Business sector welcomes the government’s support measures
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The business sector has welcomed the government’s support package to get the economy going again following the destruction left by civil unrest and lockdown restrictions.
President Cyril Ramaphosa on Sunday announced a range of measures to support economic recovery and provide relief to the poor and the vulnerable.
These include the reinstatement of the R350 a month special grant for the next seven months until March 2022, and R400 million for the Humanitarian Crisis Relief Fund to assist communities affected by the unrest.
“This has been made possible by the slight improvement we have seen in our revenue collection,” Ramaphosa said.
South Africa, one of the world’s largest exporters of commodities, has enjoyed a healthy trade balance this year on a tide of rallying commodity prices buoyed by rising global demand.
Business Leadership South Africa (BLSA) said the government’s package of support can be funded from expected additional revenues due to high commodity prices this fiscal year, but with caution.
BLSA chief executive Busi Mavuso, however, said this situation will not last forever and the underlying fiscal problems of the government cannot be forgotten in the medium run.
“There are other things the government can do to help. Some resources have not been spent from the Covid-19 response that can be redirected to support damaged businesses,” Mavuso said.
“It makes sense for the government to use some public financing to support the reopening of businesses that have long been an important source of tax revenue.
“If they instead close up, that is revenue lost forever and more people join the unemployed ranks.”
Analysts, however, said more details about the specifications of the relief measures were needed to accurately estimate the total costs of the latest round of government interventions.
Old Mutual Investments’ chief economist Johann Els said.
“Overall, these measures mean support for the economy that could potentially lift fiscal risk, but they are linked – positively – to faster economic reforms,” Els said.
Anchor Capital’s investment analyst Casey Delport said preliminary estimates indicated that the major components of the relief package might be covered by the likely revenue overshoot in financial year 2021/22, based on buoyant commodity prices and an ongoing recovery in general tax revenues.
“Nevertheless, long-lasting and strong support from commodity prices cannot be taken for granted, and we maintain the current commodity cycle will eventually taper out,” she said.
“Furthermore, in response to the recent unrest, we still see the risks to the economic growth rate as biased towards the downside.
“In other words, if global tailwinds remain exceedingly strong and the negative near-term impact of the unrest does not exceed current estimates, it is possible that the revenue overshoot may indeed offset the bulk of the announced relief measures for FY21/22.”
Delport said it was increasingly unlikely that the extension of social grants will ultimately expire, possibly paving the way for a basic income grant
“As has been clearly demonstrated thus far by the multiple extensions, once initiated, these types of grants are exceedingly difficult to roll back,” she said.