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According to one economist, the two-week extension of the blockade will deepen the recession in the South African economy.
On Thursday night, President Cyril Ramaphosa addressed the nation, where he announced that the blockade would last until the end of April to help curb the spread of the virus. The president said he was aware of the impact it would have on the economy, adding that the Cabinet was still working on a “comprehensive package” of economic support measures.
“Unless we keep this course a little longer, this coronavirus pandemic will engulf and consume the economy. We all want the economy to come back to life,” he said.
But the damage to the South African economy has already been done, whether the blockade has been extended or not, according to economist Dr. Azar Jammine, who spoke to Fin24 by phone after the president’s address.
The great dilemma
“The fact is that the damage has already been done. The great damage has already been done. It is about how to prevent the damage from being excessive rather than just severe. That is the dilemma we are facing right now,” he said.
Jammine noted that even if the blockade were lifted, some economic activities probably would not have returned to normal, especially in the travel and restaurant sectors.
“Even if the closure is lifted, the psychology of the country has changed … People will not rush to go to restaurants, they have realized the dangers of catching being around,” he explained.
Jammine said that in putting together the economic package, the Cabinet would have to consider how to gradually lift restrictions in some sectors, such as mining and manufacturing, and even allow the delivery of non-essential items like electronic equipment.
The independent economist and member of the advisory council to President Thabi Leoka told Fin24 that in the future, the government would have to consider increasing the fiscal support package to address the impact of the virus.
Magnifying bracket
Comparing SA with other countries, only 0.1% of GDP has been dedicated. “We definitely need to increase support,” he said.
Leoka hopes to receive more fiscal and monetary support. So far, the Reserve Bank has responded by cutting interest rates by 100 basis points and injecting liquidity into the economy. The Treasury has also implemented tax relief measures.
While it is a difficult puzzle for Ramaphosa, who has to consider preserving lives and the negative impact on the economy, the two are not mutually exclusive, he explained. “Healthy bodies are needed to be productive, to contribute to economic growth,” he said.
Investec chief economist Annabel Bishop said that while the blockade will deepen the recession, with the Reserve Bank projecting a 4% contraction, Ramaphosa’s decision took into account the best interests of South Africans.
“However, the crisis is far from over, both health and socio-economically. There are likely to be further measures in late April, and consumers and businesses will be further pressured from the additional period. now until the end of April, “she said.
“Household and business balance sheets will weaken further from an already difficult start to the year after the recession late last year,” Bishop added.
‘This is not helping’
Maarten Ackerman, chief economist and advisory partner at Citadel, said the cost to the economy of the 21-day blockade was already “huge” and that the extension would simply add to that. “Another two weeks would reduce another 2% or so of GDP. So, from an economic point of view, this is not helping the country,” said Ackerman. He warned that the extension could even turn the recession into a depression.
“It is difficult to say whether the additional stimulus will be sufficient or whether it can be implemented in time to provide support where it is needed,” he said.
Ackerman added that the strict measures taken now could help ease some restrictions in the coming weeks. “Over the next two weeks, we will have to seek the gradual reopening of parts of the economy. It is one thing to save lives, but another if it cannot feed those who are kept alive,” he said.
Ramaphosa said that of the R3 billion in funds provided by the Industrial Development Corporation to focus on the acquisition of essential medical supplies, about R130 million was approved for companies that requested it. Another R400 million will be approved next week.
The Small Business Finance Agency also approved the postponement of loan repayments for a period of six months.
Small business debt relief facilities and business growth are currently awarding requests for assistance – a total of R500 million is available for support.
The government has also prioritized R1.2 billion to provide aid to small farmers and contribute to security of food supply.
The FIU has set aside R40 billion to help employees who are unable to work and prevent job losses as a result of the blockade. So far R356 million have been paid.
Ramaphosa also implored companies to continue to pay suppliers, to the extent possible, to avoid a crippling effect on the economy and to avoid causes of force majeure.
The rand held firm at the news of the shutdown.
“The rand traded 0.5% softer ahead of the president’s speech Thursday night, although the unit held steady as the president extended the blockade for another two weeks,” said Bianca Botes, executive director of Peregrine Treasury. Solutions.
The rand is trading at R18.07 / $, having strengthened below R18 / $ on Thursday. But overall, it’s been taking a beating as investors rush to hunt for safe haven currencies amid expectations of a global recession, exacerbated by Covid-19.
