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July 10, 2020

SOUTH AFRICA: Pandemic surge, policy uncertainty

BY Anne Frühauf

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( 5 mins)
  • Despite the accelerating Covid-19 “storm,” the government may hesitate to revert to harsher lockdown measures.
  • But the handling of the crisis poses growing political risks for President Cyril Ramaphosa, which could begin to fuel speculation about his tenure.
  • Economic policy responses will become more contested, as a new ANC paper envisions a greater role for the Reserve Bank in South Africa’s recovery.

Pandemic surge

As of 9 July, South Africa’s cumulative Covid-19 cases had surged to 238,339, with 3,720 deaths and a daily record of new cases of 13,674. Health Minister Zweli Mkhize has warned of a Covid-19 “storm” arriving, cautioning that hospital bed capacity not only in the public but also in the private sector may be breached in the next four weeks in all provinces. Gauteng has now overtaken the Western Cape as South Africa’s top Covid-19 hotspot.

The obvious question resulting from this trend is whether stricter lockdown measures may be reinstated. Mkhize this week pleaded with citizens to adopt stringent precautions to slow down the spread of the pandemic. Under the government’s “Level 3” restrictions that came into force on 1 June, about 80% of the economy has been allowed to restart, overwhelmingly driven by fears of the worst recession in 90 years. The devastating impact on the economy and livelihoods leaves President Cyril Ramaphosa’s administration with few options. The reinstatement of a “Level 5” lockdown seems unlikely, even in hotspots. More likely is tweaking the “Level 3” restrictions to reinforce tighter social distancing measures, including limiting the size of gatherings and introducing a curfew. Nevertheless, the government’s five-tier ‘risk adjusted framework’ could already be dead.

The handling of the crisis, which has exposed divisions in cabinet and has generated the impression that the president is not fully in control, poses growing political risks to Ramaphosa. While the onset of the pandemic afforded Ramaphosa a rare opportunity to demonstrate leadership and generated rare political consensus, the president now faces growing risks from health failings, on top of the lockdown’s devastating economic toll. The early lockdown was largely justified on the basis of enabling the government to ramp up health sector preparations and hospital beds, but a looming shortage of hospital beds and already apparent deficits of oxygen and PPE cast doubt over the extent to which the government used April’s hard lockdown efficiently to prepare for the “storm.” In a worst case, colliding health and economic crises may fuel speculation over Ramaphosa’s tenure, which could entail an internal challenge at the 2022 party conference, particularly if the ANC were to take a beating in the 2021 local elections.

Policy uncertainty

Given the depth of the impact on the economy and livelihoods, the president and the ruling party are under mounting pressure to demonstrate that they have a plan for South Africa’s economic recovery. Contestation over policy responses looks set to intensify, as seen with the debate over the emergency budget.

Much of the ANC’s discussion document “Reconstruction, Growth and Transformation: Building A New, Inclusive Economy” launched today, 10 July, is innocuous but lacks detail and cannot be financed or implemented quickly. Much of it echoes various presidential priorities: infrastructure as the “fly wheel” for South Africa’s recovery, private investment, industrialization and localization. But beyond a new infrastructure agency in the presidency, it offers few concrete proposals that are readily implementable or financeable.

Other statements are run-of-the-mill ANC speak: accelerating land reform and state ownership of the South African Reserve Bank (SARB). The document even revives old talk of “strategic minerals that will be designated for local beneficiation” (value-addition). ANC protocol demands that past party resolutions must be mentioned, but that does not make their implementation any more likely in the near future.

The most headline-grabbing elements are the need for “pro-growth and pro-investment monetary policy instruments” as ANC expectations for stronger SARB intervention could be moving from the ANC’s populist constituencies into the mainstream. According to the document, the pandemic has provided lessons regarding the role “the monetary authorities can play in injecting resources into the economy and in using bond purchases to stabilise capital markets and put downward pressure on longer-term interest rates.” The envisaged closer coordination between fiscal and monetary policy will mean little especially as long as Finance Minister Tito Mboweni and SARB Governor Lesetja Kganyago remain in office, though ANC policy debates may culminate in a SARB-related resolution over the next couple of years. In addition to the SARB, the paper also takes aim at the financial sector, calling for increased competition in the “oligopolistic” banking industry by speeding up “the establishment of a properly capitalized and governed State Bank,” which seems a pipe dream.

The paper also indicates that the ANC continues to eye pension funds to finance a fresh infrastructure push. Details remain murky, including proposed changes to Regulation 28 of the Pension Funds Act “to enable cheaper access to finance for development.” In relation to Eskom debt, “a solution needs to be found to Eskom’s debt problem, including the possibility of pension funds being mobilized to take over certain restructured Eskom assets.” This suggests that the idea of tapping pension funds, specifically the Government Employees Pension Fund (GEPF), to tackle Eskom’s debt mountain remains in play.

Many of these debates are not new and stand little chance of being implemented, let alone in an environment of deepening fiscal crisis. Still, the paper’s less palatable aspects, particularly growing expectations around the SARB, may contribute to confidence-sapping policy uncertainty at a time when Ramaphosa and the ANC are trying to talk up investment and public private partnerships.

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