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South Africa Must Put Locals First Post Virus, Mboweni Says

South Africa Must Put Locals First Post Virus, Mboweni Says

(Bloomberg) --

South Africa needs to rethink the structure of its economy as it emerges from the coronavirus pandemic, and ensure locals are favored for jobs and other economic opportunities, Finance Minister Tito Mboweni said.

Restaurants and other businesses should be compelled to ensure at least half of their staff are South African, while more manufacturing should take place locally, Mboweni said in an online media briefing. He also called for all informal trading stores -- many of which are owned by foreigners -- to be registered, pay tax and have a bank account.

“People who want to approach banks or government for funding must demonstrate that they do have a labor market and employment policy that favors South Africans,” Mboweni said.

While the minister denied his comments were xenophobic or discriminatory, they are nonetheless likely to raise eyebrows in a country that’s experienced intermittent violence targeting foreigners. In 2008, about 60 people died and more than 50,000 were displaced in a wave of xenophobic attacks across the country.

Mboweni also suggested that a central government body could be established to identify and reallocate underutilized farm land -- a controversial idea in a country where ownership disparities have prompted the ruling party to propose changes to the constitution to make it easier to expropriate property without compensation.

Job Losses

Prior to the onset of the coronavirus, Africa’s most industrialized economy was already grappling with a 29% unemployment rate and was stuck in its longest downward cycle since World War II -- a slump that largely stemmed from nine years of misrule by former leader Jacob Zuma, who left office in 2018.

The pandemic and a lockdown that came into effect on March 27 to contain spread has compounded the nation’s woes, with the central bank anticipating a 6.1% contraction in gross domestic product this year. Economic workgroup Business for South Africa projects there could be 1 million job losses.

Mboweni’s comments didn’t bode well for South Africa’s recovery and appeared to be a marked turnaround from previous statements in which he advocated a smaller role for the state, said Dawie Roodt, the chief economist at Efficient Group.

“We are in a total command economy, they are going to prescribe everything,” Roodt said. “Are these the kind of discussions that they are having in cabinet? If I was in cabinet, I would be so concerned people are getting hungry. That is what is going on. Between 1 and 2 million people are going to lose their jobs. That’s what I would be concerned about.”

Rescue Package

President Cyril Ramaphosa this week announced a 500 billion-rand ($26 billion) package to mitigate the crisis. Measures include 200 billion rand in guarantees for banks to encourage them to lend, a 100 billion-rand allocation to protect and create jobs and an additional 50 billion rand for welfare grants for the poor and unemployed. The plan will be funded by reprioritizing 130 billion rand of expenditure from existing budgets, and borrowing from domestic and international lenders.

While an adjusted national budget will be presented within the next few weeks, many of the measures announced could be accommodated in the current fiscal framework, according to Mboweni, who sidestepped questions on how the rescue plan will be funded. Infrastructure spending should continue, while the boost to welfare grants couldn’t be a permanent measure and would end after six months, he said.

Mboweni dismissed ideological opposition to the government seeking loans from the International Monetary Fund and the World Bank, saying the country was entitled to apply for aid and would do so. As much as $60 million could be raised from the World Bank, while a request has been made for a loan from the New Development Bank, which has set aside $1 billion for its member countries.

Some of Mboweni’s comments were positive, including a pledge to trim unnecessary expenditure and an indication that the government will work more closely with private investors to develop new infrastructure, said Sanisha Packirisamy, an economist at Momentum Investments. A move to formalize more small stores could also boost tax revenue and health standards, she said.

On Thursday, Ramaphosa said the lockdown will be eased at the end of the month, and a concession that allows grocers and pharmacies to keep trading will be extended to some other businesses. His ministers are due to announce details of the new rules on Saturday.

©2020 Bloomberg L.P.