South Africa did not record the first case of Covid-19 in Africa, but it now has the highest number of reported cases on the continent.
Having had the benefit of watching governments respond to the outbreak of the pandemic in Asia, Europe and the United States, President Cyril Ramaphosa on March 15, 2020, with only 61 confirmed cases and no deaths, declared a National State of Disaster that imposed a number of travel and other restrictions. Eight days later, the President took the further unprecedented step of announcing a national lockdown – a series of measures designed to stem the spread of the Covid-19 virus in the country.
In addition to the lockdown measures, the South African Government, the National Treasury of South Africa and the South African Reserve Bank announced a number of fiscal, monetary and other interventions to bolster the economy and provide a safety net for the most economically vulnerable. These interventions include, among others:
- Support for Critical Businesses: Funding of more than ZAR 3 billion (approximately $160 million) will be made available to vulnerable firms and businesses critical to the country’s response and recovery. The Industrial Development Corporation, together with the Department of Trade, Industry and Competition, will take active measures to support and stimulate the economy.
- Bridge Financing: To ease the disruption to certain critical supply chains, bridge financing is available to support supply chain interruptions as well as working capital to ensure energy security.
- Solidarity Fund: A Solidarity Fund has been created to which all citizens, corporates, businesses and the international community can contribute. The South African government is providing seed capital of ZAR 150 million (approximately $7.8 million).
- Employee Support: The establishment of a Temporary Employee Relief Scheme to assist distressed companies with wage payments in an attempt to avoid retrenchments.
- Unemployment Insurance: The government is working to deploy funds from the ZAR 160 billion (approximately $8.38 billion) Unemployment Insurance Fund for those who have lost their jobs.
- Tax Subsidies: For individual and small businesses whose turnover is below ZAR 50 million (approximately $2.7 million) will have access to tax subsidies and be permitted to defer: (i) 20% of their pay-as-you-earn tax liabilities over a four month period, and (ii) a portion of their provisional corporate income tax payments (without incurring penalties or interest charges) for a six month period. These concessions are expected to assist over 75,000 small and medium-term enterprises.
- Debt Relief Fund: The establishment of a debt relief fund by the Department of Small Business Development that will assist small and medium enterprises in distress from the pandemic.
- Bank Relief: The exemption of commercial banks from the provisions of the Competition Act to enable them to develop common debt relief approaches.
- Repo Rate Cut: The Reserve Bank of South Africa cut the repo rate – the benchmark lending rate in South Africa – by 100 basis points and embarked on a program of buying an unspecified amount of South African government bonds, in order to inject additional liquidity into the South Africa financial markets.
Contributions from prominent businesses and business leaders in excess of ZAR 5.5 billion (approximately $288 million) have also been made, and all of South Africa’s major banks have announced measures to support the most vulnerable South Africans and South African businesses. The financial contributions from these South African businesses and business leaders will be used to provide relief to small and medium enterprises affected by the Covid-19 pandemic as well as to purchase much needed personal protective equipment for South Africa’s healthcare workers.
While these measure are vital and encouraging, it will be a significant challenge for the South African Government to protect its economically vulnerable majority population. This was compounded on March 27, 2020, when Moody’s Investors Service (“Moody’s”) downgraded South Africa’s sovereign credit rating to junk status. Moody’s was the last credit rating agency to have South Africa’s long term foreign and local currency debt ratings on investment grade status. Four days later, Fitch Ratings Inc. (“Fitch”) further downgraded the five largest South African banks to junk status, and on Friday, April 3, 2020, further downgraded South Africa’s sovereign credit rating. Fitch noted that the decision was driven by the expected impact of the Covid-19 virus, and South Africa being particularly exposed to the pandemic which it warned is likely to lead to a decline in client activity and lower interest rates.
Significantly, South Africa’s finance minister, Tito Mboweni, said last week that he is prepared to approach the World Bank and the International Monetary Fund to assist South Africa in its fight against Covid-19—something that has been an anathema to successive ANC governments. Over the last three years, South Africa has borrowed an estimated $2 billion from the Shanghai-based New Development Bank, a financial institution created by the BRICS—an amalgam of Brazil, Russia, India, China and South Africa. Cyril Ramaphosa, in his capacity as chair of the African Union, also joined with Ethiopia’s Prime Minister, Abiy Ahmed, to press the G20 to provide debt relief and financial aid to those African countries most impacted by Covid-19.
Ultimately, the Covid-19 pandemic will pass and the world, and South Africa, will enter ‘recovery mode.’ What the economic recovery in South Africa might look like, or how long it might take, remains to be seen. In terms of acting quickly in order to protect the country’s citizens, however, President Ramaphosa’s leadership has been central to the government’s decisive response to Covid-19 in South Africa.