As part of his ongoing response to the COVID-19, President Ramaphosa announced on April 21 that the South African Government was launching a further R500 billion (approximately $26.3 billion) social and economic stimulus package – the biggest ever once-off stimulus injection in South African history. The President described this giant stimulus as constituting the second phase of the Government’s response, intended to stabilize the economy, address the supply and demand side shocks, and to protect jobs. As he acknowledged, “millions of South Africans in the informal economy are struggling to survive.”

The first phase of the economic response, according to the President, was the declaration of a National State of Disaster, and implementation of the economic support measures we outlined in our two previous articles, while the third phase of the economic support measures will seek to ignite economic growth, including a substantial infrastructure build program, the speedy implementation of structural economic reforms, and the transformation of the South African economy.

Key features of the proposed R500 billion social and economic stimulus package include:

    1. Funding: The stimulus package will reprioritize roughly R130 billion (approximately $6.8 billion) from within the current budget, with the balance to be raised from local and international sources, including the World Bank, the International Monetary Fund (“IMF”), and the New Development Bank;
    2. Budget: Minister of Finance, Tito Mboweni, will table a revised budget – his original budget for the current fiscal year having been tabled on 26th February, 2020. The new budget will prioritize spending against the coronavirus pandemic;
    3. Government’s fight against Covid-19: R20 billion (approximately $1,05 billion) will be fully dedicated to the Government’s fight against the pandemic. This will fund, amongst other things, community screening, testing, and personal protective equipment for health workers;
    4. Social grants: The Government will direct R50 billion (approximately $2.6 billion) towards relieving the plight of those most desperately affected by the pandemic: child-support grant beneficiaries will receive an extra R300 (approximately $15.7) in May and a further R500 (approximately $26.3) per month from June to October. All other grant beneficiaries will get an extra R250 (approximately $13.1) per month for the next six months, whilst individuals who are unemployed and who do not receive any other forms of grants or Unemployment Insurance Fund (UIF) payments will receive R350 (approximately $18.4) per month for the next six months;
    5. Municipalities: Municipalities will receive R20 billion (approximately $1.05 billion) to provide emergency water supplies, increased disinfection of public transport and facilities, and food and shelter for the homeless;
    6. Job protection and creation: R100 billion (approximately $5.2 billion) will be set aside to protect existing jobs, and for the creation of new jobs. To date, the UIF’s special Covid-19 benefit has paid out R1.6 billion (approximately $84 million), assisting over 37,000 companies and 600,000 workers. This funding will also be used to support Small, Medium and Micro-sized Enterprises, spaza shop owners and other informal businesses;
    7. Bank Guarantee Fund: A R200 billion (approximately $10.5 billion) loan guarantee scheme has been announced, designed to help banks and hundreds of thousands of smaller businesses (with an annual turnover of less than R300 million) survive the economic fallout of the coronavirus pandemic. This guarantee fund will enable banks to extend facilities to distressed businesses that they would otherwise be able to lend to; and
    8. Tax relief: President Ramaphosa announced a broad array of tax relief measures, which he claims will provide at least R70 billion (approximately $3.68 billion), either in the form of cash flow relief or direct payments, to individuals and businesses. Included in these relief measures are: (i) a four-month holiday for companies’ skills development levy contributions; (ii) fast-tracking of VAT refunds; (iii) a three-month deferral for filing and payment of carbon taxes; (iv) an increase in the turnover threshold for tax deferrals for businesses to R100 million (approximately $5.2 million) per year; and (v) increasing the portion of PAYE payments that may be deferred to 35%. Additionally, no penalties will be levied on payments if taxpayers are able to show they were disadvantaged by the coronavirus pandemic, while taxpayers who donate to the Solidarity Fund will qualify for a tax rebate of an additional 10%.

 

In addition, the Unites States has recently also stepped up its financial assistance to South Africa, with the United States Agency for International Development making a further R250 million (approximately $13.1 million) available to South Africa to aid its fight against the pandemic, bringing the total value of U.S. commitments to South Africa to R410 million (approximately $21.5 million).

South Africa’s social and economic stimulus package has been largely welcomed by South Africans, although concerns have been raised that the announcement is lacking in detail, such as the specifics of exactly how the package will be funded, and how “implementable” some of the relief measures will actually prove to be. Moreover, the announcement that the Government will seek funding from the World Bank and the IMF is controversial, given that the ruling ANC party and its alliance partners previously rejected the notion of South Africa seeking funding from these institutions.

As at the date of publication of this article, the number of Covid-19 cases in South Africa had increased to 3,635 officially reported cases, and President Cyril Ramaphosa will address the public again on Thursday 23rd April, 2020, when he is expected to announce a risk-adjusted approach to the lockdown, with partial lifting of some of the restrictions possible.

If you are operating a business in South Africa and need advice or guidance on how any of the above-mentioned might relate to you or your organization, please contact Mike McLaren, mmclaren@cov.com, Chloë Taylor, cataylor@cov.com, or Mosa Mkhize, mmkhize@cov.com.