Register Now: Law and Crisis Management Event with The Honorable Eric Holder, Wednesday June 3rd

Join us tomorrow, June 3, 2020, from 10:00 a.m. – 11:30 a.m. for a webinar featuring The Honorable Eric Holder, 82nd Attorney General of the United States, to discuss the topic of Law and Crisis Management: Working with Lawyers in Business, Government, and Society to Manage the Challenges of COVID-19. You may register for this event at VirtualConferenceAfrica.com.

Drawing on insights from leading lawyers across Africa, this webinar focuses on how the law connects businesses, governments, and societies. Understanding Africa through this lens provides a unique perspective on Africa’s short, medium, and long-term response and strategy. In a time of legal uncertainty, this webinar also explores some of the substantive questions facing legal practitioners, as well as the developmental and social challenges the pandemic presents for African societies.

Mr. Holder will be joined by the following astute individuals on this webinar:

  • Professor David Wilkins, Lester Kissel Professor of Law, Vice Dean for Global Initiatives on the Legal Profession, and Faculty Director, Center on the Legal
  • Profession, Harvard Law School
  • Gerald Abila, Founder and Executive Director BarefootLaw
  • Prof Ruth L. Okediji, Harvard Law School and Co-Director of Berkman Klein Center at Harvard
  • Dr. Myma, Belo-Osagie Co-Founder Udo Udoma Belo-Osagie Michel
  • Sandie Okoro, Senior Vice President and Group General Counsel, World Bank Group
  • Michel Brizoua, Partner, Bilé-Aka, Brizoua-Bi & Associés
  • Thandi Orleyn, Chairperson Legal Resources Trust South Africa
  • Stephen Chege, Chief Corporate Affairs Officer Safaricom
  • Dr. Godfred Penn, General Counsel & Director African Development Bank
  • Prof. Vincent O. Nmehielle, SJD Secretary-General, African Development Bank Group

South Africa Prepares to Ease Lockdown Restrictions

On May 13, 2020 South African President Cyril Ramaphosa announced the government’s intention to ease restrictions imposed to curb the spread of COVID-19. This announcement comes seven weeks after South Africa first announced a national state of disaster in accordance with the Disaster Management Act, 2002 (Act No. 57 of 2002) (the “Act”). This decision to ease restrictions was informed by evidence presented by the National Command Council (“NCC”) which indicated that the early implementation of the nationwide lockdown had successfully limited the spread of COVID-19. The significant strain placed on the South African economy as a result of the nationwide lockdown necessitated a considered approach to systematically resuming commercial activity to uphold the health related gains.

The nationwide lockdown period is governed by a robust Risk Adjusted Strategy; a 5 level system of alerts aimed at defining permissible levels of general movement, travel and economic activity. In his national address on May 13, 2020, President Ramaphosa announced that government is contemplating further easing the lockdown regulations for certain provinces to move from Alert Level 4 to Alert Level 3 by the end of May. We anticipate that over the next few days, government will issue further regulations and/or amendments to existing regulations, that will outline the guidelines and directives that govern the easing of trade and permitted commercial activities, while maintaining appropriate health and safety measures.

An example of a recently published regulation is Government Gazette No. 11113 issued on May 14, 2020 which provides directives and protocols which must be observed by retailers, couriers or delivery services and customers in relation to goods transacted through e-Commerce during Alert Level 4. Until May 14, 2020, all commercial activities have been limited to ‘essential services’ and ‘essential goods’ as defined by Government Gazette No 43258 (the “Regulations”) (e.g. supermarkets, medical facilities and pharmacies etc.). Under the newly published e-Commerce Regulations, all goods may be transacted through e-commerce platforms, except for goods prohibited for sale in terms of regulations 26 and 27 of the Regulations (such as liquor, tobacco, tobacco products, e-cigarettes and related products).

For further information, please reach out to Covington’s COVID-19 Task Force at COVID19@cov.com, Robert Kayihura at RKayihura@cov.com or Mosa Mkhize MMkhize@cov.com.

 

 

It’s Time to Help Africa Fight the Virus

If COVID-19 spreads across Africa, it would not only be a human catastrophe for the continent, but one that threatens the Northern Hemisphere with future outbreaks and further human and economic losses. What is true in the United States, where people in poor and minority neighborhoods are dying in disproportionate numbers, is true for the world as a whole: No one will be safe so long as anyone is at risk.

If the United States, Europe, and others succeed in containing the virus in the coming months, there is no way contagion throughout Africa could be contained there. A second wave rising in Africa would almost surely crash on U.S. shores. In this way, the coronavirus pandemic has laid bare the world’s interdependence; the future safety of every U.S. community therefore depends on the success of every community in Africa and elsewhere.

While giving priority to the fight here at home is essential, the time to help Africa fight the virus is now.

Click here to view the full article co-written by Witney Schneidman as it appeared in Foreign Policy (April 29, 2020).

South Africa’s Economic Response to the Covid-19 Pandemic (Part III)

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.

COVID-19: Business Rescue, a Viable Option for South African Companies

As South African businesses are left reeling in the wake of the escalating coronavirus crisis and the imposition of a 35-day lockdown , we look at the implications for South African companies and how those in financial difficulty may find some relief under the Companies Act 71 of 2008 (Companies Act).

On Friday, March 27 2020, South Africans began a 21-day nation-wide Government-imposed lockdown aimed at slowing the coronavirus pandemic sweeping across the nation. This initial lockdown was extended by South African President, Cyril Ramaphosa, on April 9, 2020 for a further period of 14 days.

As consumers are forced to stay home, and with many businesses being forced to keep their doors shut, business revenues and cash flows will plummet, in some cases to zero (see our article on which South African businesses can operate during the nation-wide lockdown). While there has been a very gradual easing of the lockdown restrictions for some businesses during the extension of the lockdown, most businesses remain fully shut.  This stagnation in economic activity will permeate the country as companies wrestle with the reality of laying off workers, potentially defaulting on their payment and contractual obligations, and closing their doors for good.

In addition to navigating the indirect effects of the anticipated global recession, South African companies will need to take into account their already fragile local economic environment.  The recent news that rating agency Moody’s had cut South Africa’s sovereign credit rating to sub-investment grade (with a negative outlook) or “junk” is a further blow to business confidence.  The collapse in consumer and business spending, domestic policy uncertainty, increasing borrowing costs, Rand volatility within a downward trend, and a significant decline in export demand have many companies rethinking their financial viability.  Edcon Holdings, South Africa’s second-largest clothing retailer, which has been in financial difficulty for some time and already undertaken numerous restructurings in an attempt to reestablish its competitiveness in the market, recently announced that it would only have sufficient liquidity to pay salaries and wages in the near-term and would be unable to discharge its payment obligations to other creditors.  This announcement came after the retailer found itself unable to meet its March sales target in the wake of Covid-19’s accelerating spread across South Africa, coupled with an expected drop in debtor’s book collections.

SA Express, the second and smaller of the state-owned airlines which was placed in involuntary business rescue on 6 February 2020, saw its business rescue practitioners launch an urgent application at the Johannesburg High Court on 25 March 2020 in an attempt to have the airline liquidated due to them being of the view that the airline had no reasonable prospect of being rescued. Moreover, the future of SAA, South Africa’s National Airline, which was placed into voluntary business rescue on 5 December, 2019, appears in doubt after the South African Department of Public Enterprises announced over the weekend that the South African Government cannot support SAA’s request for further funding of R10 billion or provide any future funding to sustain the business rescue process.

Similar headlines are unfortunately likely to continue hitting the market in the coming days and weeks.  Numerous other retailers have followed suit in announcing that they would be unable to discharge their rental obligations for at least the period of the lockdown. As recently as last week Wednesday, South Africa’s e-commerce giant Takealot announced that it is likely to take a R350 million revenue hit during the lockdown, leaving the company in distress.

Chapter 6 of the Companies Act allows financially distressed South African companies an opportunity to reorganize and restructure their financial affairs through the business rescue process. The Companies Act considers a company to be financially distressed if, within the immediately ensuing six months: (i) it appears to be reasonably unlikely that the company will be able to pay all of its debts as they fall due and payable; or (ii) it appears to be reasonably likely that the company will become insolvent.

Business rescue proceedings aim to facilitate the rehabilitation of a financially distressed company by providing for, amongst other things: (i) the temporary supervision and management of the company’s affairs, business, and property by a business rescue practitioner; (ii) a temporary moratorium on the rights of claimants against the company or in respect of property in its possession; (iii) the ability for the company to obtain post-commencement financing, which may be secured to the financier by utilizing any asset of the company that is not otherwise encumbered; and (iv) the development and, if approved, implementation of a business rescue plan to restructure its business, debt, property, equity, affairs, and other liabilities.

A company’s board of directors can initiate voluntary business rescue proceedings by resolving that the company is financially distressed and that there appears to be a reasonable prospect of rescuing the company. A company can be placed into involuntary business rescue proceedings by an affected person (shareholders, creditors, employees or registered trade union representatives) making a formal application to court where: (i) the company is not already in voluntary business rescue; (ii) the company is financially distressed; (iii) the company has failed to fulfill a payment obligation under or in terms of a public regulation or contract, with respect to employment related matters; or (iv) it is otherwise just and equitable to do so for similar financial reasons, and there is a reasonable prospect of the company being rescued. Business rescue provides a moratorium on insolvency or legal actions against the company, affording it much needed “breathing space” to reduce its debt burden and deliver the best possible outcomes for business owners, creditors, employees, and shareholders alike.

As the economic shock of the coronavirus pandemic devastates local businesses, companies will need to consider how to best navigate these truly unprecedented times. Business rescue, and the opportunity it affords companies to restructure its financial affairs, may provide a much needed safety net for companies being battered by the prevailing local and global economic storms.

South Africa’s Economic Response to the Covid-19 Pandemic (Part II)

On 6 April, 2020, we published an article outlining South Africa’s initial economic response in support of its already ailing economy against the adverse economic effects of the coronavirus pandemic.  Two weeks have passed since we first published that article, and we think it is prudent to provide this follow-up, outlining the latest developments in South Africa.

The number of Covid-19 cases in South Africa has increased steadily, with, as of midday on April 20, 3,158 officially reported cases. President Cyril Ramaphosa announced as a consequence an extension of the initial 21-day lockdown period, adding a further 14 days until April 30.

With the social and economic effects of the extended lockdown having devastating impact on the South African economy –already in a technical recession before the first case of Covid-19 was reported in the country in early March– President Ramaphosa is reportedly considering a R1 trillion (approximately $53.5 billion) stimulus package. This stimulus packaged was discussed and agreed in principle at a meeting of the National Economic Development and Labour Council (Nedlac) on Friday April 17, and is said to be similar to the $2 trillion financial stimulus package recently announced by the United States Government insofar as it will seek to target those sectors hardest-hit by the lockdown by offering assistance to financially distressed companies.  How a stimulus package of this size would be funded remains to be seen, but the imposition of a one-off wealth tax is apparently being considered.  Such a stimulus package might also include further interventions by the Reserve Bank, possibly additional interest rate cuts or bond-market purchases, to inject additional liquidity into the financial markets.

In addition the proposed R1 trillion (approximately $53.5 billion) stimulus package, the following are some of the additional measures announced by the South African Government to support the economy:

  1. Finance Minister, Tito Mboweni, announced that the National Treasury will look to revise the country’s budget, to take into account the effects of Covid-19, and to ensure reallocation of any unnecessary spending to the Government’s anti-Covid-19 measures, as well as to the financing of growth-enhancing initiatives;
  2. The Prudential Authority – a regulator administered by the Reserve Bank – welcomed the measures South African banks had individually taken to support customers during this period of economic turmoil and uncertainty, and announced a raft of measures to support the banking system, including lowering the liquidity cover ratio – a ratio setting out the liquid assets a bank has to maintain in relation to its anticipated outflows – from 100% to 80%.  It is anticipated that these measures could, in theory, free up approximately R540 billion (approximately $29 billion) in reserves for South African banks to deploy in support of their customers;
  3. The Government and the banking sector are looking at establishing a ‘Funding for Lending Scheme,’ in terms of which the South African Government would provide government guarantees to South African banks, thereby enabling them to make facilities available to distressed businesses they would otherwise not be able to lend to. A similar intervention has been implemented in the United Kingdom;
  4. Reserve Bank Governor, Lesetja Kganyago, less than a month after his previous announcement, further cut the repo rate by 100 basis points, lowering the benchmark lending rate in South Africa to 4.25% – the lowest level since the apartheid era.  In making his announcement, Governor Kganyago noted that the Reserve Bank now expects GDP to contract by 6.1%, compared to the 0.2% contraction announced a few weeks ago;
  5. President Ramaphosa, on proclaiming the lockdown extension, also announced that the National Executive (being the Cabinet and deputy ministers), as well as all provincial premiers, will take an immediate 33% salary cut, which they will contribute to the Solidarity Fund. A number of executives from significant South African businesses have since announced large cuts to their remuneration packages which they will contribute to the Solidarity Fund – which now boasts a balance of R2.2-billion (approximately $117 million) since it launched on 23 March – this is a clear sign that business has rallied behind President Ramaphosa;
  6. The exemption of commercial banks from the provisions of the Competition Act to enable them to develop common debt relief approaches has been extended to the retail property sector, the hotel industry and the healthcare sectors; and
  7. It has been proposed that the Government should temporarily top-up welfare grants as a poverty-relief measure for as long as the pandemic lasts.

The United States has recently also stepped up its financial assistance to South Africa, with the United States Agency for International Development making $8.4 million (approximately R158-million) available to South Africa to aid its fight against COvid-19 pandemic.

Notwithstanding these actions, criticism is being levelled at the Government for the speed at which these economic interventions are being implemented.  While the Government was praised for its speed in implementing measures to control the virus, it is now being alleged that indecision and differences in political ideology are hampering the development and implementation of a comprehensive economic stimulus plan.  At a special cabinet meeting held on Wednesday 15th April, failed to agree on a decisive plan, instead resolving to hold another meeting on Monday, April 20. The outcome of that meeting remains unclear.

Despite this criticism, a R1 trillion stimulus package–an amount nearly equivalent to the government’s total spending of R1.95-trillion for the current fiscal year–would be a significant step forward for a country otherwise facing a deep economic recession.

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

COVID-19: Which South African Businesses Can Continue Operations During the Extended Nation-wide Lockdown?

The Department of Trade, Industry and Competition (the “DITC”) has issued guidelines for companies performing essential services to continue operations during the extended lockdown period, in accordance with the Disaster Management Act, 2002 (Act No. 57 of 2002) (the “Act”).

The guidelines provide as follows:

  • Only essential service providers registered in terms of the Companies Act, 2008 (Act No. 71 of 2008) (the “Companies Act”) are required to apply for a certificate to authorize operations during the extended lockdown period by using the Companies and Intellectual Property Commission’s (“CIPC”) BizPortal (www.bizportal.co.za) as of 17 April 2020. Other ‘essential service’ providers such as healthcare professionals and sole proprietorships (such as spaza shops) who are not in the ordinary course registered in terms of the Companies Act, do not require a certificate from CIPC, but should nevertheless comply with the Regulations;
  • The certificate will be sent via email using the details provided at the time of initial registration; and
  • The certificate will clearly state that it is applicable for the extended lockdown period which commences on 17 April 2020. This means that all certificates that were issued before 16 April 2020 are no longer valid and must be disposed of.

The Regulations as amended by Government Gazette No. 43232 on 16 April 2020 have further expanded the ambit of ‘essential services’ to include (among others): (a) wholesale produce markets, and informal fruit and vegetable sellers. Notably, the authorization for spaza shops and informal fruit and vegetable sellers to operate during the extended lockdown period should be obtained from the local municipality in the geographical area in which the spaza shop and informal fruit and vegetable sellers operate. All valid permits issued to these essential service providers before or during the declaration of the state of disaster and which fall due during this period, remain valid for an additional period of one month after the end of the national state of disaster; (b) gold, gold refinery, coal and mining; and (c) hardware, components and supplies required for any qualified trade persons solely for the purpose of emergency repairs at residential homes.

‘Essential goods’ have also been expanded to include: (a) hardware, components and supplies required by any qualified trade persons solely for the purpose of emergency repairs at residential homes; (b) hardware, components and supplies required by any entity engaged in the provision of essential services for any project related to the provision of water, electricity or other essential service; and (c) components for vehicles undergoing emergency repairs where such vehicle is used by a person engaged in essential services related work.

The Department has reiterated that issuance of certificates remains subject to companies complying fully with all the applicable Regulations available at link.

For further information, please reach out to Covington’s COVID-19 Task Force at COVID19@cov.com, Robert Kayihura at RKayihura@cov.com, and/or Mosa Mkhize at MMkhize@cov.com.

Audio and Key Takeaways Re: Covington’s Ability to Help Respond to the COVID-19 Pandemic in Africa


As a complement to our March 26, 2020 blog “Covington’s Ability to Help Respond to the COVID-19 Pandemic in Africa,” you may access the audio of our briefing call here.

Key takeaways from the briefing can be accessed here.

With African governments increasingly taking strong actions to impede the spread of the COVID-19 virus, including a number of jurisdictions imposing full lockdowns, a few of our seniors lawyers and advisors on Africa outline considerations and guidance that businesses should have top of mind during this difficult time.

Cross-cutting issues that have been addressed in the briefing include:

§  Force Majeure/Change in Law;

§  Navigating financing and commercial agreements;

§  Insurance considerations; and

§  Public policy considerations.

 

South Africa’s Economic Response to the Covid-19 Pandemic

South Africa did not record the first case of Covid-19 in Africa, but it now has the highest number of reported cases on the continent.

Having had the benefit of watching governments respond to the outbreak of the pandemic in Asia, Europe and the United States, President Cyril Ramaphosa on March 15, 2020, with only 61 confirmed cases and no deaths, declared a National State of Disaster that imposed a number of travel and other restrictions. Eight days later, the President took the further unprecedented step of announcing a national lockdown – a series of measures designed to stem the spread of the Covid-19 virus in the country.

In addition to the lockdown measures, the South African Government, the National Treasury of South Africa and the South African Reserve Bank announced a number of fiscal, monetary and other interventions to bolster the economy and provide a safety net for the most economically vulnerable. These interventions include, among others:

  1. Support for Critical Businesses: Funding of more than ZAR 3 billion (approximately $160 million) will be made available to vulnerable firms and businesses critical to the country’s response and recovery. The Industrial Development Corporation, together with the Department of Trade, Industry and Competition, will take active measures to support and stimulate the economy.
  2. Bridge Financing: To ease the disruption to certain critical supply chains, bridge financing is available to support supply chain interruptions as well as working capital to ensure energy security.
  3. Solidarity Fund: A Solidarity Fund has been created to which all citizens, corporates, businesses and the international community can contribute. The South African government is providing seed capital of ZAR 150 million (approximately $7.8 million).
  4. Employee Support: The establishment of a Temporary Employee Relief Scheme to assist distressed companies with wage payments in an attempt to avoid retrenchments.
  5. Unemployment Insurance: The government is working to deploy funds from the ZAR 160 billion (approximately $8.38 billion) Unemployment Insurance Fund for those who have lost their jobs.
  6. Tax Subsidies: For individual and small businesses whose turnover is below ZAR 50 million (approximately $2.7 million) will have access to tax subsidies and be permitted to defer: (i) 20% of their pay-as-you-earn tax liabilities over a four month period, and (ii) a portion of their provisional corporate income tax payments (without incurring penalties or interest charges) for a six month period. These concessions are expected to assist over 75,000 small and medium-term enterprises.
  7. Debt Relief Fund: The establishment of a debt relief fund by the Department of Small Business Development that will assist small and medium enterprises in distress from the pandemic.
  8. Bank Relief: The exemption of commercial banks from the provisions of the Competition Act to enable them to develop common debt relief approaches.
  9. Repo Rate Cut: The Reserve Bank of South Africa cut the repo rate – the benchmark lending rate in South Africa – by 100 basis points and embarked on a program of buying an unspecified amount of South African government bonds, in order to inject additional liquidity into the South Africa financial markets.

Contributions from prominent businesses and business leaders in excess of ZAR 5.5 billion (approximately $288 million) have also been made, and all of South Africa’s major banks have announced measures to support the most vulnerable South Africans and South African businesses. The financial contributions from these South African businesses and business leaders will be used to provide relief to small and medium enterprises affected by the Covid-19 pandemic as well as to purchase much needed personal protective equipment for South Africa’s healthcare workers.

While these measure are vital and encouraging, it will be a significant challenge for the South African Government to protect its economically vulnerable majority population. This was compounded on March 27, 2020, when Moody’s Investors Service (“Moody’s”) downgraded South Africa’s sovereign credit rating to junk status. Moody’s was the last credit rating agency to have South Africa’s long term foreign and local currency debt ratings on investment grade status. Four days later, Fitch Ratings Inc. (“Fitch”) further downgraded the five largest South African banks to junk status, and on Friday, April 3, 2020, further downgraded South Africa’s sovereign credit rating. Fitch noted that the decision was driven by the expected impact of the Covid-19 virus, and South Africa being particularly exposed to the pandemic which it warned is likely to lead to a decline in client activity and lower interest rates.

Significantly, South Africa’s finance minister, Tito Mboweni, said last week that he is prepared to approach the World Bank and the International Monetary Fund to assist South Africa in its fight against Covid-19—something that has been an anathema to successive ANC governments. Over the last three years, South Africa has borrowed an estimated $2 billion from the Shanghai-based New Development Bank, a financial institution created by the BRICS—an amalgam of Brazil, Russia, India, China and South Africa. Cyril Ramaphosa, in his capacity as chair of the African Union, also joined with Ethiopia’s Prime Minister, Abiy Ahmed, to press the G20 to provide debt relief and financial aid to those African countries most impacted by Covid-19.

Ultimately, the Covid-19 pandemic will pass and the world, and South Africa, will enter ‘recovery mode.’ What the economic recovery in South Africa might look like, or how long it might take, remains to be seen. In terms of acting quickly in order to protect the country’s citizens, however, President Ramaphosa’s leadership has been central to the government’s decisive response to Covid-19 in South Africa.

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

COVID-19: Which South African Businesses Can Operate During the Nation-wide Lockdown?

The Minister of Trade, Industry and Competition, Ebrahim Patel, has announced that all businesses permitted to provide ‘essential services’ during the national lockdown period in South Africa must first seek approval from the Department of Trade, Industry and Competition (the “DTIC”). If obtained, the approval enables a business to operate during the mandatory lockdown period in accordance with the Disaster Management Act, 2002 (Act No. 57 of 2002) (the “Act”), read in tandem with the regulations promulgated under the Act under Government Gazette number 43107 (as subsequently amended on March 25, 2020) (the “Regulations”).

The Regulations define ‘essential services’ as (among others): (a) grocery stores, including spaza shops; (b) electricity, water, gas and fuel production; and (c) laboratory and medical services. ‘Essential goods’ are defined as (among others): (a) food, such as any food product and non-alcoholic beverages; (b) cleaning and hygiene products, such as toilet paper and hand sanitiser; and (c) fuel, including coal and gas.

Companies that fall under the ‘essential services’ category must:

  1. Identify who in their business is classified as ‘essential,’ as identified by the permit to perform an essential service in Annexure C (Form 1) to the Regulations;
  2. Apply for a certificate using the Companies and Intellectual Property Commission (“CIPC”) BizPortal website at www.bizportal.gov.za. The portal will contain a menu icon listed as “Essential Service Business,” which will activate the process; and
  3. Ensure that all members of staff who are classified as ‘essential’ carry their permits at all times from midnight on March 26, 2020 until April 16, 2020. Failure to present the permit will result in individuals being forced to return to their place of residence.

The DTIC has advised that companies that submit false applications which do not qualify as companies rendering an ‘essential service’ as per the Regulations, will be subject to criminal prosecution and sanction.

For further information, please reach out to Covington’s COVID-19 Task Force at COVID19@cov.com, Robert Kayihura at RKayihura@cov.com, or Mosa Mkhize at MMkhize@cov.com.

 

 

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