Government Acts to Prop up Business
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Legalbrief | your legal news hub Tuesday 28 September 2021 Government acts to prop up business Although the finer detail hasn’t yet been spelled out, government is planning several measures – among them tax deferrals and targeted funding for distressed businesses – as it seeks to assist firms through the three-week shut down because of the coronavirus, notes Legalbrief. Some of the measures – including block ‘exemptions for banks’ from certain provisions in the 1998 Competition Act, enabling them to ‘support businesses and ordinary citizens’ during the ‘state of disaster’ – are listed by Trade, Industry & Competition Minister Ebrahim Patel in the Legalbrief Policy Watch section (below). In this regard, notes Legalbrief’s Pam Saxby, the Minister referred to ‘payment holidays and debt relief’; ‘limitations … on asset repossessions’; and ‘the extension of credit lines to individuals and businesses subject to financial stress’. A Business Day report quotes economists as saying the cost of the necessary support effort has yet to be tallied but the economic slowdown and the hit to tax revenues that would ensue is expected to have profound consequences. Dismissing speculation that support for small business would be based on black ownership levels, the Minister of Small Business Development Khumbudzo Ntshavheni said assistance would be extended across the board, irrespective of whether companies are majority black-owned or not. The department would roll out a new business growth and resilience facility aimed at helping small businesses, particularly those in the medical and hygiene, and food production industries, to build their capacity and strengthen local supply for critical goods during the crisis, she said. The facility would fund working capital requirements of businesses based on their costs and cash flow needs, at a rate of prime minus 5%. The department also launched the SME relief finance scheme, which will make working capital funding available to small firms that are 100% SA-owned and employ 70% locals. The funding will be available for six months, at prime less 5% from 1 April, notes Business Day. ‘The intention is to retain jobs and to allow minimum business continuity so that the ramifications on the economy are not that severe,’ she said. These measures will come alongside R3bn in industrial support for companies through the Industrial Development Corporation (IDC). This was to address the needs of vulnerable firms and to fast-track funding for companies critical to fighting the virus, said Patel. The IDC has relaxed requirements to include essential services that fall outside industries it ordinarily targets for funding. For the about 75 000 businesses with a turnover of less than R50m a year, SARS will grant a delay on 20% of their PAYE liabilities over the next four months. Firms will also be allowed to delay a portion of their provisional corporate income tax payments without penalties or interest over the next six months. The initial steps were welcome, but it was difficult to assess the likely effect of the relief measures as there was little data readily available on the size of PAYE liabilities, Kyle Mandy, tax policy leader at PwC, is quoted as saying. How they would be implemented was also unclear as they were likely to require the passing of legislation, he said. A special package of R500m has been set aside for trade finance to import essential medical products to fight the coronavirus, Patel said, according to Fin24. The amount forms part of a package of more than R3bn put together by the department and the IDC, which falls within its oversight. The funds are meant to help vulnerable firms and to fast-track funding to companies that are critical in efforts to address the impact of the coronavirus, Patel said. 'Apart from the R500m set aside for essential medical products, R700m will be made available for working capital, equipment and machinery. The funds will also be used to prioritise food security, by addressing surges in demand and to support supply chains that may be interrupted by the closure of large companies. Working capital will be made available to ensure energy security and to support component manufacturers. ‘The IDC has made R3bn available in the next quarter to support businesses during this crisis,’ the Minister said. Government confirmed workers have several Unemployment Insurance Fund (UIF) options. Most are existing benefits such as illness, support when sick leave is exhausted or short-time is introduced, and the loss of jobs. But, notes a Daily Maverick report, a new national disaster benefit will also be introduced, although Labour & Employment Minister Thulas Nxesi was short of details at yesterday’s economic Ministers’ briefing on the lockdown. What did emerge was this national disaster benefit would be linked to the R3 500 monthly minimum wage. ‘We will be explaining (the national disaster benefit) after the consensus with all the Nedlac partners,’ said Nxesi. ‘What we do not want to do is to talk about the figures. We can’t just pronounce figures and raise expectations. And then, later on, find it’s too expensive. Our actuaries are crunching the figures. Tomorrow (Wednesday) we will be making detailed announcements, including how this will be administered.’ The biggest policy gap remains the informal sector, also the most vulnerable during a national shutdown, says a Business Day report. Only contributors to the fund who are, or have been, in formal employment will be able to access the UIF benefit. The UIF Act specifies that the fund can be used only to provide unemployment benefits. Nxesi repeated the President’s statement on Monday evening that work is under way to find a mechanism or safety net to support informal sector workers. These might include shelters for the homeless and facilities for self-isolation when people are unable to do so at home. More on this in POLICY WATCH section (below) Analysts forecasts paint a bleak picture on the economy, notes Legalbrief. Last week Capital Economics forecast a 2.5% contraction for the economy this year as a result of the impact of Covid-19. This was before President Cyril Ramaphosa announced a 21-day lockdown and the mass closure of businesses. It now seems the 2.5% contraction is on the optimistic side, opines a Moneyweb report. Russell Lamberti, of ETM Analytics, believes a countrywide lockdown in the midst of a global financial and economic crisis could shear 10% off economic growth for the year. ‘With a countrywide lockdown, GDP could contract by 10% or more this year, and we won’t easily recover from this once the shutdown is over,’ says Lamberti. ‘What is more concerning to me than the virus itself is the reaction to it, which could be worse than the disease. The whole world is going into shutdown, and countless businesses will close their doors forever, leaving millions out of work. What concerns me is that central banks everywhere are then going to resort to the same prescriptions they have adopted for decades and engage in rampant money printing. I have strong doubts that it will work, and could actually make conditions far worse.’ Dawie Roodt, of the Efficient Group, recently wrote that the economy could contract 1.8% this year, but could just as easily shrink by 2.5% or even 3% as the impact of the coronavirus lays waste to whole segments of the economy. The first to be hit will be restaurants, hotels, airlines, hospitality and the retail sector. Barely a month after Finance Minister Tito Mboweni delivered his budget speech and bravely forecast economic growth of 0.9% for the year, those projections are now toast, with revenues to the SARS likely to massively undershoot the R1.54trn target for the current fiscal year, says the report. On the health front, Minister Zweli Mkhize has warned that government will take decisive steps to deal with people infected with Covid-19 who refuse to provide their personal information, according to News24. Mkhize said should a patient refuse to provide the government with personal information – including a list of contacts – it would disclose his or her name to the public. ‘We will go to the extent of making a public announcement that anyone who has come into contact with that specific person must present themselves.’ Mkhize said regulations allowed the government to do this. ‘While we know that there is an ethical obligation not to disclose patient information, with this outbreak we will exercise Regulation 18 which states that information concerning a case, contact or a carrier of the virus may be disclosed for the purpose of public health surveillance, investigation and interventions.’ Mkhize was the bearer of good news, too. Noting there are now 554 confirmed cases, the Minister said: ‘For some reason we are not seeing very severe cases,’ with the majority of people who have contracted the virus in SA experiencing relatively mild symptoms to date. Second, notes a Daily Maverick report, although Mkhize did not specify numbers, he said that not many of the current cases are the result of local transmission. The majority of cases were contracted while travelling abroad. The Health Minister said, however, that ‘for the next week or two’ experts expect SA’s case numbers to continue to rise. This will hopefully be the result of viral transmission which occurred before the lockdown – as the whole point of the lockdown is to prevent the virus from being passed further from person to person. In other Covid-19 news yesterday: The clothing and textile sector’s 80 000 workers have been guaranteed full pay for six weeks in what Business Day describes as a ground-breaking stakeholder agreement. The National Bargaining Council for the Clothing Manufacturing Industry announced that industry parties had reached a ‘ground-breaking agreement’ that would ensure workers got their salaries during the lockdown.