Triple blow for South Africa’s economy

President Cyril Ramaphosa revised the terms for South Africa’s level 3 in a televised reprimand on Sunday evening, most notably walking back on the sale of alcohol with immediate effect, to prevent alcohol-related hospital admissions.

A visibly worn down president said that while most South African citizens have taken action to prevent the spread of the coronavirus, “there are others who have not”.

“There are some among us who ignore the regulations that have been passed to combat the disease. They also act without any responsibility to respect and protect each other.

“In the midst of our national effort to fight against this virus there are a number of people who have taken to organising parties, who have drinking sprees, and some who walk around in crowded spaces without masks,” the president said.

“It is concerning that many are downplaying the seriousness of the virus, despite all evidence to the contrary and what we have cautioned on numerous occasions,” he said.

Alcohol ban

Hospitals in provinces hardest hit by the virus are under huge pressure, with the country facing a shortage of more than 12,000 heath-care personnel, Ramaphosa said.

“As we head towards the peak of infections, it is vital that we do not burden our clinics and hospitals with alcohol-related injuries that could have been avoided. This is a fight to save every life, and we need to save every bed,” he said.

“We have heard of instances where people who are infected have been turned away from health facilities due to a lack of beds or essential supplies,”Ramaphosa said.

“This is deeply worrying. It means we have to move with even greater urgency to strengthen our strategy to manage the peak of infections.”

Among the tighter restrictions announced by the president, the alcohol ban is likely to have the greatest economic impact, according to analysts at the Bureau for Economic Research (BER), particularly for the tourism and hospitality industry.

Taverns, bars and liquor stores have only been able to open for business for six weeks, starting 1 June, while restaurants have only been able to sell alcoholic beverages for off-site consumption for a couple of weeks, starting end of June.

The restaurant industry in particular has been fighting for on-site consumption of alcohol to be permitted, saying that not allowing these sales would be detrimental to operations, and drain profits.

Eskom load shedding back

The second blow to the economy was dealt on Friday (10 June) when Eskom was forced to implement stage 2 load shedding due to multiple generation unit breakdowns.

“The cold spell in much of the country led to increased power demand over the past week. At the same time, a number of breakdowns at Eskom generation units meant that electricity demand exceeded supply, the BER said.

In a statement on Sunday, the power utility said that the generation system will likely remain constrained this week.

Eskom said that it is experiencing increased demand due to the cold weather in the country, which is also expected to persist for the rest of the week.

Truck driver strike

A third blow has been delivered through the nation-wide truck driver strike, which is set to continue this week.

This has interrupted supply chains and deliveries across the country, stunting economic activity.

The strike is being headed by a group called the All Truck Drivers Foundation (ATDF), which is pushing for 100% employment of locals in the industry.

Trucks not adhering to the strike action have been torched in Port Elizabeth, Cape Town, Durban and Johannesburg. The pressure comes as South Africa faces a growing unemployment crisis, with unemployment reaching record highs in the last quarter.

Minister of Employment and Labour Thulas Nxesi says that government is looking at new regulations to limit the employment of foreign nationals in South Africa.

“These developments again highlight that the recovery in local economic activity from the April lows will be a stop-start affair,” the BER said.

Eyes on the ANC

According to the BER, while government and businesses have agreed on a path forward for economic recovery – with a particular focus on infrastructure spend – it is less clear how this will be financed.

“Because of severely constrained public finances (no fiscal space), a question that we think will dominate the recovery narrative is how to finance the increased infrastructure spending,” it said.

The ANC sees a greater role for developmental finance institutions (DFIs) to provide cheap loans for infrastructure projects. Furthermore, the party argues that the SA Reserve Bank (SARB) should deploy more ‘pro-investment monetary policy instruments’.

“We can only imagine this implies that the central bank should provide concessionary loans to the DFIs, who should then ensure a lower cost of borrowing for investment. In our view, this may encroach on SARB independence,” it said. “It is not clear that it would be consistent with the SARB’s constitutionally enshrined price stability mandate.”

The ANC also raised the option of amending Section 28 of the Pension Funds Act in order to allow pension funds to directly invest in infrastructure projects, i.e. without having to do so through an intermediary.

“Importantly, the amendment would not amount to a prescribed asset regime – the idea would rather be to make it easier for funds to invest in infrastructure if they wish to. In our view, this does not address the underlying issue,” the BER said.

“The constraint is not an unwillingness from the private sector to provide capital for infrastructure projects. Rather, the problem has been a dearth of bankable projects.”

It has been argued that foreign investor funding will be required to execute the infrastructure drive. However, the BER said that for these funds to be sourced, government will first need to provide policy certainty, including on the contested land question.

“The debate on infrastructure funding again highlights the snowball effect of imprudent public finance management since the global financial crisis.

“Not only has this meant that government is unable to provide sufficient income and health sector support during the crisis, but it also lacks the funds to support the recovery,” it said.


Read: The ANC’s plan to use South African pensions

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Triple blow for South Africa’s economy