South Africa\u2019s government won praise for taking swift action to contain the coronavirus outbreak. It\u2019s said little on how it plans to protect the economy.<\/p>\n
With just 61 infections on 15 March, President Cyril Ramaphosa imposed travel bans, instructed schools to close and outlawed large gatherings.<\/p>\n
He followed up with restrictions on restaurants and effectively closed bars, beating many worse-afflicted countries to the move. The central bank cut interest rates by the most in more than a decade at its scheduled policy meeting and boosted liquidity in local markets.<\/p>\n
The National Treasury is yet to announce whether the government will support affected businesses and households.<\/p>\n
Ramaphosa was \u201cfirm, clear and decisive,\u201d Fani Titi, the chief executive officer of Investec Ltd., said in an interview. \u201cWhere we have been slower has been in trying to support the economy.\u201d<\/p>\n
Usually packed malls have emptied and many restaurants and bars leave apology signs on shut doors after dark. City streets and highways flow freely in \u201crush hour\u201d as firms send their staff home, while hotels and lodges are struggling to fill rooms.<\/p>\n
The rand slid to a record low against the dollar and bond yields surged amid a global rout. The central bank forecast the first annual economic contraction since 2009, and small companies now face a uncertain future in a country where unemployment is already 29%.<\/p>\n
South Africa\u2019s Treasury is severely constrained. Finance Minister Tito Mboweni last month proposed sweeping spending cuts to trim a fiscal deficit projected to widen to an almost three-decade high.<\/p>\n
Bailouts to rescue collapsing state companies has seen debt surge and put the nation\u2019s last investment-grade rating in jeopardy.<\/p>\n
Dry Powder<\/strong><\/p>\n \u201cThe budget has been fundamentally undermined,\u201d said Martin Kingston, vice chairman of Business Unity South Africa, the biggest corporate lobby group. \u201cThey can\u2019t reset until they know what the trajectory\u201d of the outbreak is likely to be, he said.<\/p>\n \u201cThere is an argument for keeping one\u2019s powder dry,\u201d Kingston said.<\/p>\n In a series of tweets on 19 March, the Treasury said provincial budgets will be refocused toward tackling the pandemic and that it will put together an economic response package.<\/p>\n \u201cWe are unable to give you a date, but shortly,\u201d the Treasury said in response to questions on when the plan would be released. A tweet on Saturday showed officials from the Treasury and central bank meeting to discuss the response to the outbreak, and Ramaphosa\u2019s spokeswoman Khusela Diko said the National Command Council on the virus planned to meet Sunday.<\/p>\n Talks between banks and Treasury need to get going, said Titi.<\/p>\n \u201cWe will have to get together to come out with coordinated action to support the economy,\u201d he said. Those discussions \u201cwill take a few days to a week or two,\u201d he said.<\/p>\n South Africa could take its cue for what has been done in countries such as the UK, where the authorities have agreed to guarantee some loans made to companies under pressure, said the CEO of Investec, a lender with operations in South Africa and the UK.<\/p>\n Deferred Payments<\/strong><\/p>\n The Congress of South African Trade Unions, the nation\u2019s biggest labour federation, called for commercial banks to defer loan payments by up to three months. It also wants lenders to cut interest rates on mortgages by more than the one percentage point the Reserve Bank reduced its rate by.<\/p>\n Cosatu also wants state lenders, such as the Industrial Development Corp. and the Development Bank of Southern Africa, to work with the government worker pension fund manager and private retirement funds to pay for stimulus for vulnerable sectors, said Matthew Parks, the group\u2019s parliamentary coordinator.<\/p>\n The state could offer guarantees as \u201cthe easiest way to support banks doing the heavy lifting,\u201d said Peter Attard Montalto, head of capital markets research at Intellidex. \u201cIn reality, we see National Treasury offering very little support.\u201d<\/p>\n For now, the banks are not even able to meet as they are prohibited from doing so by competition laws, according to Cas Coovadia, managing director of the Banking Association of South Africa.<\/p>\n \u201cUntil I get the exemption notice, unfortunately, I can\u2019t bring people around the table,\u201d he said. \u201cThere has been progress. The notice has been drafted and the minister spoke to me. I am hoping that by Monday we get the notice and we can get going.\u201d<\/p>\n So, as the government has won praise for the measures it has put in place to contain the pandemic, fears are rising about the economic pain to come.<\/p>\n \u201cOther countries are putting out huge economic stimulus packages,\u201d said Rian le Roux, an independent economist and former chief economist for Old Mutual Ltd. \u201cThis place is going to bleed to death. There are literally businesses that have shut down. I don\u2019t think we are thinking out the box.\u201d<\/p>\n
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