More South African businesses can now open – but it’s not that simple

On Wednesday (17 June), President Cyril Ramaphosa announced a move to an ‘advanced level 3 lockdown’, allowing more businesses to open.

With the caveat that the required safety protocols are in place, the following activities will soon be allowed:

Restaurants for ‘sit-down’ meals, of course with limited capacity in order to ensure social distancing.

  • Accredited and licensed accommodation, with the exception of home-sharing accommodation like Airbnb;
  • Conferences and meetings for business purposes, with a limit of 50 people at a time;
  • Cinemas and theatres, with a limit of 50 people at a time;
  • Casinos;
  • Personal care services, including hairdressers and beauty services.

According to Ramaphosa’s statement, the opening up of these activities will allow about an additional 500,000 people to return to work. This is based on estimates of how many people were employed in these sectors before the lockdown.

“Besides social distancing guidelines stalling/preventing the opening of some firms, the reopening decision may also be influenced by expectations of future demand,” the Bureau of Economic Research (BER) said in a research note on Monday (22 June).

It added that the key factor is whether a particular firm judges that it is financially feasible to open under current conditions.

“With South Africa’s infection rate on a sharp upward curve, it is not clear how many consumers will, for example, risk going for a sit-down meal or a visit to the cinema.

“Also, while there may in cases be an initial spike in demand – one can imagine hairdressers, for example, initially seeing a surge in footfall – lagging employment and weak income effects raise questions about how sustainable the initial spurt will be.”

The BER cited recent research by Harvard University academics in which they looked at the drivers of the reopening decision of small business owners in the US.

“After analysing almost 30,000 responses, the researchers found that the easing of lockdown restrictions is not the sole determinant of whether a small business will reopen.

“Indeed, almost 50% of closed or partially open businesses surveyed in early May said that their reopening would depend on the reopening of related businesses, including customers and suppliers.”

Budget 

Businesses will also want to keep a watchful eye on the tabling of the supplementary Covid-19 budget on Wednesday (24 June).

The ‘emergency’ budget will incorporate the impact of the R500 billion in financial support, as well as provide an estimate of the projected tax revenue hit brought about by the dramatic GDP decline as a result of Covid-19.

“The South African Revenue Service (SARS) has already indicated that, relative to the February budget, revenue in the 2020/21 fiscal year could be a massive R285 billion below the projection at the start of the year.

“In our view, this is a realistic expectation, but the Treasury may have different assumptions than SARS and will present their own numbers,” the BER said.

“Crucial of course will be the Treasury’s revised GDP and inflation forecasts. On GDP, we expect Treasury’s outlook to be more or less in line with the latest private-sector consensus for a GDP decline of 6.5%-7% in 2020. This would be better than our current forecast of a 9.5% GDP decline.”

The BER noted that finance minister Tito Mboweni may have inadvertently leaked some of the key budget information in an early morning tweet over the weekend.

This was in the form of the chart that outlined the expectation for main budget expenditure and revenue as a percent of GDP.

“Based on this, one can infer that Treasury expects a main budget deficit of about 14% of GDP in 2020/21,” the BER said. “The budget gap is expected to remain sizeable at about 10% of GDP by 2023/24.”

While the final numbers presented on Wednesday may look somewhat different than this, the dire fiscal outlook corresponds with comments from Mboweni last week.

He warned that South Africa risked handing over our fiscal sovereignty to the IMF if significant changes to the budget, including incorporating zero-based budgeting, and growth-enhancing reforms were not implemented.


Read: These businesses will open under ‘advanced’ level 3 lockdown: Ramaphosa

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More South African businesses can now open – but it’s not that simple