South Africa: Cosatu Welcomes the Extension of the Loan Guarantee Scheme for an Additional Three Months

press release

The Congress of South African Trade Unions COSATU welcomes the extension by the government of the Loan Guarantee Scheme (LGS) for an additional three months. The Federation supports every bit of relief for an economy experiencing its worst recession in a century. Close to three million jobs were lost last year and thousands of companies are still facing closure.

The LGS was announced by the President in April 2020 as the central pillar of the R500 billion economic relief package. Disappointingly to date only R18 billion of the originally envisaged R200 billion LGS has been approved and taken up by businesses.

The government, the Reserve Bank, and the commercial banks need to undertake serious introspection as to why only 511 out of the 1,787 applicants to the LGS were approved, and why only 97 of the 511 approved applicants took up the LGS. It is true that many companies in the face of uncertain economic times are reluctant to incur more debt. Equally, they feel that the LGS as is currently structured does not go far enough to assist them, considering the high levels of corporate debt in South Africa.

The challenge for the government, the Reserve Bank, and the commercial banks is to make the LGS attractive and supportive of businesses. Specific interventions should include:

· Lower interest rates.

· Easier repayment terms.

· Faster loan approval timeframes.

· Converting portions of loans to grants or equity to incentivise job retention and creation; and

· Utilising qualifying Developmental Finance Institutions and other registered financial lenders as conduits of the LGS.

The South African government and the banks need to show far greater creativity, imagination, and adaptability, when it comes to measures that can save and create jobs, keep businesses open and stimulate economic growth. The business-as-usual approach will not suffice but will simply prolong an already devastating recession and see workers swell the ranks of the unemployed.

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