Former FNB CEO and venture capitalist Michael Jordaan said the government should give a direct income grant of R1,000 to adult citizens to assist them during the COVID-19 coronavirus shutdown.
Jordaan said the R1,000 income grant can initially be a once-off, but it may be needed again in future depending on the impact of the COVID-19 pandemic.
Jordaan also advised a 100 basis point interest rate cut by the South African Reserve Bank this week, but added that this will not be enough to rescue the economy.
He said other interventions, like tax cuts for low-income earners and small businesses, are needed to stimulate the economy.
To make up for the lost revenue associated with tax cuts and a direct income grant, Jordaan said the government must cut “ideological but zombie projects”.
This includes stopping bailouts for state-owned enterprises like SAA, Denel, the SA Post Office, and the SABC.
“Ask ordinary South Africans if they want tax breaks and income grants or rather support zombie state enterprises,” Jordaan said.
“They would give the smart answer to stop wasting money on failing state businesses.”
He added that the state should support citizens rather than try and run businesses that always need bailouts.
“If we cannot make tough decisions, we have to dial the IMF and ask for a bailout. But we can still rescue ourselves if we don’t waste the crisis,” said Jordaan.
Economic impact of the coronavirus
The coronavirus pandemic will have a massive impact on South Africa’s economy, with a continued recession and a downgrade from ratings agency Moody’s all but confirmed, said Efficient Group chief economist Dawie Roodt.
Speaking at a Sakeliga conference on 17 March, Roodt said the country was facing a “crisis on top of a crisis”, noting that South Africa’s economy was already predicted to have a bleak 2020 before the impact of the coronavirus was even considered.
“We had two subsequent negative economic growth quarters last year, with economic expansion around 0.2% for the full year of 2019. This was a ‘locally created’ disaster caused by wrong macroeconomic policies and an incompetent government,” he said.
Without the additional crisis of the coronavirus, Roodt forecast that South Africa’s economy would have grown by around 0.5% in 2020. But this is no longer the case.
The first quarter of 2020 is unlikely to be greatly affected by the coronavirus, he said, as it only hit the country in March.
Despite this, he believes that Q1 2020 GDP data will still be flat at around 0% or just below – meaning South Africa could have three consecutive months of negative growth.
“The second quarter is when we are really going to feel the impact and I expect a significant contraction of between 5% and 6%,” Roodt said. “The third quarter will likely improve a little bit but will still be negative. The fourth quarter might then see us report positive growth.”
While there are a lot of different factors to consider, Roodt said the economy will likely contract by 1% to 3% over the course of 2020.