Join Moneyweb for a post-budget webinar with Dr Adrian Saville, Dr Iraj Abedian, Sizakele Marutlulle and Dr Azar Jammine for further insights on Wednesday, 28 October at 15h30.

SA needs money and pragmatism

R500 billion stimulus package is eye-watering, but smart thinking will make it more productive.
The key to a V-shaped recovery is to limit the number of businesses who will be forced to close shop in May and June. Image: Getty Images

The R500 billion stimulus package announced by President Cyril Ramaphosa raised many eyebrows, as it will go a long way to limit the economic destruction of the Covid-19 virus. It is a mammoth amount, around 33% government’s expenditure budget and 10% of GDP, and compares well with the stimulus packages of other emerging markets.

The package will make a big difference and is desperately needed. But the package and billions of rands on offer to assist businesses are not enough. South Africa also needs pragmatic thinking and decisions to limit the initial damage the economy will suffer. Unfortunately, this seems to be absent in the decision-making.

It also increases the fiscal risks for South Africa, as the stimulus package will inflate the already-spiralling government debt burden.

The risk is therefore that if the stimulus package does not result in a swift V-shaped economic recovery, the fiscal damage will be much more destructive.

The key to a V-shaped recovery is to limit the number of businesses who will be forced to close shop in May and June. This must be priority number one. It will be much more expensive to rebuild an economy and to ‘replace’ thousands of businesses than to create an environment where many companies can still operate and survive with limited assistance.

What happened in the wine industry is an excellent example of the absence of such pragmatic thinking. Despite getting approval to restart the exports of wine earlier in April, the decision was reversed after Transport Minister Fikile Mbalula placed a blanket ban on the transportation of alcohol.

This single decision, if not reversed now, will have a devastating effect on thousands of small and large businesses in the wine supply chain. Collectively, these businesses employ more than 300 000 people.

Time is really of the essence as it is not only a matter of exporting the wine after the lockdown. The bulk of the exports are destined for European retailers, who will have to find alternative suppliers if their shelves run empty. This will mean that South African producers will lose contracts.

Once this happens, the local industry will not have international buyers, and a significant portion of the local wine export industry will collapse. This is unnecessary as the transportation of wines only poses a very low risk of transmitting the virus.

The reality is that if the industry is allowed to export now, the sector will most likely survive and not need a bailout. If not, many businesses will close down, and it could take billions from the government to rebuild the sector.

Even if Mbalula orders that the police escort all trucks departing from the Boland for the Cape Town harbour, it would represent a fraction of the cost compared with providing financial assistance to the sector once it has collapsed.

The same lack of pragmatism is also visible in other industries, such as the sale of cigarettes and prepared foods. A decision to make home deliveries an essential service could have also made a big difference in the survival prospects of many small retailers.

South Africa still has a week, maybe two, to implement smart measures to assist businesses to survive. If not, the consequential financial cost will rise exponentially.

AUTHOR PROFILE

COMMENTS   14

Sort by:
  • Oldest first
  • Newest first
  • Top voted

You must be signed in to comment.

SIGN IN SIGN UP

I’ve yet to see a decision like this reversed….I’m tired of seeing the ruling party band together & double down on such decisions.
Take a leaf from US investment banks & admit wrong doing but not guilt…!

There is a school of thought that the wine ban is a punishment for Western Cape voters for daring to vote against the ruling party. Which means there is a sinister and vindictive motive behind the Party banning wine exports.

Yes because it was the commercial wine farmers and the tiny number of workers compared to the rest of the WC that swung the vote right? Yet another braai conspiracy theory.

Yeah, almost as though the ANC cannot see that their preference for having people relying on “government aid” rather than working for a living can only be sustained where there is tax income (i.e a working economy). Maybe they think the World Bank or IMF will just keep funding their profligacy.

One can see the plan is to try and avoid a depression. many of the right things are targeted.

There is very limited understanding from senior Government officials as to what the goals are.

The poor man had someone arrested a day or two ago for not having a permit to go to the shop. It shows he does not even understand the most basic and primitive of his departments functions. How would the cardes lower down act. Well we have all seen it. They are all now chasing people looking for a beer and a cigarette. How would they understand if the “boss” has no idea.

They way things are going we will go into a depression for these very reasons. Means nothing we have industries and destroy them.

We can also reason that we can get the the Easter road deaths down to zero. All we have to do is lock everybody up in solitary confinement. Not very clever and no way to live. So why do they do it?

The Ideology is still the same so don’t hold your breath. Save your money if you have any. Dont spend a cent. You will need it.

Your last sentence may not make sense in a hyperinflation scenario.

“We are completely dependant on the commercial banks. Someone has to borrow every dollar we have in circulation, cash or credit. If the banks create ample synthetic money we are prosperous; if not, we starve. We are absolutely without a permanent money system…. It is the most important subject intelligent persons can investigate and reflect upon. It is so important that our present civilization may collapse unless it becomes widely understood and the defects remedied very soon.” — Robert H. Hemphill

“R500 billion stimulus package is eye-watering, but smart thinking will make it more productive.”

Smart thinking is non existent in the ANC. Just use their track record of service delivery and/or policy over 25 years as a benchmark, this will give you some indication as to how the R500 borrowed “Stimulus” will be deployed.

Not true trader 123. There is a new reality now where big business and ANC make decisions together. No longer ANC alone.

The ANC is using “big business” as another red herring. There might be some business input, but the ANC will make their decisions based on their infamous charter.
That is the reality.

@ PeeWee – You are yet to understand the the dynamics of an African state.

Let’s shut down the economy that makes the country work and BORROW ?????????????????????????????????? Does this sound like good financial planning All for .0001% deaths ????????????? One has to ask, if what they have done in the previous decades even worked????????????????????

I still don’t understand how this government (it has proven to be inept) is going to distribute these funds fairly and equitable without some form of corruption going on, it is in the very nature of government and its ANC cadres to steal wherever they can and they do without any form of retribution. The other concern is that the taxpayers who are not benefiting in any sense from these large sums of money being doled out but they will be expected to pay their taxes and probably even more going forward. There is unfortunately a culture within our society that family planning is not important and this is at the heart as to why we have so many people out of work or unable to find work. I hope that the ANC are brave enough to knock EWC on the head for good and commit it to the scrapheap – otherwise there is zero hope for this country of my birth

@grahamcr – you hit the nail on the head with the ‘family planning’ mention. It is such a political hot potato that everyone is afraid to even mention it. But it is a key to the future prosperity of African states. People are unfortunately breeding people into poverty – then blaming the past for all the ills of today. Yes, the past must take a share of the blame, but we simply cannot afford to turn a blind eye to what is really causing poverty today: more people than jobs. Shoot me down if you wish, but it is the truth.

End of comments.

LATEST CURRENCIES  

USD / ZAR
GBP / ZAR
EUR / ZAR
NEWSLETTERS WEB APP SHOP PORTFOLIO TOOL TRENDING CPD HUB

Follow us:

Search Articles:Advanced Search
Click a Company: