip-side, Mboweni is often criticized in some quarters for being arrogant and inflexible with inclination to neo-liberal thinking characterised by privatisation and movement from state wealth. His unpopular and somewhat controversial tweets have seen him receive backlash from the public, but that does not seem to change his views and personality.

As the National Treasury navigates bringing the economy out of quarantine, the governor of the SARB, Lesetja Kganyago is surely Mboweni’s complimentary ally in that regard. More so because Kganyago, a governor of the central bank since 2014, is a former senior bureaucrat at the national treasury with wide-range experience in macroeconomic policy formulation, financial sector policy, public sector, international finance, public debt management and financial markets.

The central bank governor is also chairman of the International Monetary and Financial Committee (IMFC), the policy advisory committee of the Board of Governors of the International Monetary Fund (IMF), for a term of three years, effective January 18, 2018. The Minister mentioned that SA is entitled to about R80bn loan from IMF to deal with the crisis. Some social commentators suggest that such huge further loans would be a generational debt trap.

Interestingly, on the IMF matter, Mboweni is enjoying the support of the Congress of South African Trade Unions (COSATU), who just last year lamented the resurfacing of the ‘1996 Class project’, a reference to President Thabo Mbeki’s administration. 

Where to from here?

Mboweni confirmed that the country through Dondo Mogajane, Director-General of the National Treasury, has been in talks with the IMF, World Bank and the New Development Bank, looking at loan facility options to deal with the coronavirus impact. The finance minister indicated that the revised budget bill will be tabled soon. Albert Einstein, one of the 10 best physicists ever according to The Guardian said, “In the midst of every crisis lies a great opportunity.” South African professionals, business owners and civil society at large should seize this opportunity to press ahead with economic structural reforms. Rebuilding the economy will require skills, creativity, innovation, and hard work.

The finance minister’s confirmation that the SARB will invest an additional R300bn into the economy to top up the R500bn announcement by the President, is perhaps the clearest indication that the economy will be calibrated through a combination of loan facilities and quantitative easing. 

The President remarked that he never needs to authorise a Commission of Enquiry to investigate corruption around the R500bn, indeed hope is that this never becomes a reality. Social relief is welcome and the country really needs the economic recovery plans to become a reality.

On the matter of “businesses hoping to open and thrive post the coronavirus lockdown should consider amending their labour market policies to favour unemployed South Africans” as alluded to by the Minister, hope is that foreign nationals do not view this as the ‘xenophobia’ season.

A caller, who was clearly a foreign national, asked SABC Morning Live on the country’s Freedom Day why did the Finance Minister singled out foreign nationals, as we are currently dealing with a global crisis! Honourable Minister, in light of Shoprite and Pick n Pay’s announcement that they will be opening spaza shops in townships, Twittermantarians are already up in arms on this coming disruption and they might think you do not have their best interests at heart. Some are also labelling the move by the two retail giants as corporate greed, as it will kill the remaining small businesses in those townships.  

As it is, calibration of the economy is going to be a mammoth task, it would, therefore, be important to ensure that all the envisaged interventions do not give rise to new social challenges.

The negative impact on the global economy as a result of this pandemic could prove to be more severe than the 2008 global financial crises and even the great depression. With the West Texas Intermediate (WTI) crude oil hitting record-breaking lows and even negative values, the USA history suggests that there had been more millionaires made in the period of the revelation of the great depression than any other time in the history of the country.

*Ledwaba is a Marketing Consultant, Business Developer and an SMME Skills Development Facilitator.
*Maubane is a public relations strategist and social commentator, with business management training.