Governments globally have spent trillions in emergency aid to prop up ailing economies and stave off the effects of the worst financial crisis since the Great Depression. It seems to be working – but what’s been done in SA?
In one sense, SA has been lucky. Unlike in the US, UK, Europe and Japan, our Reserve Bank has not had to implement a troubled asset relief programme, nor have we had to nationalise banks or even provide “quantitative easing”. As Kevin Lings, Stanlib chief economist, says, “The Reserve Bank has not implemented one special measure to assist banks throughout this crisis.” But that’s where the good news ends.
Much of SA’s economy is export oriented, centred around commodities like gold, platinum, ferrochrome and coal. The rest of the world stops buying and we suffer. The latest Quarterly Labour Force Survey shows that 267 000 people lost their jobs in the second quarter of 2009, with those who have not actively looked for work for a month up by more than 300 000.
At 23.6%, the country’s unemployment rate is the highest of 62 countries surveyed by Bloomberg News. Jonas Mosia, industrial policy co-ordinator at the Congress of South African Trade Unions (Cosatu), estimates that the economy has lost “almost half a million jobs in the first half of 2009” and that “numbers could reach a million by the fourth quarter of 2009”.
Consumers have either stopped spending or throttled back. Demand for big-ticket items has been hit particularly hard – month after month, car sales have slumped, along with house prices. Bank repossessions in both sectors are at record levels, the banks themselves are reporting sharp increases in impairments, and debt counseling is one of the nation’s few growth industries. The national Council of Debt Collectors reports that as many as 50 new registration applications are arriving per week – a measure of demand, but also desperation. Patel’s six-pack
It’s a grim picture, this “sustained contraction in the economy” as Ebrahim Patel, SA’s economic development minister, puts it. He remains at pains to emphasise that government’s response is aimed at “jobs, food prices and addressing the indebtedness of consumers”. Patel has announced what he calls a “six-pack” of measures aimed at addressing these problems.
Top on his list is a R2.4-billion injection into the National Jobs Fund (NJF), coupled with R6.1 billion set aside by the Industrial Development Corporation (IDC). Patel says the NJF money is available to companies that would ordinarily retrench workers to use as an alternative.
“Workers would be put on a long lay-off of up to three months. During that period they would receive a training allowance of 50% of their wages and they would take part in a training programme. At the end of that period, they would be reabsorbed by their company.”
IDC funding will be made available “over the next two years to support firms that are facing financial difficulties because of the recession”. Other measures include putting pressure on national and provincial government departments to pay invoices within 30 days, as well as increased action by the Competition Commission to investigate the food supply chain. Patel also points to new rules and processes announced by the National Debt Mediation Association “to address debt restructuring so that consumers who are in debt can get some relief”.
The sixth item on Patel’s list is what he calls “a government intervention or programme to assist distressed sectors”. He says: “Fairly detailed work has been done with the automotive sector – there’s been an almost complete collapse of demand in the purchase of cars by South Africans and it has led to enormous pressure on car manufacturers and resulted in many job losses in that sector.”
Patel adds that government has also been involved in developing measures to aid the clothing and textiles, capital equipment, transport equipment and fabricated metals industries. Entitlement expectations
But should government be doing anything at all? Classic capitalism says efficient, profitable industries survive and the weak go to the wall.
Stanlib’s Lings is generally opposed to government bail outs: “US government intervention in that economy set a precedent which flowed around the world. Now, any industry or company that’s in trouble feels it needs to be bailed out too.”
His exception is the banking sector, which Lings says has a unique role in the economy. “If you have a situation where you’re looking at the collapse of the banking system if you don’t bail it out, and the consequence would be the collapse of the economy, then, under those circumstances, you have to assist.”
Mosia’s opinion differs fundamentally. “The structure of our economy is still very much along colonial lines,” he says. “We essentially remain an extractive economy, exporting minerals in particular and other agricultural products without adding value to them.
“We import finished products. A few industrial players dominate our economy and not a single sector has been unaffected by cartel behaviour. Compared to other middle-income countries, we still experience high levels of unemployment ... so reliance on markets to address these challenges is unrealistic. The recession has made the case for government intervention even more critical.”
Neren Rau, South African Chamber of Commerce and Industry (Sacci) CEO, takes the middle way. Rau is not in favour of creating a “dependency culture within the business environment”, but says there is a case for government intervention to promote competition and address abusive practices.
“Government could also support businesses when they have been impacted by extraordinary forces and events not of their own doing and would remain sustainable if it were not for such forces,” he says. Coming apart
Rau’s words describe almost exactly the part of the automotive sector that has been particularly hammered by the recession: automotive components.
Roger Pitot, executive director of the National Association of Automotive Components and Allied Manufacturers (Naacam) says the IDC’s bridging finance and funding “is there for companies that have found themselves simply strapped for cash and as a result they just cannot survive”.
Nineteen Naacam members have applied, says Pitot, of which three have already had funds approved. “It’s not a bail out – it’s for companies that were profitable in the past and that have a plan to be, within two or three years, profitable again.”
Pitot’s details are stark: “Three or four fairly notable companies have failed – those that employed more than a couple of hundred people. There are also a number of smaller companies – tier 2 or tier 3 suppliers, employing up to 50 people. Many of them have closed, too.”
Will the R2.4-billion retraining fund be enough? Pitot is philosophical. “Retraining is something we alerted the DTI to as early as April. We said that many of our members, whether vehicle manufacturers, or component manufacturers, are working a three- or four-day week and sometimes shutting down for a week at a time. It is very, very difficult for the workers to survive. Imagine if you’re getting three-fifths of your salary – it’s not easy to feed your family. But it’s a start and one has to start somewhere.”
Cosatu’s Mosia agrees. “The amount for training lay-offs and the IDC’s grants to distressed sectors is not sufficient. However, these interventions constitute a step in the right direction. We understand that during the recession all sources of revenue for government are being strained. Equity capital to struggling firms would help restore confidence in the economy.
“Discussions are still continuing at Nedlac to find additional resources to fund the framework for SA’s response to the economic crisis.” Speed of strike
Both Mosia and Pitot agree that government could have moved more swiftly. Mosia describes it as “initial dilly-dallying” but says the fact that SA now has a framework to address the crisis demonstrates “government commitment to addressing the crisis”.
Pitot is less charitable, pointing to swift government action in other countries, but cites the March election as a reason for the delay: “One understands that things moved a little slowly. It was a result of bad timing.”
Sacci’s Rau also blames the elections, but says that responsibility is shared across all economic stakeholders. “Action plans must be implemented a lot quicker than in the past. We believe the tail end [of the recession] is approaching, so if implementation implementation plans are not executed immediately, they may have less of an impact than they could’ve had.”
Describing what would constitute “a decent start”, Rau looks to good leadership: “We need to inspire our citizens and economic participants through the crisis.”
Patel concedes frankly that in the past they’ve had “significant problems” with both implementation and coherence. “But the recession is forcing us to act more coherently.” He remains in no doubt at all about the need for government intervention, citing recent research into its effectiveness.
“There’s been considerable work done recently on the biggest impact for every rand of government stimulus. Direct spending in the form of infrastructure and social spending has a bigger short-term impact than tax cuts – so we want every rand government spends to have the biggest pro-employment and anti-poverty impact, and targets the consequences of the recession.”
Unlike the US and UK, SA has not intervened aggressively to prop up the banking system. Nonetheless, the global recession has hammered the economy.
In response, government has provided R2.4 billion for retraining and R6 billion for cash-strapped companies. Critics welcome the steps, but remain concerned about the lack of policy coherence and the speed of implementation.