Home COVID-19 Cabinet faces post-lockdown economic calamity — with no easy options

Cabinet faces post-lockdown economic calamity — with no easy options

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By Marianne Merten• 20 April 2020 (Daily Maverick)

Cabinet meets on Monday for the third time in two weeks to thrash out what to do about an economy in crisis, aggravated by the Covid-19 lockdown. That no decision has been taken yet signals not only the depth of South Africa’s economic problem, but also the fissures of factional politics, ideology and wonky statecraft.

On Wednesday 15 April Cabinet met, but kicked for touch when discussions failed to lead to firm decisions on “the socio-economic recovery plan post the Covid-19 national lockdown”, as the official statement put it.

“Cabinet resolved that further discussions and consultations are still required before the final consolidated plan is approved to be shared with the nation,” said the late-night statement before announcing the Cabinet meeting would resume on Monday 20 April with “one consolidated document on key priorities of the country’s economic recovery plan”.

But on Thursday 16 April, it emerged some decisions had been taken, even if just to start relaxing the national lockdown for some. Mines got a break in the new regulations with an incremental relaxation allowing 50% operations — coal mines supplying Eskom remained fully operational — as did tradespeople such as mechanics, plumbers and electricians while hardware stores are allowed to sell emergency spares.

Co-operative Governance Minister Nkosazana Dlamini Zuma said the Covid-19 lockdown lifting would be “incremental”. The latest in government-speak is the “risk-adjusted approach” to restarting the post-lockdown economy.

South Africa’s economy has slipped deeper into the doldrums.

The South African Reserve Bank forecasts an economic contraction of 6.1% in 2020, alongside the closure of 1,600 small businesses and 370,000 lost formal-sector jobs. Many economists and analysts put the figure of job losses higher — at about the one million mark.

Given persistent lacklustre economic growth and stubbornly high unemployment, South Africa’s political economy is in trouble.

Finance Minister Tito Mboweni in a briefing on 14 April confirmed wide-ranging shifting of allocations across the government, while acknowledging a new budgetary statement would have to be made, even if he didn’t call it an emergency Budget.

On Monday Cabinet looks set to approve social relief measures, including increasing grants.

Mboweni already indicated a “temporary adjustment” of either the pension or child care grant is being proposed by National Treasury alongside “economic growth enhancing” measures during the 14 April briefing.

At the weekend the Presidential Co-ordinating Council seemed to agree with social relief measures, not only by the government.

“The meeting was unanimous that the impact on the South African economy (of Covid-19) would depend on the pace and magnitude of the interventions which would be required of all social partners,” said a Presidency statement after the meeting on 18 April.

“The meeting agreed that measures should be put in place to ensure that more cash is put in the hand of households to induce economic activity in the medium term”.

This comes on the back of a widely supported call from civil society organisations and academics calling for R500 more on the child support grant over the next three months, and from an earlier call by 76 economists asking for interventions such as directly putting money into vulnerable households.

In the face of hunger, increasing poverty and the devastating socio-economic legacies of the hard Covid-19 lockdown over 35 days, this is the easy decision. Everyone in Cabinet, whether left-leaning or conservative, a securocrat or constitutionalist, can agree: poor South Africans cannot be left more vulnerable and hungry.

Cabinet, however, will be tested over SAA.

A request from the business rescue practitioners for a further R10-billion was turned down by Public Enterprises Minister Pravin Gordhan in a letter dated 10 April, seen by Daily Maverick.

So no more money for the flailing SAA, but also reluctance to agree to Section 189 retrenchment proceedings while the political marching orders are to keep the national airliner in the air.

The governing ANC, following the January 2020 lekgotla of its National Executive Committee (NEC), the highest decision-making structure between conferences, decided SAA must be retained as the national airliner.

“SAA should be retained as a national airline, which will require substantial restructuring. Cabinet should take the operational decisions needed to achieve that aim,” said the ANC NEC lekgotla statement.

It’s an ideological position. And until recently, SAA could be sustained through bailouts — R15.7-billion since June 2017 — and additional funding through borrowing.

That changed with South Africa’s declining fortunes, and the decision in early December 2019 to put SAA into business rescue.

Last Wednesday’s Cabinet meeting told Gordhan to come up with a plan for SAA. As speculation of retrenchments and the closure of the national airliner hit high gear, Gordhan at the weekend issued a statement:

“Government is committed to a dynamic and viable aviation sector that will serve as a contributor to a number of sectors of the economy, including tourism, and also serve other commercial needs of the country.”

That the political and other battle lines are drawn emerged on Sunday when Cosatu said in a statement it would use Gordhan’s briefing of the Alliance Secretariat on both SAA and SA Express, which is also in business rescue, “to engage the Minister and Government and urge them to explore alternatives to these planned devastating retrenchments by the business rescue practitioners”.

Whatever money that may have to be found for SAA must come from somewhere. Trade-offs are almost to be expected.

But while borrowing is one option, it’s fraught with ideological contestation within the governing ANC, and also Cabinet.

When Mboweni told the Sunday Times that the International Monetary Fund (IMF) and World Bank would be approached for assistance with Covid-19 health funding, ANC Secretary-General Ace Magashule and his counterparts at Cosatu and the South African Communist Party, put their foot down. That’s not going to happen “to safeguard South Africa’s democratic national sovereignty”, they said in a statement on 5 April after their Alliance Secretariat meeting.

The ideological and factional cracks in the governing ANC were highlighted in comments by its economic transformation honcho, Enoch Godongwana. 

“In my opinion, this would be the best time to approach both institutions for a loan as they start giving developing economies a break to get through the coronavirus epidemic,” he told Bloomberg, pointing out as had Mboweni that neither the IMF nor the World Bank would attach their usual T&Cs to such loans.

While a $1-million Brics New Development Bank loan may be more politically palatable to the ANC-led alliance, it’s nowhere near what’s required. South Africa is looking for $60-million. And even that, some analysts and the opposition DA argue, is far too little to pull South Africa out of the economic dwang.

The country’s public finances are shot.

In a politically risky move, the government has decided not to increase public servants’ wages from 1 April in line with the agreement in a wage deal struck three years ago. That non-payment is critical in saving some R37.8-billion from the public wage bill, the first of cuts that over the next three years must save R160.2-billion.

But trade unions are livid: the National Education, Health and Allied Workers’ Union vowed “a relentless war against government” while the Public Servants Association (PSA) indicated it would turn to the courts.

The political fallout may escalate.

Amid this Covid-19 public health emergency and economic calamity, President Cyril Ramaphosa is doing his consulting thing, with the National Economic Development and Labour Council (Nedlac) — where on Friday government, business and labour agreed saving lives was the most important matter, according to a Presidency statement — and on Saturday, the Presidential Co-ordinating Council.

Politically, garnering such support is crucial for Ramaphosa. It will shore up his hand in government, and given that most, if not all, of the executive are on the ANC NEC, it will also strengthen his standing there. It would be increasingly difficult to argue against Ramaphosa’s administration if ministers agreed to the government’s policies.

Ramaphosa is nailing that social compacting he’s touted since the start of his presidency in February 2018.

But social compacting aside, the much-touted developmental state is failing on the effective, efficient and speedy delivery of services.

It’s unfathomable that the South African Social Security Agency (Sassa) has closed during the lockdown. Amid reports that provincial social development departments’ efforts to deliver food parcels have been mired in politicking, it has also emerged that police in some instances are fining those wanting to deliver food to the needy.

Meanwhile, statutory watchdogs are investigating scores of complaints against police and soldiers, alongside several killings.

Much has been made of the UIF having made available R40-billion for Covid-19 benefits, but not so much about actual payouts raising further questions about an entity much criticised for inefficiency and ineffectiveness well before the Covid-19 pandemic.

And small business support measures seemed to have remained in the application processing phase, days after the initial lockdown was meant to have ended.

Even as the state in South Africa has centralised powers impacting widely on matters social and economic, statecraft remains wonky.

The hard Covid-19 lockdown has blown to smithereens South Africa’s political economy. The public finances needed for socio-economic measures such as relief are vanishing as income tax, Value-added Tax (VAT) and sin tax collections have effectively dried up.

The push is on for a single consolidated post-lockdown recovery plan, but Monday’s Cabinet meeting must know, there’s just no silver bullet. And to pretend otherwise would a disservice. DM