Economic & Industrial

South Africa resolved to forge new post-virus economy

South Africa resolved to forge new post-virus economy
Mining News Pro - Going forward from the current devastating coronavirus pandemic, South Africa will forge a radical economic transformation that will make its cities, towns, villages and rural areas vibrant centres of economic activity, President Cyril Ramaphosa stated in a far-reaching and inspiring televised address last night.

South Africa, he said, was resolved to forge a new economy in a new global reality and not merely return the economy to where it was before Covid-19 struck.

The economic strategy going forward would require a new social compact among business, labour, community and government, to restructure the economy and achieve inclusive growth.

Building on the cooperation being forged among all social partners, the structural reforms required to reduce the cost of doing business would be accelerated, to promote localisation and industrialisation, to overhaul State-owned enterprises and to strengthen the informal sector.

“We’ll forge a compact for radical economic transformation,” the President stated.

It was imperative that this new economy be founded on fairness, empowerment, justice and equality and make use of every resource, every capability and every innovation in the service of the South African people.

It was imperative that the new economy opened up new horizons and offered new opportunities.

“Over the past month, South Africans have opened their hearts to each other. Even at this moment when such great sacrifice is demanded of us, we look to a better future with optimism.

“Even as we find ourselves at a moment of great peril, even as great sacrifices are demanded, even as we dare not allow our vigilance to waver, we look ahead to a better future.

“I have faith in the strength and resilience of ordinary South Africans, who have proven time and time again – throughout our history – that they can rise to the challenge.

“We shall recover. We shall overcome. We shall prosper,” the President stated in the broadcast, which focused on the economic and social responses to the global Covid-19 health emergency.

The pandemic, the President said, required an economic response that was equal to the scale of the disruption it was causing, and could be divided into three phases.

The first phase began in mid-March when South Africa declared the coronavirus pandemic as a national disaster and introduced tax relief, released disaster relief funds and facilitated emergency procurement, wage support through the Unemployment Insurance Fund (UIF) and funding to small businesses.

The second phase now being embarked upon was to stabilise the economy, address the extreme decline in supply and demand, and protect jobs.

As part of this phase, a social relief and economic support package of R500-billion, amounting to 10% of gross domestic product, was being introduced

The third phase was implementation of an economic strategy to drive the recovery of the economy as the country emerged from Covid-19.

Central to this economic recovery strategy were the measures South Africa would embark upon to stimulate demand and supply through interventions such as:

    a substantial infrastructure build programme;
    the speedy implementation of economic reforms;
    the transformation of the South African economy; and
    embarking on all other steps that would ignite inclusive economic growth.

Consultation had taken place with business, labour, the National Economic Development and Labour Council, Premiers, Members of Executive Committees, Metropolitan Mayors and members of the Presidential Economic Advisory Council.

Following these meetings, Cabinet had finalised the social relief and economic support package that now stood at the centre of the second phase of South Africa’s economic response to the pandemic through:

    an extraordinary health budget to respond to coronavirus;
    the relief of hunger and social distress;
    support for companies and workers; and
    the phased reopening of the economy.

The coronavirus impact required an extraordinary coronavirus budget of around R500-billion to direct resources towards fighting the pandemic.

This would include the reprioritisation of R130-billion within the current budget.

The rest of the funds would be raised from local sources, such as the UIF, and from global partners and international finance institutions.

To date, the World Bank, International Monetary Fund, Brics New Development Bank and the African Development Bank were working with the National Treasury on various funding transactions. In the first instance, R20-billion would be directed to addressing the pandemic.

If South Africa was to manage the anticipated surge in cases and ensure that everyone who needed treatment received it, the country would have to provide for additional expenditure on personal protective equipment (PPE) for health workers, community screening, an increase in testing capacity, additional beds in field hospitals, ventilators, medicine and staffing.

The response to the nationwide lockdown’s negative impact on the revenue of municipalities would be additional funding of R20-billion being made available to municipalities for the provision of emergency water supply, sanitisation of public transport and facilities, and food and shelter for the homeless. Details would be announced in the adjustment budget tabled by Finance Minister Tito Mboweni.

Another significant area that required massive additional expenditure was for the relief of hunger and social distress in communities across the country.

While measures put in place to protect the wages of workers in the formal economy had been extended support to small, medium-sized and microenterprises (SMMEs), millions of South Africans in the informal economy and those without employment were struggling to survive. Poverty and food insecurity had deepened dramatically in the course of just a few weeks.

To reach the most vulnerable families in the country, a temporary six-month coronavirus grant had been introduced and R50-billion would be directed towards relieving the plight of those who were most desperately affected by the coronavirus. This meant that child support grant beneficiaries would receive an extra R300 in May and an additional R500 each month from June to October. All other grant beneficiaries would receive an extra R250 a month for the next six months.

In addition, a special Covid-19 Social Relief of Distress grant of R350 a month for the next six months would be paid to individuals who were currently unemployed and who did not receive any other form of social grant or UIF payment.

The Department of Social Development would issue the requirements needed to access and apply for this funding.

As food distribution capacity of government was not adequate to meet the huge need that had arisen since the start of the epidemic, the South African Social Security Agency would  within days implement technology-based food assistance at scale through vouchers and cash transfers. In addition, to fill the immediate need, the Department of Social Development had partnered with the Solidarity Fund, nongovernmental organisations and community organisations to distribute 250 000 food parcels across the country over the next two weeks.

“We’re deeply disturbed by reports of unscrupulous people abusing the distribution of food and other assistance for corrupt ends and we’ll not hesitate to ensure that those involved in such activities face the full might of the law,” President Ramaphosa stated.

While there were several interventions that already existed within government to deal with the extremely high unemployment, such as the Expanded Public Works Programme and the community works programme, these were not enough and an additional R100-billion would be set aside for job protection and job creation.

Since last month’s declaration of a state of national disaster, government had put in place a range of measures to support workers’ wages and to assist companies in distress.

By yesterday, the UIF’s special Covid-19 benefit had paid out R1.6-billion, assisting over 37 000 companies and 600 000 workers, and R40-billion had been set aside for income support payments for workers whose employers were not able to pay their wages.

Government was continuing to provide loans, grants and debt restructuring  to SMMEs, spaza shop owners and other informal businesses, which had to date exceeded R100-million. An additional amount of R2-billion would be made available to assist SMMEs and spaza shop owners and other small businesses.

The facility of the Industrial Development Corporation to help companies to procure or manufacture PPE had been utilised in the past few weeks, with finance of R162-million approved to date.

Other forms of support had been extended to artists, athletes, technical personnel, waste pickers and public works participants in the environment sector.

While these measures were providing obvious relief to many companies and workers, far more was needed across the entire economy and government would thus be introducing a R200-billion loan guarantee scheme in partnership with the major banks, the National Treasury and the South African Reserve Bank. This would assist enterprises with salaries, rent and the payment of suppliers. In the initial phase, companies with turnovers of less than R300-million a year would be eligible. This scheme was expected to support more than 700 000 firms and more than three-million employees. A number of the banks were ready to roll out the product before the end of the month.

Government was also working on additional support measures for vulnerable and affected sectors like the taxi industry.

In addition to existing tax relief measures, a four-month holiday for companies’ skills development levy contributions, fast-tracking value added tax refunds, and a three-month delay for filing and first payment of carbon tax would be introduced.

To assist a greater number of businesses, the previous turnover threshold for tax deferrals was being increased to R100-million a year, and pay-as-you-earn payment deferment would be increased to 35%. Businesses with turnovers of more than R100-million a year could apply directly to South African Revenue Services on a case-by-case basis for deferrals of their tax payments. No penalties for late payments would be applicable if they could show they had been materially negatively impacted in this period.

Taxpayers who donate to the Solidarity Fund for Covid-19 relief would be eligible to claim up to an additional 10% as a deduction from their taxable incomes.

In total, these tax measures should provide at least R70-billion in cash flow relief or direct payments to businesses and individuals. Further details on this and other tax-related announcements would be provided by the Finance Minister.

In the implementation of all these measures, women, youth and persons with disabilities would receive particular attention and support.

The 200-basis-point cut in the repo rate by the South African Reserve Bank had made an important contribution by unlocking R80-billion in the real economy.

Several commercial banks and insurance companies had delayed or were reducing installment payments, providing debt relief and waiving bank fees for grant beneficiaries.

The fourth area of Cabinet resolution was the phased re-opening of the economy in a way that balanced the continued need to limit the spread of the coronavirus with the need to get people back to work.

The President reiterated that if the lockdown was ended too soon or too abruptly, South Africa risked a massive and uncontrollable resurgence of the disease.

“We’ll therefore follow a phased approach, guided by the best available scientific evidence, to lift gradually the restrictions on economic activity. As we do so, we remain firm in our resolve to contain the transmission of the virus,” he said.

The country would thus need to act with agility and flexibility in the weeks and months ahead, and respond to the situation as it developed.

Another address to the nation would take place on Thursday to outline the measures that would be taken beyond the nationwide lockdown to re-open the economy.

“This 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,” he said.

The scale of this historic emergency relief programme demonstrated that South Africa would not spare any effort, or any expense, in its determination to support the South African people and protect them from harm.

“We will – and we must – do whatever it takes to recover from this human, social and economic crisis,” President Ramaphosa stated in his impressive national address.

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