The banking industry may need to step in to provide financial relief to other sectors of the economy that the R500 billion coronavirus package President Cyril Ramaphosa announced on Tuesday is not reaching, says Investec CEO Fani Titi.
The case in point is large businesses that generate more than R300 million in turnover a year. The R200 billion loan guarantee scheme that the president announced has been earmarked to help small and medium businesses will not accommodate them. The scheme which government will soon roll out in partnership with the country's major bank will only assist companies with a turnover of less than R300 million a year in its initial phase.
"Each of the banks have reached quite deeply into their pockets to support society and small businesses. But in addition, there obviously will be a need to support larger businesses.
"Some of those businesses will have access to capital markets, through debt programmes or through rights issues. We'll continue to work on solutions in addition to the R200 billion programme that has been announced by Treasury," he said.
The details of the scheme are still being considered by different banks who will each announce details of their participation and any additional qualifying criteria within the next week, said Titi. He sais the SA Reserve Bank has relaxed capital adequacy requirements for banks which has put them in a better position to extend more relief to their clients.
"We have to support society at this time of crisis," he added.
More sectors remain outside the safety net
While Titi spotted the gap in catering for bigger businesses, Black Business Council President, Sandile Zungu, also pointed out that informal businesses like spaza shops and chesa nyama, who are not registered taxpayers, may too not be able to access these loans.
Similarly, Glen Silverman, director and CEO of GS Investments pointed out on Thursday that people who work in the gig economy, such as entertainers and freelancers, have been left out of the safety net as they do not qualify for the unemployment insurance fund benefit. Commission earners have also raised similar concerns.
Titi said the limitations to government's stimulus package were, however, understandable, given that SA had no room in its fiscus to wiggle in the first place. In fact, a stimulus package equivalent to 10% of the country's GDP almost matched that of the USA, which has so far injected a stimulus of just over 10% of its GDP, he said.
SA's response still exemplary
Titi previously voiced concerns that the country's lockdown could result in social harm. He said the Covid-19 package, of which R50 billion will be directed towards topping up social grants and in temporarily providing Social Relief of Distress grant to unemployed individuals, has to a large extent addressed the immediate social distress in the country.
And because most people understand that the drastic lockdown measures the president took were necessary, they will most likely "respond appropriately".
He added that the country's "bold and scientific" approach to responding to the virus threat trumped that of well-resourced UK in which Investec also has operations. For instance, the UK has struggled to carry out significant mass testing, he noted.
But even then, SA's economic response, which he considers to have lagged behind the health response, needs to be given more thought. Because the relief that government has provided is only temporary, SA needs to get back to productivity to limit the depth of its recession in the medium term, he said.
"The lockdown cannot be too long because people generally live from hand to mouth and from paycheque-to-paycheque. The relief that the president has put in place will help, but it is not substantial given how restricted our fiscal space is," he said.
A longer road awaits
The phased opening of SA's economy, which will see different industries being allowed to resume operations at different stages of the country's five phases of the lockdown, is well thought through, said Titi. But as structured as it may be, it is unavoidable for some sectors, like hospitality and property to come out much worst off, especially as more people will probably stick with their working-from-home arrangement fir the long-term.
"I think it will take 18 to 24 months for people to go back to not worrying. Normal retailers in my view, are going to see lower walk-in volumes. In the longer-term, the prospects for expanding retail capacity is likely to be muted," he said.
Malungelo Zilimbola, CEO and chief investment officer of Mazi Asset Management, said the property sector in general is in trouble because with most people working from home, companies have realised that they do not need as much space as they currently occupy. The accelerated move towards online shopping will also likely cause retailers to reconsider their space in shopping malls.
"I think we are going to new normal and I think that the sector that is going to be most impacted is the property sector…expect maybe for warehousing given online shopping and import trends," he said.