President Cyril Ramaphosa has ordered a 21-day lockdown with severe restrictions on travel and movement – beginning midnight on Thursday – to combat the spread of the Covid-19 coronavirus in the country.
As a result, the economy is likely to contract more than 2% this year as result of the restrictions, with services industries set to take “a big, big hit,” said Citibank South Africa economist Gina Schoeman.
“Shutdowns like this just mean that some things will never be able to return to how they were,” she said. “Base effects will help in the second half of the year, but this assumes we will go back to normal after three weeks.”
In South Africa, the number of confirmed cases has increased dramatically in just eight days from 61 cases to 402 cases, the president said, while health Minister Zweli Mkhize previously warned that as much as 70% of the population could contract the illness over time.
“This number will continue to rise,” Ramaphosa warned. “Without decisive action, the number of people infected will rapidly increase from a few hundred to tens of thousands, and within a few weeks to hundreds of thousands.”
Under the lockdown measures, South Africans will have to stay at home for a period of three weeks, ending 16 April. People will only be able to leave their homes to buy food, visit the pharmacy, or seek medical care; or to collect a social grant.
Those exempted will include health workers in public and private health sectors; emergency personnel; security services such as police and soldiers; those involved in the production and supply of food and basic goods; and those working in essential services.
All businesses will close with only medical facilities pharmacies, laboratories, petrol stations and food stores will remain open.
Essential transport services will also continue, under the new measures.
The rand meanwhile, remains on the back foot, noted Bianca Botes, treasury partner at Peregrine Treasury Solutions.
“South Africa will be entering a 21-day national lockdown from midnight on Thursday, and the prospects for an already struggling local economy are now even more bleak, as all businesses except for essential services and goods are to be halted. The JSE and other essential banking services are among the few that will remain open,” said Botes.
“The local currency didn’t respond to the announcement. However, we may see some movement on the back of the news today,” she said.
Annabel Bishop, chief economist at Investec said that the rand risks further weakness into the second quarter, as the global economy sees heightened risk of recession.
“The coronavirus outbreak represents a major external shock to the macro outlook, akin to a large-scale natural disaster,” analysts at BlackRock Investment Institute said in a note, as reported by Reuters.
“The risk is that the rand sees further marked weakness in the second quarter of this year, if not before, approaching R18.50/USD, and running toward R19.00/USD,” said Bishop.
“Global markets worry that a global recession is likely. The rand is still likely to be volatile, with risks to the downside until the Covid-19 pandemic peaks globally, with shutdowns to economic activity underpinning risk-off, and so the threat of a further deterioration in the exchange rate.
“The global recession may well prove more severe than that of the global financial crisis, which is also worrying market players,” the economist warned.
The rand is already 11% weaker against the dollar in March alone, and traded at the following levels against the major currencies:
- Dollar/Rand: R17.66 (-1.20%)
- Pound/Rand: R20.51 (-0.37%)
- Euro/Rand: R19.04 (-0.47%)
And as South Africa continues to deal with the coronavirus pandemic it also faces the threat of a credit downgrade from ratings agency Moody’s. It has a calendar date for South Africa’s sovereign rating on Friday (27 March), but are not obliged to provide a credit rating verdict.
South Africa moved into a technical recession in the fourth quarter of last year.
Ramaphosa said the government will put measures in place to assist local businesses which will be negatively affected by the restrictions implemented during the lockdown.
The measures include a four-month tax subsidy for low-income workers, and the establishment of a solidarity fund that will enable businesses, organisations and individuals to contribute to efforts to combat the spread of the virus, care for the ill and support those whose lives are disrupted.
Two of South Africa’s richest families – the Oppenheimers and the Ruperts – each pledged R1 billion to help support small businesses.
Commercial banks have been exempted from provisions of the Competition Act to enable them to develop common approaches to debt relief and other necessary measures, the president said.
200 million will also be made available to small and medium businesses in the tourism sector who have been hit hard by travel restrictions, said the president.
National Disaster Benefit fund
South Africa is considering establishing a ‘National Disaster Benefit’ fund that would pay workers compensation when they are laid off because of the effect of the coronavirus outbreak on businesses, Bloomberg reported.
About R30 billion could be made available, from the Unemployment Insurance Fund, according to Matthew Parks, parliamentary coordinator at the Congress of South African Trade Unions, which represents 1.8 million workers.
It “will be announced by Thursday formally,” said Parks. It will tackle job losses related to the outbreak, will support job retention, illness payouts and reduced time claims, he said.
The fund would pay out workers at a minimum rate of R3,500 a month, which is the national minimum wage, according to a proposal seen by Bloomberg and confirmed by Cosatu, which is taking part in the talks. Employers who want to lay off workers will need to apply to the UIF.