Riot relief package price tag of R38.9 billion for South Africa

South Africa’s Treasury expects a relief package for businesses and individuals affected by this month’s deadly riots to cost 38.9 billion rand ($2.6 billion).

The government will spend an additional 31.2 billion rand and grant 5 billion rand in tax breaks, while 2.65 billion rand will be reallocated from within the budget, Edgar Sishi, the acting head of the budget office, said in an online briefing on Wednesday. The program won’t require additional borrowing, Treasury Director-General Dondo Mogajane said at the briefing.

Tax collections have exceeded expectations, especially from the mining and financial services industries, and the additional revenue will be sufficient to fund the relief package, South African Revenue Service Commissioner Edward Kieswetter said.

At least 330 people died and thousands of businesses in the commercial hub of Gauteng and the eastern KwaZulu-Natal province were looted or burned down in unrest that erupted on July 10. The turmoil could cost the country more than 48 billion rand in lost output, Kieswetter said.

While order has largely been restored, prolonged or repeated unrest could pose risks to the nation’s sovereign debt assessment, S&P Global Ratings said Monday. South Africa’s debt is rated at the lowest level since it first obtained credit ratings 27 years ago. Economists see the damage shaving as much as one percentage point off economic growth this year.

The Treasury’s briefing came after President Cyril Ramaphosa on July 25 unveiled a series of relief measures including the reinstatement of a monthly welfare payment of 350 rand until the end of March and a 400 million-rand state contribution to a humanitarian relief fund. He also announced support for uninsured businesses and other tax measures.

The welfare payments will cost the state 27 billion rand and the government will provide 5 billion rand to businesses, Finance Minister Tito Mboweni said at the briefing. The Treasury will increase allocations for the police and army to maintain stability, he said.

“We are going through difficult times in South Africa and difficult times require tough decisions,” the minister said. “We are rising to the occasion.”

The knock-on effect of the unrest could heighten the fiscal vulnerabilities of Africa’s most industrialized economy. Public finances deteriorated over the past decade as loss-making state-owned companies including Eskom Holdings SOC Ltd. and South African Airways received a series of bailouts and as the government repeatedly failed to rein in growth in public-sector wages or tackle graft.

The Treasury in February predicted that debt will peak at 88.9% of gross domestic product in the 2026 fiscal year. Policy makers still see economic output returning to pre-virus levels in 2023, Mboweni said.

Other highlights:

  • State-owned Sasria Insurance Ltd. and the Treasury expect to pay out as much as 20 billion rand in claims from businesses affected by the riots.
  • Sasria will get 3.9 billion rand in support from the government, and doesn’t expect to encounter liquidity problems.
  • The Treasury wants workers to have access to a portion of their pension funds for a limited period to enable them to weather the current crisis.
  • The government remains in talks with the World Bank about loan facilities that could be used to fund coronavirus vaccines.

Now read: Tremendous damage caused by looting shown in one table

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Riot relief package price tag of R38.9 billion for South Africa