Over the past few weeks many South Africans have been trying to figure out what has happened to President Cyril Ramaphosa’s R500bn stimulus package. There is a view that there was a R500bn fund somewhere under the government’s control that has disappeared after only four months. The only people who seem to have benefited from this fund are ANC comrades, including children who belong to the “glorious movement’s” royal families.
On April 21, Ramaphosa announced the R500bn stimulus package, which was allegedly worth 10% of GDP. There were two components to the package. The “above-the-line” expenditure of R260bn, worth 5.1% of GDP, would go through the national budget. This comprised: R100bn that would be spent on job creation and the development of small and medium enterprises (SMEs); R70bn for tax relief; R50bn in increased social welfare grants to households; R20bn to be spent be on public health measures; and R20bn for municipalities.
The “below-the-line” spending of R240bn, worth 4.9% of GDP, would not go through the national budget. This comprised a R200bn loan guarantee scheme and R40bn that the unemployment Insurance Fund (UIF) would spend on providing benefits to people who had been temporarily laid off. The UIF would draw down its surplus, which was worth about R150bn at the end of March, according to correspondence from the fund.
There are three features of a stimulus package, which refers to the injection of new money into the economy. Taking money from Thandi to pay Thoko is not a stimulus. The size of the stimulus must be at least equal to that of the expected shock to the economy. On the face of it, the Ramaphosa stimulus was the same size as the expected 10% GDP contraction during 2020. Finally, the stimulus must be spent during the year when the shock happens. For example, in South Korea 97% of households received about R14,000 in June, which was loaded on a special credit card that will expire at the end of August.
On June 24, the Treasury’s supplementary budget provided details about the stimulus package. It cancelled the R100bn for job creation and SMEs and allocated only R6.1bn towards this item. It announced additional Covid-19 expenditure of R145bn, which was offset by budget cuts of R109bn. The increase in non-interest expenditure — the new money — was only R36bn or 0.7% of GDP, compared with the 5.1% of GDP that had previously been announced.
Reading through the fine print, R19.6bn of the R145bn is provisionally allocated and not immediately available. It will be allocated in future budgets. If this is true, R125.4bn will be available during the 2020/2021 financial year. This could mean the increase in non-interest expenditure for this year is only R16.4bn or 0.3% of GDP. However, there were significant opportunities for Covid-preneurs, who benefited from the reallocations. When the Treasury mentioned emergency procurement it should have been obvious what would happen.
The loan guarantee scheme has been reduced to R100bn. The banks have only provided loans worth R13.6bn. Since banks use normal criteria to grant credit, it appears people who get the loans would have received them without the guarantee. It seems disingenuous to count such schemes as stimulus since there is no additional credit that will be provided. In fact, bank credit will decline sharply during 2020 as thousands of businesses close and millions lose their jobs. The UIF has paid R40bn to 779,429 employers, who employed 9.1-million employees, according to Makhosonke Buthelezi, the fund’s director of communications.
This means the stimulus for this year is worth R176bn or 3.5% of GDP at best, or R56.4bn or 1.1% of GDP if one excludes the loan scheme and the R19.6bn that has been provisionally allocated. The government will have to announce a significant top-up of its stimulus package in its economic recovery plan.
• Gqubule is founding director at the Centre for Economic Development and Transformation.
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