Limpopo Socio-Economy Recovery Plan
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LIMPOPO SOCIO - ECONOMY RECOVERY PLAN T h i s p lan represent s the sum total of the government and its partners’ commitment to implement economic and social relief measures in mitigating against the impact of the COVID - 19 p a n d e m i c on the economy and the social fabric 1. BACKGROUND The combined effects of COVID-19 and the recession will be a double-edged sword for the South African economy. In the last quarter of 2019, the South African economy experienced a technical recession, as the economy slowed down to -2% in 2020: Q1 from -1.4% in 2019: Q4 following a decline of -0.8% in the preceding quarter. With the latest statistical release for 2018, the Limpopo economy also slowed down to growth of 0.6 from 2.1% in 2017. Given that the Limpopo economy is part of the national economy, the negative effects from the national economy will have spillover effects to the Limpopo economy. Unemployment has risen from 23.1% in Q4: 2019 to 23.6% in Q1: 2020. In the same period under review, Limpopo lost 13 000 jobs mostly in manufacturing and mining. The COVID-19 pandemic has resulted in the slowdown of the global economy and countries have applied various measures in an attempt to curb the spread of the virus. The most effective measure that countries have adopted from the “Wuhan lesson” is the measure for social distancing and subsequently locking down the territories to flatten the curve of new infections. The results of the measures against COVID-19 does, unfortunately, impact negatively on the economy everywhere in the world. Therefore, there is a strong correlation between the application maximum measures such as lockdown and slowing down of economic and industrial activities and subsequently, the economic decline. Before the COVID-19 pandemic, the long-term global outlook appeared positive. The coronavirus will have a negative impact in the short to medium growth outlook. According to the International Monetary Fund forecast, the global economy will contract by -3.1% in 2020 from a growth of 2.9% in 2019 before recovering to 5.1% in 2020. The Advanced and Emerging Market Economies are expected to contract to -6.1% and -1.0% in 2020, respectively. China, which has been a growth engine of the world for more than a decade will also decline and their growth outlook has been revised from 6.1% t to 4.8%. 1 See figure 1 for illustration: Figure 1: The Impact of COVID-19 on the Global Economic Outlook (Source: OECD Economic Outlook) World Economy Growth Projections The Covid 19 will have severe impact on economic activity in 2020 Emerging market & Developing Global Economy Advanced economies economies 8 5,8 4,5 6,6 6 3,7 4 2,9 2 0 0 -2 2019 2020 2021 2019 2020 2021 2019 2020 2021 -4 -3 -1 -6 -6,1 -8 Source IMF 2020 Sub-Saharan Africa is also forecast to decline to -1.6%. South Africa’s short-term economic outlook also remains bleak as a result the impact of COVID-19, as well as the recession in the last two quarters of 2019 and the sovereign credit downgrade by all three major credit rating agencies, namely: Standard and Poor, Fitch and Moody. It is now forecasted that South Africa will experience a decline (recession) by -6.1% in 2020. The most affected countries will be resource-intensive countries, tourism-dependent countries and oil exporters and the majority of African economies fall within these categories. From figure 2 (below), the IMF has forecast that in 2020, the tourism-dependent countries will contract by -5%, whilst the resource- intensive and oil exporters will contract by -3%. South Africa’s and Limpopo’s economies are dependent on the extractive industries and tourism and the impact from the reduced export demand and reduction in both international and domestic tourists will be felt in the economy for a foreseeable period. 2 Figure 2: The Impact of COVID-19 on the Resource-Intensive, Tourism-Dependent and Oil Exporting Economies (Source: IMF) 3 Figure 3: RSA Growth Projection (Source: SARB) South Africa GDP Growth Projections 2011-2022 4,00 3,50 3,30 3,00 2,70 2,50 2,50 2,20 2,20 2,00 1,80 1,40 1,50 1,20 1,00 0,80 0,40 0,50 0,20 0,00 11 12 13 14 15 16 17 18 19 20 21 22 -0,50 -1,00 Source StatsSA and SARB 2020 -1,02 -1,50 The South African Reserve Bank (SARB) expects national GDP in 2020 to contract by -6.1%, compared to the earlier forecast of -0.2%. The economy will however recover and grow by 2.2% and 2.7% in 2021 and 2022 respectively (see figure 3 above for illustration). The growth forecast for Limpopo, whilst not yet determined, can be expected to be negative following the decline of the South African economy. The decline that was experienced from 2.1% to 0,6% in 2017 and 2018, respectively, pointed to a further decline and a worse recession in 2019 onward. Whilst the long-term global outlook is still positive, policymakers in many countries are concerned about the prospects for long-term economic development. This is partly because the current expansion appears to be cyclical, bolstered by exceptionally low interest rates rather than by the fundamental drivers of structural growth. 4 Across the globe, it has become important for nation-states to develop economic recovery plans to deal with the negative impact of the recession and the COVID-19 pandemic. The stimulus packages by the two largest economies in the world (US and China) of US$2 trillion and US$1 trillion respectively will resuscitate global production and aggregate demand. 2. ECONOMY STIMULUS AND RECOVERY Governments across the world have devised stimulus packages to support their industries and people in mitigating against the economic slowdown caused by the lockdown. The idea around the stimulus and relief package has historical precedence such as the United States New Deal, which was a government stimulus programme to kick-start the economy after the Great Depression in 1929 and subsequently expanded to deal with the effects of the Second World War. In recent history, countries around the world have developed stimulus packages to counter the effects of the global recession in 2008/2009. In light of the current COVID-19 pandemic, many countries have now developed stimulus packages and relief mechanisms for the population and industries that cover the following: Relief mechanisms and tax breaks for corporates and small, micro and macro businesses to support the liquidity, wage bill and cash flow problems; Manufacturing and supply of COVID-19 testing kits, sanitizers and personal protective equipment; Support for the vulnerable in societies through cash transfers and food parcels. The following are the case studies of the US and China on the employment of stimulus packages to mitigate against the effects of COVID-19: 2.1. Case Studies on Stimulus and Recovery Programmes CASE STUDY 1: The US Economic Stimulus The US has a long history of providing stimulus packages during an economic downturn. During the 2008/2009 global recession, the US government allocated a stimulus package of US $1 trillion covering all the industries and its effect can be felt today, where the economy has been growing ever since and unemployment has been on average 7%. It was only in 2020 that unemployment has risen to 14% (2020: Q1) because of the COVID-19 impact. As a mitigating measure against COVID-19, the US government enacted the Coronavirus Aid, Relief and Economic Security Act (CARES Act). The act became the largest economic stimulus bill in modern history, more than doubling the stimulus act passed in 2009 during the financial crisis. 5 Table 1 below provides a visual representation of where the US $2 trillion will be spent. Broadly speaking, there are five components to the COVID-19 stimulus bill: Category Total Amount Share of the Package Individuals / Families $603.7 billion 30% Big Business $500.0 billion 25% Small Business $377.0 billion 19% State and Local Government $340.0 billion 17% Public Services $179.5 billion 9% Some of the highlights of how the money will be spent per categories are as follows: a. Direct cash payments to individuals and families ($603.7 billion) The centrepiece of this plan is a US $1,200 direct payment for those earning up to US $75,000 per year. For higher earners, payment amounts will phase out, ending altogether at the $99,000 income level. Families will also receive $500 per child. The direct cash payment will be segmented as follows: There will be a temporary suspension for any student loan held by the federal government. This means no payments required and no interest accrued until the end of September 2020; Borrowers with federally backed loans can request forbearance on mortgage payments for up to six months; There will be an expansion of unemployment benefits, including a four-month enhancement of benefits. This plan includes freelancers, workers in the gig economy and furloughed employees. b. Big Business (US $500.0 billion) This component of the package is aimed at stabilizing big businesses in the hard-hit sectors. The most obvious industry to receive support will be the airlines. About $58 billion has been earmarked for commercial and cargo airlines, as well as airline contractors. Perhaps in response to recent criticism of the industry, companies receiving stimulus money will be barred from engaging in stock buybacks for the term of the loan plus one year.