The R500 billion stimulus package announced by the President to fight the effects of the coronavirus on the economy has drawn mixed reactions. The reactions ranged from applause to complaints that the money is not enough. This is hardly surprising given the various interests in the country. One criticism that caught my eye though was that part of the money will be sourced from the international development finance institutions such as the IMF and the World Bank.
The Brentwood institutions, as they are also known, are also known for dictating economic policy to recipient countries, sometimes to their detriment. Given previous experience, where the 1996 IMF-inspired GEAR policies led to a massive economic down and job losses, the critics cannot be dismissed outright. In the year 2000, the National Institute for Economic Policy (Niep) found that, “since 1996, South Africa’s real GDP had grown by only 1,8%, well below the rate of population growth – in effect, negative growth”.
There is also a concern that funding the stimulus package from dollar-denominated loans – hot in the heels of an investment rating downgrade to junk status – poses an additional risk. In the first four months of this year, the rand has lost almost a third of its value to the dollar, thus making dollar-denominated debt even more expensive for South Africa. This raises a pertinent question as to why the money is not raised locally? With the South African corporates sitting with about R1,4 trillion in cash assets as of 2017, according to the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, there is surely an opportunity to use tax reforms to incentivize these corporates to inject the necessary investment into the economy.
With or without favourable loan instruments, the most important question we should all be concerned with is whether or not the stimulus package will really stimulate the economy. This is so because an additional 10% of our GDP in loans, which makes the R500 billion, has the potential to sink the country deeper into a financial crisis if the economy is not resuscitated to generate enough income to cover the loan. It is, therefore, imperative that the stimulus package works. Whether or not it works is also a function of how far deeper into the economy the money travels. That is to say, if the money lends in the same handful of hands that have piles of cash sitting idle with very little to no idea of what to do with it, then the economy will not recover.
With some of the latest reports regarding COVID-related spending by both by the Solidarity Fund and the National Treasury, indications are that we are going down the same slippery slope of economic exclusion. The blatant absence of any oversight mechanism to ensure equitable spending between established White-owned firms and Black-owned SMMEs is of great concern. This is true of both the Solidarity Fund and the National Treasury. The latter has centralized all COVID-related procurement without any meaningful clarity on its commitment to sure equitability. While it would be irresponsible to accuse these institutions of discriminatory practices without facts, it is a matter of fact that they have both been publicly challenged in this regard and neither has provided a satisfactory repose so far. Instead, the likes of the Black Business Council (BBC) have come out complaining about what they describe as suspension of BEE laws during COVID.
Yet the political rhetoric going around is that COVID-19 has presented with the country the importunity to transform. While delivering the budget appropriation, the Finance Minister lamented the opportunity for local manufacturing. Others have made similar lamentations, including the opportunity for reindustrialization, revitalization of the township economies, SME development and development of Black Industrialists. However, what we are seeing on the ground suggests that there is still some work to be done to make these lofty ideals a lived reality.
Whilst we focus on saving people’s lives from the coronavirus, it is important that we do not lose sight of the fine prints on some of the big decisions being made to save the economy. In this regard, we need to encourage the government to raise all the investment needed to stimulate the economy, locally. We also need to demand greater accountability on how the stimulus package is distributed between pockets of the economy. Specifically, the president must be implored to consider setting up an independent oversight body that will work with both the Solidarity Fund and The National Treasury to ensure equitable participation of Black-owned firms in the procurement of goods and services to fight the coronavirus. This is the only way we can ensure that the stimulus package does stimulate economic growth and we can pay back the billions.
By Alex Mabunda, CEO of Ntiyiso Consulting