R200bn COVID-19 loan scheme: Is it too late to save SA businesses?

Amid the economic turmoil caused by the COVID-19 pandemic, the South African government implemented a R200 billion COVID-19 Loan Scheme to assist struggling businesses. However, concerns have been raised about the effectiveness of the scheme and whether it was rolled out too late to save a significant number of businesses. Stuart Theobold, Chairman of Intellidex, shared his insights on the scheme and proposed solutions to make it more impactful. The current disbursement of only R2-3 billion out of the intended R200 billion highlights the challenges faced by businesses in accessing this financial lifeline. The scheme, aimed at providing businesses with much-needed liquidity during a period of unprecedented uncertainty, was unfortunately not available at the onset of the lockdown. This delayed availability meant that many businesses, already suffering from plummeting revenues, were unable to access immediate cash flow support. The timing of the scheme's implementation has thus been a point of contention, with critics arguing that its late introduction may have limited its effectiveness in saving a substantial number of businesses. The current disbursement figures, amounting to only a fraction of the total allocated funds, underscore the need for urgent modifications to the scheme. Theobold emphasized the importance of flexibility in adjusting the scheme to better align with its intended goals. He noted that globally, similar schemes have required ongoing refinements to enhance their impact, and South Africa must adopt a similar approach to address the scheme's shortcomings. One of the key challenges identified by Theobold is the risk aversion exhibited by both businesses and banks participating in the scheme. Businesses, uncertain about the future economic landscape, are hesitant to take on additional financial liabilities. On the other hand, banks are bound by stringent credit assessment processes mandated by the national treasury and reserve bank. Theobold suggested that relaxing these credit assessment criteria and allowing banks to lower their risk thresholds could encourage more lending and support businesses in need. To stimulate greater demand for the loans, Theobold proposed removing restrictions on the usage of loan proceeds. Currently, businesses are limited to using the funds for overhead expenses, which hampers their ability to invest in essential areas such as business expansion or digitization. By expanding the permissible uses of the loans and streamlining the disbursement process, businesses would find the scheme more attractive and accessible. Theobold also addressed the challenge of businesses in the informal sector, which have been disproportionately affected by the economic fallout of the pandemic. While the formal sector has access to the COVID-19 Loan Scheme, informal businesses lack adequate support mechanisms. Theobold suggested a mix of loans and grants tailored to the needs of informal businesses to ensure comprehensive economic relief. In light of the excess funds remaining within the scheme, Theobold emphasized the importance of injecting more liquidity into the economy through various channels. Whether through direct acquisitions of goods and services or additional financial support, leveraging the remaining funds to stimulate economic activity is crucial for South Africa's recovery. As the nation grapples with the economic repercussions of the pandemic, the effectiveness of the R200 billion COVID-19 Loan Scheme remains a critical concern. Addressing the challenges highlighted by experts like Theobold and implementing targeted solutions will be essential in ensuring that the scheme fulfills its intended purpose of supporting businesses and revitalizing the economy.