When President Cyril Ramaphosa addressed the nation on Tuesday night he needed to provide two things: a bold plan to ease the devastating impact of Covid-19 on the economy; and a credible strategy to drive economic growth once the virus has run its course.
The former was always going to be the easier task, given the overwhelming consensus in SA that the government should be throwing every bit of firepower at the pandemic. Indeed, Ramaphosa went further than many economists expected, given SA’s lack of fiscal space, marshalling a package worth R500bn, or 10% of GDP, in line with the rescue packages of wealthy, developed countries.
And while this is what a desperate nation wanted to hear, it has raised a whole new set of worries: how on earth will SA fund its Covid-19 response without precipitating a fiscal crisis?
Given how crucial it is to retain investor confidence in SA’s bond market, it seems short-sighted of the president to have glossed over the fiscal implications.
All we know is that R130bn will come from reprioritisation within the existing budget, R40bn from running down the Unemployment Insurance Fund, and that external sources, including the International Monetary Fund, will be tapped at concessional rates, possibly to the tune of R100bn.
This will help, but it still leaves a gaping funding hole. In the absence of a clear plan to fund the package and to get debt to stabilise over the longer term, it was important that Ramaphosa give real content to the second leg of his proposals — the strategy for economic recovery.
After all, the fiscal support is mere bridging finance for the economy — a "macroeconomic overdraft facility", to quote Prof Michael Sachs of Wits University, that must ultimately be unwound. "It can’t substitute for real economic activity," he says.
But the details of the economic plan are unconvincing: structural reform to lower the cost of doing business will be accelerated, state-owned enterprises "overhauled", and industrialisation promoted, including through a substantial infrastructure programme.
We’ve heard it all before. But the real low point was when Ramaphosa said: "Our economic strategy going forward will require a new social compact among all role players."
It seems SA’s elusive search for consensus will carry through into a post-Covid world, destroying any hope of swift, decisive action. Government’s continued prevarication on SAA is another painful indication of this.
Even so, business will be enthused by the president’s announcements — not least that the lockdown will be phased out. However, according to a bamboozling cabinet blueprint, it could be a protracted and tortuously complicated affair. The industries allowed to open first should have a low transmission risk, be of critical value to the economy, or under severe economic stress.
For business, the centrepiece of the new plan is a R200bn loan guarantee scheme to provide cash-flow relief to firms, backed by the National Treasury and Reserve Bank and implemented through the banking sector. The aim is to prevent locked-down firms experiencing a short-term liquidity crisis from going insolvent and causing lasting damage to the economy. More than 700,000 firms employing 3-million people are expected to benefit.
All in all, Ramaphosa did a decent job of pulling together the leading proposals from the country’s top economists, while avoiding the minefield of prescribed asset requirements — for now. But the bigger picture seems to have got lost in all the detail.
When the virus has come and gone, SA’s perennial challenge will remain: how to drive rapid, sustainable growth so that the fiscus doesn’t buckle under the strain. With debt screaming upwards, Ramaphosa is going to need a much more credible growth plan than anything we’ve seen up to now.
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