The economy could contract by 10% and over one million people could join the ranks of the unemployed due to the impact of Covid-19, according to preliminary modelling by Business For South Africa (B4SA), an alliance founded four weeks ago in response to the pandemic.

The alliance of South Africa business bodies and organisations on Tuesday morning hosted a webcast where it gave details on its support for government's efforts to combat the impact of Covid-19 on health, the economy and labour.

Speaking during the call, B4SA's Martin Kingston shared more on the efforts of the economic intervention working group, which expects the SA economy to only recover in 2021.

A contraction of between 8% and 10% of GDP is expected in 2020, he said. Capital flows will also be restricted for the rest of 2020, he added. "[This] will fuel the number of people joining the ranks of the unemployed," said Kingston.

So far B4SA expects over one million people to be jobless in the aftermath of the crisis. Government's fiscal deficit is expected to balloon to 10% of GDP. According to the February 2020 national budget, Treasury expected the deficit to be 6.8% of GDP.

B4SA has also been in regular consultation with government, particularly the National Treasury, the SA Reserve Bank and the Presidency on plans to reinvigorate the economy post the crisis.

"[They are] highly receptive to our input and the stance business has taken to provide unconditional support to the national effort to combat Covid-19," Kingston said. Kingston said he was hopeful that the "unprecedented level of cooperation" between the parties would be sustained, beyond the crisis.



B4SA is also working with government to determine how best to lift the lockdown restrictions, specifically in critical sectors of the economy.

"We are in dynamic discussion with government on the basis of which lockdown can be released; in whole or in part, regionally, sectorally or demographically or by age," said Kingston.

There are a number of factors being considered – sectors are being assessed in terms of their contribution to GDP employment, level of exports, risk of transmission, among other things. Kingston added that any decision regarding the lockdown will not compromise the health of South Africans.

South Africa will have to restructure its economy in response to the impact of the pandemic, Kingston explained. The economic recovery anticipated in 2021 will require "significant fiscal stimulus," he said.

In the interim, support must be provided to small and medium enterprises and larger companies who might face a liquidity crisis.

"We are in discussion with Treasury and the Reserve Bank on what structures are appropriate," he said.



One such a financial support mechanism is available through the Unemployment Insurance Fund, which has made available a new benefit to employees during this time. The structure of the benefit was finalised last week through a process which involved discussions at National Economic Development and Labour Council (Nedlac), said B4SA's Robert Legh.

When asked on B4SA's views on an income or welfare grant for people to support their families, Legh said that the alliance was supportive of such a scheme and even tabled a proposal to Nedlac on this. "It is an affordability issue. The question is for Treasury to start answering on that one," said Legh.



B4SA also pointed out that the Solidarity Fund established by government, and which already has raised R2.2 billion will also be used to support communities in distress.