A dummy’s guide to the economy recovery plan everyone is talking about

We read it so you don’t have to.

If we had a Rand for every time we heard the term “economic recovery plan” in the last twenty years and actually managed to stay awake long enough to understand it, we’d be … pretty broke. So when we heard about yet another one this last week, the impulse to take a siesta was strong.

Just such a plan – a new one – was up for debate on Wednesday in Parliament. Members of Parliament debated the new Covid-19 economic recovery plan, which was presented by President Cyril Ramaphosa to Parliament last week.

This time, we paid attention to all 5000 words of his presentation, so that you don’t have to 😊. In this explainer, we’ve asked economist and one of Ramaphosa’s advisors Thabi Leoka to explain what the plan means for ordinary people.

But first, let’s catch up on what is in the plan:

In a nutshell, the plan outlines how government plans to invest heavily in infrastructure and use localisation – that means getting things done and buying locally – to boost the economy.

Here are the highlights:

  • Government will invest R100 billion in mass employment programmes, and 800 000 employment opportunities will be created in the next year;
  • The R350 Covid-19 grant will be extended and other, small grants will be rolled out to small scale farmers and cultural workers
  • A large infrastructure build programme, driven from Ramaphosa’s office, will take place and will include the eradication of the country’s 143 mud schools (finally!).

Read more here.

Government has been working on the plan for ages. The plan has wound its way through tortured debates within the governing ANC; survived the rough and tumble boardroom discussions of “Nedlac”, where business, labour and government meet; and had even made it through the battleground that is Ramaphosa’s cabinet of ministers.

It’s a critical intervention given that over two million jobs have been lost as a result of the pandemic. (Read more on that here, and catch up on our unemployment series here and here.)

So, what does all of this mean for you? Here’s what Leoka, who is on the Presidential Economic Advisory Council, had to say.

Explain: Assuming the plan is implemented, what does it mean for

– Someone who relies on a covid grant? 

TL: The President mentioned a three month extension to the Covid grant. This will help vulnerable South Africans who have lost their jobs. It will also provide added support to recipients of social grants as they will be receiving a top-up. R350 is not a lot of money but I have read some wonderful stories on social media about people who started a small business out of that R350. One guy who bought vegetables to sell is making R250 daily.

  An investor nervous about investing in SA? (For example, will energy security improve?) 

TL: The energy sector will continue to struggle because we are faced with capacity constraints. We are not producing sufficient energy for the needs of the country and our power stations are strained after many years of overuse without maintenance. Pressure is being exerted on government to reform the energy sector so that private users can generate power for their own usage and those with access energy should be able to sell back to Eskom. I believe that government will have no choice but to reform the sector. Investors should not be deterred if they understand the risks. South Africa is a very transparent country compared with others. So investors generally know what they are getting themselves into and our many plans are public.

– Someone who is unemployed? 

TL: The recovery plan is targeted at the unemployed. The second quarter unemployment numbers revealed that 2.2 million South Africans lost their jobs. We need to ensure that these people are absorbed into the workforce, including those that were unemployed prior to the pandemic. The recovery plans have targeted the unemployed but not all will be absorbed into the workforce given the current plan. More private sector involvement in job creation is needed to deal with the unemployment problem.

– Someone who has seen their business go under during the pandemic? 

TL: The government created the Loan Guarantee Scheme worth R200bn so that banks can extend funding to SMMEs (Small, Medium and Micro Enterprises). Unfortunately the uptake has been slow and banks appear to be using strict criteria to extend loans to ailing businesses. Those businesses that are not in good standing with the banks are unlikely to have received loans. The President, in his speech on the Recovery Plan, appealed to the banks to extend loans so that SMMEs can help resuscitate the economy.

Explain: What does the infrastructure development investment promise mean for ordinary people? For example, will it mean better roads and schools in my local municipality? More jobs? 

TL: The fastest way to recover from this pandemic and one way to ensure sustained growth is through infrastructure development. The country has neglected investment in infrastructure and this has resulted in poor road conditions, schools and hospitals. The construction of new roads, schools and hospitals, for instance, will ensure that more children get access to schools where the teacher and student is not overwhelmed by the number of pupils in one class. Roads will facilitate the transportation of people, goods and services especially in remote areas of the country and hospitals will provide the much-needed healthcare to many in rural and peri urban areas. There are also many hospitals that are in a poor state due to lack of maintenance. The infrastructure drive will also create jobs directly and indirectly-linked to infrastructure projects such as catering. Infrastructure development should not be limited to South Africa. There are great opportunities for South African infrastructure companies in neighbouring African countries.

We’ll be watching finance minister Tito Mboweni’s budget speech next week closely to see where he finds the money to fund Ramaphosa’s ambitious plan. Keep an eye out for our next explainer on what that budget will mean for you.