President Ramaphosa told the nation that in the eight days since he first declared a State of Disaster last Sunday, the global number of confirmed Covid-19 had jumped from 160,000 to over 340,000: a stark reminder of the virus’s exponential spread, and the reason why decisive action is needed, despite the undeniable economic costs.

Unless we “flatten the curve” and slow the rate of infection, he explained, the health services will quickly become overwhelmed and a great many South Africans will be unable to receive the care they need.

The lockdown, which comes into play from midnight on Thursday 26 March until midnight on Thursday 16 April, will see all shops and businesses closed, except for essential services like pharmacies, supermarkets, banks, healthcare providers, petrol stations and the JSE.

The cost to the South African economy will be severe. According to Investec Treasury Economist Tertia Jacobs, shutting down all but essential services is “likely to precipitate a deep recession in the second quarter as businesses close and job losses deepen.”

“The action we are taking now will have lasting economic costs. But we are convinced that the cost of not acting now would be far greater.”

A consultative approach

In formulating the stringent measures announced last night, President Ramaphosa took a consensus-based approach, consulting broadly with stakeholders from all spheres of South African society.

“The response from the various key players shows they’re pulling in the same direction, whether it’s business, government, labour, political parties, civil society or key organised bodies,” noted Investec Chief Economist Anabel Bishop.

7 key fiscal measures announced

The President went on to announce a series of financial measures to support small businesses and bolster the South African economy. These include:

1) Government will provide seed funding of R150 million for the newly formed, independent Solidarity Fund to which all businesses and private individuals, both domestically and internationally, are invited to contribute. The fund will be used to combat the spread of the virus.

2) The Rupert and Oppenheimer families privately pledged to provide R2 billion between them to support small businesses and their employees.

3) The Department of Small Business Development has made over R500 million available to assist SMEs in distress as a result of the pandemic.

4) Government will provide a tax subsidy of up to R500 per month for the next four months for private sector employees who earn below R6,500 per month. Ramaphosa said this alone will help over 4 million workers.

5) Tax-compliant businesses with a turnover of less than R50 million will be allowed to delay 20% of their pay-as-you-earn liabilities over the next four months, a move that is expected to help over 75,000 SMEs.

6) R3 billion in industrial funding will be committed to help vulnerable firms and to “fast-track financing for companies critical to our efforts to fight the virus and its economic impact”.

7) R200 million will be made available to assist SMEs in the tourism and hospitality sector.

From a policy perspective, the Reserve Bank last week reduced the interest rate by 100bps at the March MPC meeting, which will reduce borrowing costs. 

Where will the money come from?

Government’s measures are “a combination of tax relief and redirecting spending to support the income of workers and cash flows of SMEs through the establishment of various support programmes,” says Jacobs.

Ramaphosa stressed that the government will “act very strongly against any attempts at corruption and profiteering from this crisis.”

The Solidarity Fund, he said, would be run by well-known businesswoman, Gloria Serobe, CEO of Women Investment Portfolio Holdings, and Adrian Enthoven, Chairman of the Hollard Group.

Another reason for Moody’s not to pull the trigger

“The measures announced are full and broad,” says Bishop, and are in line with the protocols being observed by other countries.

Coming ahead of the looming Moody’s Country Review of South Africa on Friday, Ramaphosa’s decisive actions “will give Moody’s even more reason to take a wait-and-see approach” when considering whether to downgrade South Africa to junk status, Bishop adds.

A stable and “resilient” financial sector

In addition to the measures announced by government, a number of banks have launched debt relief packages this week.

In his speech, Ramaphosa stressed that “South Africa has a safe, sound, well-regulated and resilient financial sector… Since the global financial crisis we have taken steps to strengthen the banking system, including increasing capital, improving liquidity and reducing leverage. With a strong financial sector and deep and liquid domestic capital markets, we have the space to provide support to the real economy."

Swift and decisive action

Pointing to lessons learned from other countries who have weathered the crisis, Ramaphosa said swift and dramatic action has saved lives.

"It is clear from the development of the disease in other countries and from our own modelling that immediate, swift and extraordinary action is required if we are to prevent a human catastrophe of enormous proportions in our country."

"We will prioritise the lives and livelihoods of our people above all else, and will use all of the measures that are within our power to protect them from the economic consequences of this pandemic."