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September 16, 2020

Africa

SOUTH AFRICA: Lockdown Level 1 loading

BY Anne Frühauf

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( 4 mins)
  • This evening, President Cyril Ramaphosa announced that South Africa’s pandemic lockdown would be relaxed to “Level 1” from 20 September, fully reopening the economy as well as international borders for the first time since March.
  • With South Africa facing a socio-economic and fiscal crisis of epic proportions, Ramaphosa signaled a Reconstruction and Recovery Plan to be finalized within the coming weeks.
  • However, today’s address was extremely scant on detail and only a highly specific document would trigger any optimism in markets that have come to expect little from successive administrations big on talk and short on action.

While South Africa – with a cumulative total of 650,749 Covid-19 cases as of 16 September – remains the continent’s worst affected country, the number of new infections has drastically fallen since late July, from an average of 12,000 new cases per day to less than 2,000. Also supporting the case for a comprehensive economic reopening is cautious optimism from medical advisors like Prof Shabir Madhi – a member of the government’s Medical Advisory Council – that firstly, the pandemic has been “less severe” than models had predicted and, secondly, that a fresh wave of infections, if it materializes, would likely play out more mildly and result in fewer fatalities.

Nevertheless, Ramaphosa’s message today was more cautious, warning of a possible resurgence. Public hygiene and social distancing measures will thus remain in place, including for social gatherings and mask wearing. International travel will be permitted for the first time since March, subject to testing/quarantine requirements. Taking no chances, the government also plans to increase testing now that capacity has been expanded, as well as contact tracing via a new application. Ramaphosa also announced a nationwide zero-prevalence survey of antibody testing.

Facing a record recession, a possible real unemployment rate of 50% and a fast-approaching fiscal cliff, Ramaphosa promised a reconstruction and recovery plan to be finalized by cabinet “in the coming weeks.” The president provided precious little detail except to say that the plan would build on the ZAR 500bn stimulus package announced in April.

The National Economic Development and Labour Council (Nedlac)’s “action plan” has yet to be published but reportedly focuses on priority issues including energy security and affordability, localization and mass public jobs schemes. For now, this does not appear to be the grand ‘social contract’ envisaged by Ramaphosa, but rather the lowest common denominator of shared priorities while each constituency – government, business and labor – holds on to its own broader plan. This suggests that the parties remain far apart, particularly on issues such as fiscal stimulus, public sector wages and potential layoffs, particularly at parastatals. For now, it looks like the best business may be able to achieve will be an easing of regulations in certain sectors.

Expectations around the plan will be low given the administration’s abundance of plans and its poor track record on implementation (the lack of progress on the public-sector wage bill and the painfully slow pace of reforms at Eskom being chief examples). At best, the government will be able to achieve positive momentum and short-term upsides in headline risk when the plan is announced.

One of the most important aspects will be how concrete and specific the plan is regarding the energy sector, given the extent to which fresh electricity shortages threaten South Africa’s post-pandemic recovery. The plan does envisage specific targets such as releasing the planned request for proposals for the next bid window for renewables independent power producers (IPPs) for January 2021 and fast-tracking energy self-generation projects above 1MW. These would be welcome short-term interventions, if implemented expeditiously, but bigger reform challenges, particularly Eskom’s ZAR 488bn debt burden, must be addressed urgently.

Other sectors that the plan hopes to bolster are infrastructure (including via public private partnerships); local manufacturing; mining (through “simplified” regulation); agriculture and agro-processing; rail, road and port infrastructure; the digital economy; tourism; and water and social infrastructure.

Acknowledging South Africa’s crippling fiscal constraints, the draft plan calls for “maximi[zing] the mobilization of international and domestic resources without undermining the integrity of the financial system.” All eyes will be on Finance Minister Tito Mboweni’s Medium-Term Budget Policy Statement in October.

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