Vusi Thembekwayo, CEO, MyGrowthFund
President Ramaphosa announced a fiscal and monetary programme – the details of which are yet to be announced. The problem we face as a nation, however, is that the government’s purse is empty & an increasingly strained economy, which means a downward risk on the revenue services collection targets. Requiring immediate attention will, of course, be hospitals and clinics. Predictions estimate that unless the contagion curve is flattened, hospitals will be overrun – and those most at risk will be from townships and rural areas.
While the first wave of focus is rightly the health of those infected, a deeply pressing concern is around the knock-on effect of an economy decimated by this pandemic. The real economy – the source of the majority of employment for our nation – must brace for catastrophic impact. The consequences, if the government does not act fast, will not only be dire but long-lasting.
While billions are being poured into floundering SOEs and the over-heated stock markets, it is small businesses operating in the real economy that display the best hope of boosting the economy post-Covid-19. But for that to be the case, they have to assist to survive.
Supporting small businesses is not a new idea in South Africa. Arch your mind back to the Umsobomvu Youth Fund and the later day Black Industrialists Program and it is clear that the intent by the government is there. After the formation of the SA SME Fund, the commitments from the government were not fulfilled and the fund began operating with 50% of what was expected to be its purse. This decision coincided with the continued support and bailout of floundering SOEs and poorly administered local municipality infrastructure projects.
We have to prioritise better as a nation.
In other countries, we have seen fiscal programmes that promise the complete suspension of rates and taxes on properties, and even suspension on corporate income taxes. This, it is hoped, will keep cash flow within the business and households whilst safeguarding consumer sentiment.
Here at home, we see a track record of implementing fiscal policy through third parties by our government. Our heavy reliance on the privately-owned banks that have the SARBs onerous capital adequacy requirements as well as Basel 3 to consider means that even if the state was to print money, the most likely outcome is that the banks would simply hoard that cash to protect their balance sheets.
Our developmental finance institutions such as the Industrial Development Corporation, the Public Investment Corporation (through their Impact Investment desk) and the Technology Innovation Agency (through their Technology Innovation Fund) will be critical in the distribution of real money into the real economy. To date, the rate at which these institutions have moved is well below the rate at which our socio-economic problems have progressed. Their programs – whilst well-conceived and well resourced – are steeped in bureaucracy.
As a result, we are getting accelerating deeper into the volatile reality of one country, two economies: a legacy of apartheid & the adopted step-child of the new South Africa.
Beyond this crisis, South Africa simply will not have the luxury of ensuring that the required “i”s are dotted, and “t”s are crossed. We don’t have to be reckless but we do have to move fast. Much faster than we have over the past 25years.
Our monetary stance has not been congruent with the reality of many South Africans or indeed the real economy. Our “steady hands at the wheel” approach is necessary to inspire investor confidence but cannot be foremost in a country of competing interests. Unemployment is not only stubbornly high but beyond the COVID crash of the global markets, likely to increase. Company liquidations are likely to increase. Consumer defaults are likely to increase, and banks, under pressure to maintain capital adequacy prescriptions, are most likely to hoard whatever stimulus capital they receive on their balance sheets.
I would argue that its time our SARB, the MPC and more pointedly, the Reserve Bank Governor reconsider their conservative approach. On 15 March 2020, the Federal Reserve of the United States announced a drop in its benchmark interest rate to zero. It also announced a new round of quantitative easing (QE) entailing US$700bn of asset purchases. These are drastic measures taken by the world’s largest economy, which had enjoyed record lows in unemployment & a strengthening currency pre the COVID crash.
As Covid-19 continues to plunder the world’s economy, our governor cannot afford to play this in his usual, conservative gently-gently manner. Our firm had correctly predicted a 1% drop in the repo rate, but what our economy needs is a 2% cut to shore up the balance sheets of households & small businesses alike. Perhaps more radically, and therefore less likely given the aforementioned conservative nature of our SARB, South Africa needs to consider a program of QE.
Whatever your politics, none dare argue that we need bold fiscal and monetary leadership at this point. We need leaders with “doing the right thing” not just “doing things right”. The stimulus lag will take months, perhaps as long as six, before impact is felt in the real economy. This points to the inevitable question – are the interests of South Africans being safeguarded, or will our governor be more concerned with doing well on the exam he’s about to sit for?
We are on the precipice of a historical economic volcano in South Africa. As a nation, we need to pull together. From our government, we need clear action.
And From our leaders, a delay is unacceptable.
-VT
