Economic impact of the recent unrest: National Treasury and PBO briefing

NCOP Finance

24 August 2021
Chairperson: Mr Y Carrim (ANC, KZN)
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Meeting Summary


In a virtual meeting, National Treasury presented briefly on the impact the social unrest had on the economy. National Treasury emphasised that the unrest that occurred in Gauteng and KZN will have an effect on the National Gross Domestic Product growth. It also listed the number of sectors that were affected by the unrest. National Treasury mentioned that South Africa’s risk premium increased, and the rand depreciated as a result of the social unrest. Long-term borrowing costs will remain elevated after the social unrest. National Treasury also emphasised the importance of the yield curve indicator. It concluded its presentation by indicating the negative impact the social unrest would have in the long-term. The presentation was brief because National Treasury will only have proper estimates by the time of the Medium-Term Budget Policy Statement.

Members noted that the presentation was of reasonable length and that National Treasury would not know the long-term impact immediately. It will take a long time for the economy to recover from the social unrest.

There was a heated debate as to what caused the social unrest. Some Members of the ANC said that while it was orchestrated and caused by the ANC, the social unrest was a result of poverty as well. In order to ensure social unrest does not occur again, the structural inequalities need to be addressed. Some Members of the ANC said that this discussion should not be politicised. Other Members of the Committee stated that it was largely due to the ANC’s looting of funds. The citizens who are paying taxes and contributing to the economy should not be blamed.

The ANC was concerned with the fact that a large percentage of small businesses might close permanently. Members wanted clarification from National Treasury about the possibility of the small businesses being resuscitated.

The ANC agreed that the Social Pension Fund was necessary to redress structural inequalities. Other Members disagreed with giving social grants because it would be preferable to have an environment conducive for economic growth and investment. Government needs to focus on creating opportunities for employment and ensuring domestic and international companies will want to invest in South Africa. Also, the borrowing cost is extremely high and so, there was a need for an environment conducive for investment. Therefore, according to some Members, land expropriation is not a good solution because there should be a focus on ensuring economic growth. However, some Members mentioned that land expropriation will be discussed the following day in the appropriate forum.

Members of the Committee asked if the Defence Force and police will be funded additionally for its deployment during the social unrest. Some Members were worried about the fact that soldiers were not receiving enough food.

Members were concerned about the numerous amounts of claims that Sasria received and wanted to find out how Sasria would receive funds for these claims.

Members asked National Treasury if there would be big reductions in revenue collections as a result of the social unrest.

The Chairperson suggested that National Treasury should also brief the other relevant committees in joint committee meetings on the impact of the social unrest.

Meeting report

Briefing by National Treasury

The Chairperson noted that it was unfair to impose on the Department’s time given the many challenges it is facing, particularly, the events that occurred in July.

Mr Duncan Pieterse, Deputy Director-General: Economic Policy, NT, briefed the Committee on the economic impact of the recent unrest. He welcomed the opportunity to share the Department’s research work with the Committee. The Department has been researching this topic for the last few weeks in preparation for the Medium-Term Budget Policy Statement (MTBPS).

The expected effect of the unrest in both GP and KZN on the GDP growth

KwaZulu-Natal (KZN) and Gauteng account for 50 per cent of the national Gross Domestic Product (GDP). KZN, which bore the brunt of the unrest, accounted for 16 per cent of the GDP. Since Gauteng and KZN are big provinces, anything that materially affects the economy will have an impact on the national GDP. The South African Property Owners Association (SAPOA) indicated that the cost of the unrest is estimated to exceed R20bn in KZN and the overall impact on the national GDP will be R50 billion.

Over 200 shopping malls were targeted and 1 787 retail stores were impacted and damaged. SAPOA estimated that rebuilding of the malls that were impacted may take up to two years depending on the size of the mall and the extent of damages. The Department said that it focused on the retail sector because it is one of the sectors with the highest employment multipliers. Thus, if the sector is affected, it will exacerbate unemployment.

The rebuilding of malls and shopping centres will positively impact the GDP, but there is still uncertainty around the unrest itself which might remain for this term. In terms of the Departments macro fundamentals, the rising of the risk premium and the weakening of the currency will impact its investment prospects.

There were reports of unrest in other provinces. However, the damage was limited.

Sectors affected by the unrest

The transport sector was impacted by the interruptions of supply chains.

The agricultural sector was impacted by the unrest in KZN through limited market access and disruptions of transport. As a result, the input costs and food supplies were impacted. There is an expectation for food inflation.

The mining sector benefited from its favourable pricing environment and its high demand, but some mines were reported closed as a preventative measure.

The manufacturing sector was impacted through the damage to manufacturing plants and logistical issues constraining the sector.

The BeyondCovid research initiative indicated that SMME business accounted for 89 per cent of the businesses impacted by the unrest. Only six per cent of the businesses were open and 44 per cent were closed temporarily. Seven per cent of the businesses are now permanently closed. The Department stresses that this is quite important because these businesses are vulnerable and uninsured.

South Africa risk premium increases

The risk premium is the additional interest that buyers of South African debt demand in order to continue buying South African debt. The risk premium increased faster compared to South Africa’s emerging market peers. Other emerging market peers risk premium increases as well. However, South Africa’s risk premium widened quicker. This has implications on the nature of government spending.

The rand depreciated due to the uncertainty by the unrests

The rand has been appreciating since June 2021 due to the rising commodity prices. However, during the time of unrest the rand depreciated by 2.4 per cent. The emerging market’s currency remained unchanged during this time, therefore, indicating that the rand depreciation was a result of the unrest.

Long-term borrowing costs remain elevated after the unrest

The yield curve indicates the interest rate that South Africa pays for each maturity that it has in its debt portfolio. The yield curve is low and not as steep on the short-term debt. On the longer end of the yield curve, the interest rate is much higher. This is because investors need to be rewarded via the risk premium for holding South African debt for longer. Borrowing costs have increased in response to the unrest but it has recovered. If one looks at the bond yield curve, it is clear that the unrest caused investors to demand a higher interest rate which affects the debt service cost.

Importance of the yield curve indicator

The yield curve indicates the interest rate payable on government debt issuances at different maturities. If the maturity is longer, then the interest rate payable to reward investors for the risk is high. Also, the yield curve determines South Africa’s total debt service cost. To lower debt-service costs and allow more space for spending, South Africa will have to lower the interest rates on our debt.

Negative impact the unrest will likely have beyond 2021

The economic damage from the unrest could significantly reduce the South African national GDP growth for 2021. This shock to the economy does not account for some value chain disruptions and the resultant output effects. There are estimations that the GDP will still remain below pre-shock level after six quarters. This could have a scarring effect on employment and sentiment that may impact potential growth. Also, the third wave of the pandemic coupled with the recent unrest will likely impede the momentum in the overall economic recovery.

(View the presentation for further details.)

Mr Dondo Mogajane, Director-General, NT, said that the Department is currently internalising the new estimates and are looking for various models so that it can provide proper estimates for the MTBPS. The Department will look closely at the estimations because the national GDP growth has a direct impact on tax revenues and also how the Department approved the fiscal policy. The Presentation was short since the implications of what has been said will be finalised only when the MTBPS is presented.


The Chairperson noted that what was presented seemed sensible to him in light of the fact that the Department was not meant to appear for this meeting. The Committee was hoping to process the Bill that is stuck because the National Assembly changed its plenary programs due to the unrest. Therefore, it was premature to ask the Department to present, since the unrest recently occurred. It is also too early to see what impact the unrest had on the economy. In light of the fact that the MTBPS is coming up, the presentation was of reasonable length. He jokingly said that Mr D Ryder (DA, Gauteng) did not come to the last meeting because the Chairperson would not be there to fight with. The Chairperson noted that he has a slim chance at suing Mr Ryder for defamation.

Mr D Ryder amusingly said that it was a ‘good coincidence’ that both he and the Chairperson missed last week’s meeting. On a serious note, Mr Ryder noted the impact of the unrest. Going forward, it is going to take some time to recover. He asked the Director-General if he could inform the Committee about Sasria’s involvement as Sasria has already received claims. There has been an indication that Sasria claims are going to be substantially more than usual. Sasria is estimated to receive claims up to R20 billion. The large number of claims will affect National Treasury. ‘Is there existing funding for those claims or will the money come from other sources’? It will take some time for an in-depth understanding of the unrest and for the impact to unfold.

Mr S Du Toit (FF+, North West) noted that the previous Minister said that ‘God forbid, we have another wave of COVID’ and yet, that has happened. It is evident that South Africa cannot afford to pay the poverty relief grants in spite of the unemployment rate in South Africa. Before the constituency period, the Chairperson mentioned during a previous discussion that it would be cheaper to pay R250 grants than for unrest to result. Mr Du Toit jokingly asked how the Chairperson knew an unrest would happen and if he is under investigation for ‘being pre-emptive’. Directed at National Treasury, he asked firstly, what effect a second shutdown would have on the economy. It is evident that the unrest negatively impacted South Africa. South Africa is under the ‘spotlight’ by investors. Since the land bank has been downgraded and the effect it has on the development bank of the country, there will be more difficult times ahead. Secondly, where do the funds come from? ‘Where did the funds for the R250 pay-outs come from’? ‘Thirdly, where does the additional funds (that has not been budgeted for) for the deployment of SAPS, the SADF and the support given to small and medium businesses come from’? ‘Fourthly, should the unrest occur again, can the economy recover again since debt service costs will rise’? ‘Will the country recover since the tax base is getting smaller and less money is going into the fiscus’?

Mr W Aucamp (DA, Northern Cape) was concerned about the fact that the last Minister of Finance stated that, ‘South Africa has no room for error’. Apart from the unrest, government was making mistakes before that. ‘When the unrest occurred, there was going to be a large effect on the national GDP. Therefore, what is the short-term financial plan if riots occur again’? Whenever something happens, there is a big effect on borrowing costs and on the downgrades. This was seen in the presentation where South Africa’s borrowing cost is R233 billion, and the health budget is R247 billion. In this pandemic, it is going to have a long-lasting effect on spending. South Africa’s borrowing cost is almost the same as the health budget. However, the business security budget is less than the borrowing costs. Due to poor peace and security, the riots occur, and the fears of riots result in increasing borrowing costs. It is like a ‘snowball effect’. ‘Where do all these problems come from’? Government does not know what the long-term outcome is on unemployment and this further effects on the borrowing costs because in a social state there is less people working who have to support (through taxes) unemployed people. Since there is no margin for error, the DA has said multiple times that expropriation of land without compensation will have a huge effect on the economy. Expropriation is a big issue. He just came back from public hearings on land expropriation and noted that expropriation of land and the Zondo commission has led to there being a downgrade and resulted in the cost of borrowing. ‘Therefore, what is National Treasury’s advice with regard to any actions that will result in being further downgraded and a negative effect on the short-term and long-term borrowing costs’? Government cannot pursue actions that will increase South Africa’s costs. What is the National Treasury’s opinion on that’? Lastly, in relation to the slide on the depreciation of land why does the South African rand have more fluctuations than other emerging markets?

Mr M Moletsane (EFF, Free State) asked what it meant for the impact of unrest on Gauteng and KZN in light of the small budget and was there going to be enough money to keep the security personnel in those provinces. This is because the soldiers were complaining that they were not given enough food.

The Chairperson wanted to draw attention to what was said in the media which indicated that there was an enormous impact on the economy due to the unrest. Over R50 billion was the loss on the GDP and 1 000 job losses. However, only six per cent of the impacted SMME businesses are open as usual. This is a glaring fact. Since 51 per cent of impacted businesses have closed and seven per cent have permanently closed, there is no prospect of the latter businesses reviving. Since 44 per cent of businesses were closed temporarily, is it implied that these businesses will be resuscitated and function? Or, is it not known as to whether these businesses will actually start functioning again? He asked a similar question covered by Mr D Ryder on Sasria. Firstly, is Sasria solely funded by the state and how does it function? Secondly, does Sasria give small businesses the full amount they have lost or a percentage of that? ‘How long does this process take? This would obviously depend on the type of claim and the size of the claim. ‘Nevertheless, does National Treasury know how long this process might take? Will the first pay-out occur during the first two to three weeks and the last pay-outs occur after six months from now’? If the Department does not know, it can write to the Committee at a later stage.

The Chairperson asked if it is possible and appropriate, National Treasury should brief all the committees in a joint sitting, especially the Economic Cluster Committee in both Houses, and other relevant committees. It might not be appropriate to raise it with the Minister since it is a bit soon and the MTBPS is coming up. However, the National Treasury could address the House. The Chairperson did not advise a House Sitting where there are rigid speeches and biases from the different parties. The impact of the unrest should be addressed in a Committee meeting which is more interactive. Even though the MPs know more or less about the impact, the brief was ‘stunning’ and will ensure MP’s will exercise their oversight more rigorously. Also, most departments need to be involved to stimulate economic growth. There need to be convictions of the people who orchestrated the unrest. The Chairperson is quite involved in KZN on this matter and stated undoubtedly the unrest was orchestrated. Therefore, other departments should be involved and deal with the issues that fall under their portfolios. In order to do so, the departments must come to terms with the impact of the social unrest and COVID-19 (by which there might be a fourth wave of in December) on the economy. ‘How is National Treasury preparing for the possibility of a second attempt at social unrest which is linked to the former President’s release from prison and the campaign to bring down the current executive administration’? ‘There has to be some consensus within Parliament and the various committees. National Treasury’s Cabinet colleagues can brief the Minister and other officials can communicate or delegate this submission’. The Chairperson said he would raise this issue on behalf of the NCOP if the majority of the MP’s agree with this idea.

The Chairperson agreed that in order to come to terms with the impact, there has to be a discussion on the causes of the social unrest. He noted that not everybody would agree with each other, but everyone is free to express their opinions. The politically loaded term ‘riot’ is an inappropriate term. The term was used by the apartheid regime in the 1976 uprisings. The Chairperson did not wish to ignite any arguments but in his own view, the social uprisings were to be expected. A social explosion has been looming for many years due to the inequalities in this country. A recent study indicated that ten per cent of the country owns 85 per cent of the wealth. The grants are unsustainable but if it was not offered, the country would collapse. The social unrest coupled with the COVID-19 pandemic ensured that this social issue was brought forward. There is no doubt that it was orchestrated but it was also an uprising against inequalities. There were poor people who joined in. There were also middle-class people with their trucks looking for expensive devices Therefore; it must not be ignored that the unrest might occur again. The violence that occurred was ‘terrorism’. The Chairperson addressed this issue to Treasury because he knew their collective position on these issues. In a democracy, there cannot be such huge racialised inequalities. The Chairperson has been involved in the Khan Road settlement where Indian vigilantes burnt down 41 households and 31 has been set up again. The situation is heart-breaking. Twenty-seven years into the democracy, and there is still inequality. For example, the people who live in shacks in the Khan informal settlements look across the road, in winter, at an expensive house with electricity and heating. These people noted that the people across the road immigrated to this country. Overall, these structural inequalities need to be addressed or else this social unrest will occur again.

While the Chairperson stated that he does not know the personal views of Treasury on a social pension fund nor does he fully understand all the variables and balances needed, it is clear that there is a need for a Social Fund. ‘In light of the fact that this social unrest will flare up again, what is government doing’? The police cannot be deployed constantly, but government can reduce the inequalities. While it will not end South Africa’s problems, it will substantially reduce our problems. This issue is an ongoing discussion that needs to be discussed with other committees too.

Mr S Du Toit said that while there are inequalities, people who contribute to the economy should not be blamed for causing these inequalities. The inequalities are always being referred to in the Committee meetings. However, the majority party never acknowledges its looting of state funds. Since South Africa is already a welfare state, instead of focusing on the Social Fund, government needs to focus on growing the economy and ensuring equal opportunities for everyone. Mr Du Toit stated that he does not wish to have a debate but he would like to state his view on the matter.

The Chairperson said that he does not blame those who contribute to the economy. He was misunderstood on this point.

Mr Du Toit pointed out that by stating that ten per cent of the country owns the economy, the Chairperson was blaming those who contribute to the economy. He does not agree with the Chairpersons view.

The Chairperson clarified that the report showed that ten per cent of the top income earners have 85 per cent of the wealth. It is a structural problem. While the inequalities are highly racialised, he stated that it is not completed racialised. There are many African people who form part of that ten per cent, such as the former President. In the area where the Chairperson comes from, there are many white people who look old and are begging by the traffic lights at night. Nobody would want an old man begging at that age, regardless of their race. Hence the need for a Social Pension Fund. The Chairperson agrees with the fact that this country needs big businesses and international investment more than ever. However, he disagrees on the other points. Those points can be debated about at some other stage. It is important to figure out how to manage the process. Other MP’s can use the term ‘riots’ as other ANC comrades use the term as well. However, in his view, the term implies that the unrest is done mindlessly. The Chairperson thinks that the cause is structural. Most parties besides the FF+ agree on this position. However, those parties usually differ in their approaches to address the problem. It is not a debate that the ANC are the prime culprits. He emphasised that everyone is allowed to share their own positions.

Responses from National Treasury

Mr Mogajane agreed that other Joint committees should be informed on the impact of the unrest on the economy. National Treasury needs to take into consideration the access of opportunities and the issues of unemployment into government programmes. Sasria is one of the only state-owned companies that has provided National Treasury with a dividend. Companies such as Telecom and OUTsurance will get R800-900 million depending on whether there is a dividend or not. However, this is the first time that National Treasury will be backstopping Sasria with R3.9 billion as indicated in the support measures. That still might not be enough. However, in terms of Sasria’s financial profile, if it exceeds certain thresholds or reaches the R20 billion thresholds then shareholders will need to help out. It would have been ideal for Sasria to present to the Committee. Sasria is funded mainly by its own operations. Also, Sasria’s cover is extremely cheap. Sasria is not solely dependent on National Treasury. Mr Mogajane noted that the question on funding is quite a relevant question.  National Treasury is not going to borrow money for the support measures on small businesses or funding the social grant. National Treasury will not rely on the over collection of the revenue services as what was done in the first quarter of the year. In terms of how funding will be carried out, National Treasury is going to ensure that it is abiding by the law. This week, National Treasury tabled Section six provisions and Section 16 for these measures to be processed. It was also referred to the relevant committees that these Bills need to be processed in order to regularise the funds for the support packages. National Treasury does not want to err in terms of legalities. National Treasury can recover. National Treasury is involved in the Operation Vulindlela front because it improves the economy. Government recognises that it still needs to do more. He agreed with Mr Aucamp that there is no room for error in administering the process. National Treasury recognised that it is important to focus on implementing the programmes that will uplift the poor. Implementing these issues still remain a challenge.

Mr Pieterse responded to the question on the volatility of South Africa’s currency. Firstly, the currency seems volatile relative to the average (which is indicated by the other line on the chart). However, it is volatile compared to other emerging market peers because South Africa’s economy is linked to other global commodity prices. If an economy is linked to commodity prices that are fairly volatile, then macro fundamentals such as the exchange rate will be volatile. Also, firms and buyers of South Africa’s commodities need to purchase dollars and South African Rands to trade in those commodities. Global risk dynamics has an implication on the currency as well, but the main factor is the commodity prices. The currency has strengthened this year due to very strong commodity prices. In terms of Operation Vulindlela, the Standing Committee on Appropriations requested to discuss the operation in detail. The operation is a joint initiative between the Presidency and National Treasury to accelerate structural reforms. This is important because it is the best way to ensure long-term growth and create jobs for South Africans. The operation has some early successes, such as the unlocking of private investment in generation. It is important to continue working with the Presidency and other departments to ensure there is structural reform.

Ms Boipuso Modise, Deputy Director-General: Public Finance, addressed the question on the impact of a possible future lockdown on economic growth. Many sectors of the economy were prohibited from operating, so the lockdown had a negative impact on economic growth. With the adjusted level lockdown approach, the economy is still operational and so there is less of an impact on economic growth. Level three lockdown this year, had a different impact on economic growth compared to the first level three lockdown as the former was targeted at more contact intensive sectors. The alcohol consumption industries, related value chain industries and transport services were affected by the alcohol ban. Therefore, the nature of the lockdown matters when considering the impact on economic growth. Human intensive services and mobility sectors are mostly impacted by targeted lockdowns. In the event there is another incident of unrest, the nature of the unrest will determine the impact on the economy. If it is contained quickly, it does not result in shutdowns of economic activity, and does not have significant damage to infrastructure, and then the impact will be less. Protracted unrest will affect the economic growth significantly because of the nature of the disruption. The literature shows that there will be a long-lasting impact from the social unrest.

Follow up questions

The Chairperson asked National Treasury to clarify whether the 44 per cent of businesses that closed temporarily due to the social unrest, will be revived?

Mr Aucamp agreed with the Chairperson that it is important to not make the same mistakes. It is clear however, that burning a school and breaking down the door of a blood-bank is not done out of poverty. In order to solve a problem, you need to admit what the problem is. It is important for the government and the ANC to admit that the social unrest is due to internal fighting within the ANC. The Committee is considering the financial implications of the social unrest but tiptoeing around the reason for the unrest. The social unrest was not due to poverty. If it was poverty, then what is the majority party doing to ensure the eradication of poverty? The unemployment rate is 44.4 per cent, which is disturbingly high. The policy issues that were raised such as expropriation and the cost of borrowing have not been effectively addressed. Government is not creating an environment conducive for opportunity for investment and so there is no job creation. The Social Pension Fund and expropriation will not create confidence for outside parties to invest in South Africa because those political policies do not create jobs.

Mr Ryder did not want to debate on the controversial topic in the appropriate forum as he is going to discuss it tomorrow. However, the DA does disagree. Since there is someone in National Treasury who deals with projections, he wanted to ask some questions around revenue collection. It might be too early to see the impact of the insurrection on the revenue collection. However, based on the markets, there was a general acceptance that there was a massive impact on the economy. The subsequent rebuilding will have a positive impact, but this is not a good thing because government is rebuilding something citizens have broken. However, the rebuilding will have a balancing effect. Nevertheless, one would still need to know how many businesses have permanently closed. In terms of projections, is there a projection for big reductions in revenue collections for July and August? Is there a plan to recover the economy? The government will need to admit that there are a number of shops that will not re-open and that will have a direct impact on the economy.

Ms D Mahlangu (ANC, Mpumalanga) said that she mentioned in the Zoom chat that she apologised for arriving late. She agreed with the other MPs that there is a platform for debating. This Committee must not politicise this meeting and instead come up with solutions and entertain National Treasury’s presentation. It is honourable to still remember what the previous Minister said, which was that ‘the problem still needed to be solved’. This issue is a continuous engagement and National Treasury is still discussing the matter with other institutions. So, she is happy with National Treasury’s presentation.

The Chairperson repeated the question on the temporary closed businesses. He said he was surprised that National Treasury was able to ensure a R36 billion rescue package because of the rise in revenue. All parties agree that the quintessential issue is to ensure economic growth. The majority of this Committee agree that the unrest and the COVID-19 pandemic undermine the prospects of investments from domestic and international businesses. ‘However, in the projections, is the economy over-dependent on the commodity cycle? Is the commodity cycle still going to last’? ‘In terms of revenue, the mining sector is rescuing the economy, but there is a loss of revenue due to the closure of businesses. Municipalities are revitalizing those businesses by telling demolished businesses to not pay rates for the year. However, municipalities are not getting revenue. Also, the army cannot be getting hungry. This is a big challenge for developing countries’. While he agreed that there needs to be an environment for conducive to growth, there should still be a reduction of inequalities. ‘Inequalities do not produce conditions for sustainable growth. So, is there any way to ensure there will be food for the Defence Force? The green paper on Social Fund is not a final paper. The MPs should understand that there is no finality on a green paper. The editor in chief of the City Press pointed out excellently that citizens want the fund, but the citizens do not trust government to manage the funds. The problem is partly due to the ANC looting the funds. It is also due to inequalities. Despite the fact that the issue can be debated tomorrow, it can still be engaged with today. National Treasury cannot reduce the possibilities of unrest, without understanding the cause. The ANC is primarily responsible for the poverty because it is the governing party of the democracy’. The Chairperson cleared up that these comments were addressed to National Treasury. There is an acknowledgment that the ANC is blamed for the orchestrated unrest, but this must not distract the MPs from the structural issues. He stated that Mr Aucamp’s points were based on a misinterpretation of his comments. The Treasury has to deliver the money, and so the structural inequalities need to be engaged with. Also, parliamentary committees cannot function blindly. It needs to find out the causes before it figures out the solutions. National Treasury should still present to other committees if the majority agrees to it. The Economic Cluster committees could meet National Treasury since there is time to meet with virtual meetings. He reiterated that there is no harm in a debate and in different positions and views.

Follow up responses by National Treasury

Mr Mogajane said that National Treasury increased the budget of the Defence Force to R700 million. If there is more unrest, the Defence Force will receive more money to ensure that soldiers do not go hungry. The police were also given R300 million in addition to the budget allocated, to address budget pressures. The additional money for the Defence Force and police should be enough. If money is needed, there will be an adjustment budget. In terms of the Social Fund, National Treasury is trying to ensure there are no issues with the Social Development cabinet. The biggest issue that needs to be discussed is the whole Social Security Reform agenda. It is important to allow Cabinet the chance to give its view and for National Treasury to have one composite view on how to approach this issue. The R350 social grant is a good basic income grant. National Treasury wants to provide more for the vulnerable in the country. The governing party will be advised about the contesting views, but it is the governing party’s decision. However, National Treasury does give advice to the government that is evidence based.

The Chairperson mentioned that Mr Z Mkiva (ANC, Eastern Cape) is not well because he is currently sick. The Committee wishes him well.

Ms Modise said that it is too soon to see how many businesses can be resuscitated. The health of those businesses prior to the unrest will determine their ability to be resuscitated. Smaller businesses that are not a part of established value chains tend to be more susceptible to changes in cash flows and shocks. She repeated what Mr Mogajane stated earlier, that National Treasury is not in a position to explicitly state its position on revenue. However, based on the information on economic activity, and revenue collections, the beginning of the year had mixed revenue. The combination of lockdowns and load shedding, which is a key risk to economic growth, have been counterbalanced with an innate sense of momentum in the economy. Forecasters, including National Treasury, underestimated the innate sense of momentum at the time of the Budget. The first quarter GDP outcome was surprisingly positive. In the second quarter, National Treasury is contending the net effect of these balanced forces. National Treasury thinks that the impact of the lockdowns will have some impact. The impact of the unrest will also have a dampening impact on potential economic growth.  The load shedding during June and July will have an impact on the economy depending on the resilience of some shops to the shocks. National Treasury is trying to balance and assess the net effects of the economic momentum on economic growth. It will have an impact on the tax bases and subsequently, the Departments view on what revenue can be collected. The Department does not know the extent to which commodity cycles will last. National Treasury estimates that these commodities will hold up in 2021. The extent to which it will last remains to be seen. However, National Treasury is watching the data on commodity cycles closely as it considers its forecasts.

Ms Vuyo Guma, Director: Economic Policy, clarified the question on the revival of small businesses. The Beyond COVID Research Initiative is a consortium of small businesses that ran a survey shortly after the unrest. If the Initiative ran a survey in a months’ time, there will be a different proportion of businesses that will intend to remain close permanently versus those that intend to reopen. Since small businesses are vulnerable, the factors that will influence their ability to reopen are varied. National Treasury is considering grants, which was already announced by the Department of Trade and Industry (DTI) and small business departments. These grants may not be sufficient for all businesses to recover its losses. Some factors that will negatively influence small businesses from resuscitating are a large funding gap, disrupted supply chains, and economic infrastructures around the businesses that are not timeously repaired. There are also psychological factors that will affect resuscitation. Some small business owners feel that the unrest was a personal betrayal, especially if it occurred in the small business’s communities. Some business owners might feel it is not worth it. National Treasury is worried about these factors given the fact that small businesses have potential for employment generation. However, there will be more concrete data on the small businesses by the time of the MTBPS.

The Chairperson noted that what was said on small businesses by Ms Guma was of concern.

Closing remarks

The Chairperson mentioned in closing, that hopefully all NCOP Committees could come together and listen to National Treasury’s input. He noted that the team is competent and also noted the new young members of National Treasury were very impressive. The broader issues of the nature, causes and strategies on inequality are part of an ongoing process which will be discussed the following day. There will be further discussions on the oversight work. At least the interactive aspect of these committee meetings helps during a political debate in the house. That process can be ‘for better or for worse’ but at least it is a democracy. Everyone is allowed to speak within the limits of the Constitution. He noted that everyone will meet tomorrow to discuss appropriations.

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