Lockdown is supposed to be over, but it isn’t.
In fact, it’s just getting weird now, with increasingly strange decisions coming out of government. I’m sure nurses and doctors really appreciate the nonsensical ban on frozen prepared meals when they get home late at night. At least Fikile Mbalula can be proud of his Easter road death toll statistics, which (shock and horror) are the best they’ve ever been.
Against this frustrating backdrop of economic turmoil, there are a variety of relief measures available to support South African businesses. In some cases, applications have already closed. Regardless of whether you qualify or not, it’s important to understand what’s going on so you can gauge the overall impact on the economy.
Spoiler alert: the extent of relief available is hopelessly inadequate to support South African businesses over this period.
Individuals, listen up. This is basically the only relief measure available to you. It applies to businesses, too.
The big banks worked with the South African Reserve Bank (SARB) to give themselves some room to move with relief measures. The SARB regulates a number of highly complex banking rules that the banks must adhere to, so relaxing some of these rules helps them provide relief.
Make no mistake though, there is a clear economic rationale behind their marketing departments’ social media posts proclaiming their love for their clients.
The critical thing to understand is that interest on your loan is still accruing over this period. Thankfully, interest rates have dropped significantly, so that cost of loans has reduced greatly for consumers, but the bank is still earning a return. A further benefit to the bank of the payment holiday is that the term of the loans is effectively extended, which means they keep existing loans available for longer instead of having to find new clients to lend to.
However, just because this is helpful to the banks doesn’t mean it isn’t helpful to you as well.
Naturally, the relief varies depending on the bank and will only help clients with outstanding debt. In some cases (e.g. Standard Bank) the relief is targeted towards SMMEs and lower earners. In contrast, ABSA is giving broad relief across its client base.
It’s simply luck of the draw whether your bank is offering relief that helps your circumstances. You should fully investigate your options.
Benefits of using a payment holiday:
- Interest rates have dropped substantially, so provided you weren’t on fixed rate debt, the cost of interest has come down for you and therefore missing a few payments isn’t as expensive as it would’ve been a few months ago
- If your earnings have taken a knock, it lengthens your runway to see out this crisis with existing savings
- If you are able to afford debt payments, you may still want to consider opting in on a payment holiday to give yourself a slush fund in case your job isn’t as secure as you hoped, or in case family members need assistance, or even to invest in e.g. shares if you believe you can earn a return significantly higher than the cost of your debt
So, depending on which bank you are with and what debt products you have, this is a helpful way to give yourself some breathing space for three months.
If you are a business owner, you should seriously consider taking advantage of everything your bank offers, because the rest of the relief measures are slim pickings I’m afraid.
The Rupert fund – Sukuma Relief Programme
Johann Rupert created a R1bn fund to support South African businesses. It is administered by Business Partners, in which Remgro (Rupert’s investment company) holds a 42.8% effective interest. If I was putting R1bn towards relief measures, I would also insist on a trusted party handling the administration.
Applications for this programme temporarily closed on 6 April to allow applications to be processed. It will only reopen if applications were unsuccessful or if additional funds are raised i.e. if there is any money left to disburse. There probably won’t be, as the scheme was hugely oversubscribed. That’s no surprise when you see the other options.
A promise was made that payment would be made within 7 working days of application, so many people should have already received assistance.
Rupert has a soft spot for sole proprietors. The programme offers a grant of R25,000 to be used towards overheads. Applicants must be tax and regulatory compliant and must have evidence of formal operations prior to the COVID-19 outbreak. This is literally a R25,000 hand-out for those sole proprietors who met the deadline and can prove tax compliance etc.
Close Corporations, Companies and Trusts
The programme offers an unsecured, interest-bearing loan of between R250,000 and R1,000,000 coupled with a non-repayable grant of R25,000 per qualifying business. The loan is interest free for 12 months with no repayment obligations during this period, which is amazing.
After 12 months, it incurs interest at prime and is repayable.
Although there was some annoyance in the market that this is a loan instead of a donation, the reality is that the terms are so favourable that there is a significant gratuitous element to the package. The banks certainly aren’t offering interest-free deals for a year and aren’t giving away R25,000 grants either.
Importantly, there is no security for the loan either, vs. the extensive security requirements that banks have for business loans. They almost always require personal sureties etc.
This scheme is the pick of the litter. Well done if you applied in time!
The Oppenheimer fund – South African Future Trust (SAFT)
Nicky and Jonathan Oppenheimer also set up a R1bn fund to assist South African businesses. The family elected to approach the banks to administer the funds, which makes sense. In other words, you apply through your bank.
SAFT funds are for a very specific purpose: funding to pay R750 per employee per week for a period of 15 weeks. The payments are made directly to employees.
SMMEs with annual turnover below R25m can apply, provided they have been trading for at least 24 months and are in “good standing” as of February 29th 2020, presumably a nod to all CIPC and SARS admin being up to date.
Importantly, the company must not be able to pay or retain permanent employees. The fund assists those employees and puts the liability for that assistance on the employer via a loan that is interest-free for 5 years. Once repaid, the funds in the trust will be used for other economic initiatives in years to come.
Payment is also promised to be made within 7 days.
It appears to me that this scheme was designed as a top-up to the UIF benefits, assisting employers to pay employees a greater portion of their salaries over this period. It doesn’t allow an employer to fund a salary that would’ve been paid in full anyway.
It’s quite an odd structure to be honest and offers little relief, unless I’m missing something. Employers take on as much as R11,250 per employee in debt (R750 * 15 weeks) at a time of great uncertainty regarding the future of the business.
According to the SAFT website, around 4,300 SMMEs and almost 40,000 employees have been approved, which would imply around R450m in relief or 45% of the total funds available. I just hope those SMME owners understand the structure and the fact that they are putting themselves further into debt to help their employees.
Either that, or I hope I misunderstand it. Tell me if I do.
Unemployment Insurance Fund (UIF)
Unfortunately, we now arrive at public sector initiatives, brought to you by that bastion of governance, transparency and efficiency: the ANC.
Whilst Ramaphosa has won the hearts of most South Africans, the reality is that the public sector is still a shockingly over-staffed, inefficient beast. As many anticipated, business owners seeking relief from the UIF have been incredibly frustrated.
Reports on the UIF’s total reserves vary. I’ve seen reports of R60bn invested with the PIC. I’ve seen other reports claiming that over R100bn is sitting in the UIF’s control. Regardless of the total, R40bn has been reserved for the Temporary Employer-Employee Relief Scheme (TERS).
Employers that are unable to pay full salaries and have had to send employees home under the rules of the lockdown are able to apply for assistance. The assistance is calculated on the normal UIF scale, which gives limited relief particularly to lower-income earners.
The relief varies between 38% and 60% of salary, with a salary cap of R17,712. The maximum payment available is therefore only R6,638 (38% of R17,712) which puts some food on the table but not much more than that. Employers can of course choose to top up to 100% of the employee’s salary.
The process to obtain relief is administratively intensive. To make it worse, the requirements changed several times over the application period, causing substantial irritation among the business community.
The UIF has only processed a few hundred out of 36,000 applications received for the benefit (of which 15,755 are supposedly duplicates). They say that the documentation received for the non-processed applications wasn’t correct, which says more about the ridiculous process than it does about the applicants.
If you haven’t applied already, it’s too late anyway, as applications appear to have closed at the end of the first lockdown period. Hopefully they will be reopened considering the lockdown has been extended.
If you have employees and you are registered with UIF then it was definitely a no-brainer to try access these funds, but there is no way that it will completely cover the financial distress that lockdown is causing.
SMME SA relief facilities
There are two facilities that can be applied for.
The first is the Debt Relief Fund, available to assist small businesses experiencing financial challenges as a direct result of COVID-19. There are other specific requirements that opened up a political can of worms on social media when they were announced:
- 100% ownership by South African citizens
- Employ at least 70% South African nationals
- Registered with SARS and tax-compliant
- Priority will be given to businesses owned by females, the youth and persons with disabilities
So, if you’re a disabled female youth but you work for a business owned by a male, good luck to you. The government won’t take that into account it seems.
Also note that this is a loan, not a grant or donation.
The second is the Growth Resilience Facility, a more attractive loan targeting SMMEs manufacturing essential goods during the pandemic. Here the requirements appear to focus more on turnover thresholds and less on ownership etc.
I would love to hear feedback from anyone who has successfully accessed funds through this platform.
Tax breaks – deferred payments
Qualifying SMMEs (turnover less than R50m per annum and tax compliant etc.) will be allowed to defer 20% of their employees’ monthly tax liability for April to July (inclusive). The tax will need to be paid over 6 months from September.
There are other deferral options available for corporate tax and the like. You should discuss these with your accountant.
Various government departments have set up smaller relief measures, often targeting empowered businesses in strategic industries. You should fully investigate whether any measures are available for your industry from government agencies or similar bodies.
This fund has been all over the news, with Ministers and private sector CEOs taking pay cuts for 3 months to donate to the fund. A number of South African corporates have also donated, including R1bn from the other side of the Oppenheimer family.
The fund is administered independently from government (which is the only reason anyone actually donated) and has raised nearly R2.5bn.
Whilst the message of hope is clear, the use of the funds is not. So far R1bn has been allocated to buy medical equipment required to fight COVID-19, which is fantastic. There is occasional mention of general “economic initiatives” but we don’t know yet what that might mean.
Whilst I hugely applaud Ramaphosa’s leadership here, this probably isn’t a fund that South African businesses will ever be able to tap into. You can expect the money to go towards medical supplies and helping the poor, which are certainly noble causes.
Patrice Motsepe and associated companies also pledged R1bn for causes similar to those of the Solidarity Fund, but it will be administered separately.
Should you wish to donate, you can find out more here: https://www.solidarityfund.co.za/
Innovation – be your own rescuer
As you’ve realised by now, assistance is limited and is focused mainly on protecting your employees, not protecting your business.
To survive this, you’re going to need to put in place other initiatives.
- Give yourself runway
- Cancel absolutely every non-essential expense that you can. I mean everything, both in your business and your household
- Whilst ensuring you act within the limits of the law, consider salary reductions (even temporary) across your staff base. 70% of a salary for 3 months is a lot better than no salary
- Make sure you are taking advantage of every possible tax relief available to your business (speak to your accountant)
- Negotiate with your landlords to decrease or defer your rental payments. Yes, it may seem like they have the power, but they won’t want vacancies either which are going to be extremely difficult to fill in coming months
- Get ready to fight for your life after lockdown
- If you missed out on funding because you weren’t fully tax compliant, get that situation rectified soonest – there may be further funding available and you cannot afford to miss out again
- Offer discounted vouchers that can be bought now and redeemed later (I’ve seen a number of businesses doing this already)
- Take this time to do everything you wished you had time for previously. New marketing strategies, website refreshes, whatever else you can do to give yourself the best possible chance when lockdown reopens…
Rupert, Oppenheimer and Motsepe came to the party with R1bn each, contributed in different ways. They were under no obligation to do so. As enormous as that number sounds, let’s not forget that in January Eskom wanted to pay R1.8bn in performance bonuses.
SAA’s cumulative losses over the past 13 years were R28bn, or 60% of the total UIF relief available.
If it sounds like these relief measures are wholly inadequate, that’s because they are.
Let me know if I’ve missed anything. Especially let me know if you’ve had any success with these relief measures. They are small, but they help at least a bit.