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Ramaphosa unveils economic recovery plan
October 17, 2020, 4:37 pm

“In the aftermath of a fire, green shoots begin to emerge,” – President Cyril Ramaphosa on October 15, 2020 

Should Ramaphosa establish a Growth Commission? [GCIS]

South African President Cyril Ramaphosa unveiled the government’s Economic Reconstruction and Recovery Plan to a joint sitting of the two houses of Parliament in Cape Town on October 15. The plan is in response to the devastation, “the fire”, caused by the national lockdown implemented to slow down the spread of the coronavirus.

South Africa had one of the earliest and most severe national lockdowns in the world. Despite the lockdown, South Africa’s number of infected cases surged to the fifth highest in the world in July but has since eased to the 14th highest. The number of confirmed Covid-19 cases dropped to 1,218 on September 1 from a peak of 13,944 on July 24, but then rose to 1,575 on October 11. The first case was only reported on March 5 and as of October 11, the total stands at 692,471. The seven-day average is also easing from a peak of 12,584 in the seven days ending July 19 to 1,802 in the seven days ending October 11.

In his speech, Ramaphosa spoke about the government’s response to the national lockdown.

“As we anticipated the impact of the pandemic on the livelihoods of the people, we responded by implementing a massive social and economic relief package to support companies, workers, households and individuals in distress. We announced a relief package which, with a total value of R500 billion or around 10% of GDP, is the biggest on the African continent and compares favourably with other countries in the G20. Relative to the size of our economy, our social and economic relief response to Covid-19 is roughly on par with countries like Canada, Spain, the United States and Australia,” he said.

The problem with the above statement is that of the R200 billion bank guarantee loan fund, which is the single largest component of the relief package announced in April, only R16 billion has so far been utilized. That means the support package is only 6% of GDP.

The result is that according to Statistics South Africa 2.234 million people lost their jobs in the second quarter compared with the first quarter. This meant that for the first time the number of not economically active 15 to 64-year olds at 20.578 million exceeded the 18.443 million in the labor force. Only 14.148 million people have a job and 10.064 million have a formal sector job. 

Data from the National Income Dynamics Study – Coronavirus Rapid Mobile (Nids-Cram) survey showed that unemployment among people living in urban townships and informal settlements more than doubled. This meant that almost half of households thus ran out of money to buy food, causing extensive hunger and social distress.

The situation would have been even worse without government grants, which were topped up in June and reach about half of the households in these areas. One in four survey respondents also benefited from the new Covid-19 grant aimed at unemployed adults with no other income.

“Through the special Covid-19 grants and the top-up of existing grants, close to R40 billion in additional support has been provided directly to more than 17 million people from poor households. Studies have shown that these grants were vital in reducing the impact of the pandemic on levels of poverty and hunger. The evidence suggests that the expansion of social protection has kept more than 5 million people above the food poverty line during the past six months,” Ramaphosa said.

There are four strategic interventions outlined, namely: infrastructure investment, energy security, employment stimulus and re-industrialization.

The plan depends however on a credible framework for fiscal sustainability which is due to be unveiled by Finance Minister Tito Mboweni on 28 October in the Medium Term Budget Policy Statement (MTBPS). 

Francesca Beausang, an economist at Continuum Economics, said the plan failed to convince as it proposed import substitution industrialization as a key point of growth.

“Beyond the usual highlights on infrastructure and jobs, two aspects of President Ramaphosa’s address struck me as being particularly interesting. Firstly, like many heads of state responding to Covid-19 in developed markets, Ramaphosa made a plea for localization. Effectively, he called for a revival of import substitution industrialization, which is an industrialization strategy from the 1960’s that proved unsuccessful,” she told The BRICS Post.

Beausang explained that the goal of self-reliance is politically attractive but economic realities mean that this is a highly inefficient route to industrialization.

“He [Ramaphosa] called this the foundation of a new economy, but actually it was tried before and failed. Secondly, he mentioned that the government was looking to identify strategic equity partners for some state-owned enterprises (SOEs) or even to list some of them to bring fresh capital,” she added.

While the government has made such noises before, it is interesting that Ramaphosa has proposed this within the recovery plan, most likely in the perspective that the crisis creates an opportunity for change.

“But with respect to SOEs and to all subsets of the recovery plan, as Ramaphosa said himself, ‘implementation is the key for this recovery’ and that is what will continue to be lacking in my view. It is especially unclear from the address how the President hopes to build a reliable energy supply in two years,” Beausang told The BRICS Post.

Dawie Roodt, the chief economist at the Efficient Group said the government should concentrate on getting the basics right by providing efficient services.

“There were no real surprises in the plan. What stood out for me was the sense of urgency and commitment. As expected grants were extended (and could be extended again). The continues emphasis on jobs, women, “inclusive growth” and other social/political objectives are wrong! We simply do not have the luxury anymore. I have doubts if the private sector will enthusiastically support PPP’s. But the emphasis is all wrong. Forget … economic plans if the local authorities, SOE’s and national departments are badly managed and dysfunctional. The “economic plan” that we need is for the state to do what it is supposed to do first, and then think of economic plans. Lastly, where is the money going to come from,” he told The BRICS Post.

Nelson Mandela Bay Business Chamber CEO Nomkhitha Mona said the 800,000 promised jobs would offer short-term relief, which might not necessarily translate into medium to long-term solutions for unemployment and underemployment.

“More detail is needed to understand how these short-term economic measures would be used as a springboard for sustainable economic growth,” he said.

Business Leadership South Africa also wanted more details on the plan and how it would be implemented.

“There are lots of positive elements in President Cyril Ramaphosa’s economic recovery plan. However, it must be seen as a starting point. It lacks detail in important areas and, unfortunately, the implementation approach for the various elements of the strategy is not convincing,” the lobbying group said. 

Helmo Preuss in Pretoria, South Africa for The BRICS Post