Barely seven months into Covid-19, its impact on economies across the globe has been swift but devastating.

In some countries, years of gradual economic recovery and progress in curbing unemployment and poverty, inflicted at the height of the global financial meltdown in 2009, have been undone.

SA’s economy was struggling even before the Covid-enforced lockdown. Recent forecasts make for grim reading: the National Treasury expects our GDP to shrink by as much as 7.2% this year — a far steeper decline than the 1.5% fall recorded in 2009. Against this background, it is encouraging that governments across the globe — including ours — have embraced fiscal stimulus with zest in a bid to stem the haemorrhaging.

SA’s R500bn stimulus package is unprecedented. And, when seen as a percentage of GDP, it places SA near the top of the stimulus scale globally.

But it raises the question: can this rescue package not only arrest the economic slide, but also be a catalyst for stimulating growth?

The adequacy of this stimulus will depend on the degree of success it demonstrates in hastening a post-pandemic recovery. Which brings into sharp focus the role of development finance institutions (DFIs) in both the current and post-pandemic era.

As drivers of economic growth and transformation, DFIs are expected to step up in times of crisis and invest against the cycle. They cannot hunker down and wait for the storm to pass.

In times of difficulty local DFIs, which include my organisation, the Industrial Development Corp (IDC), have been the bulwark. It was this way after the 2009 crisis, when tepid GDP growth and extensive unemployment were the order of the day.

When the recession took root back then, the IDC demonstrated its countercyclical role, ramping up its capital injection into the economy from R8.5bn in 2008 to R10.8bn in 2009. In all, R6.1bn of this investment went towards assisting distressed companies affected by the financial meltdown. We saved jobs.

As drivers of growth, development finance institutions cannot hunker down and wait for the storm to pass

Covid-19 threw up similar challenges. But the IDC devised a range of interventions to alleviate the economic impact: an essential supplies intervention, a distress fund and the small business industrial distress fund, all of which provided capital to businesses that manufacture hand sanitisers, surgical masks and protective gear.

This is important, not least because DFIs play a critical role in clearing a path for the private sector to invest — which is exactly what SA needs to jumpstart growth.

DFIs after the pandemic

You’ve heard it before, but the phrase "don’t waste a good crisis" is appropriate, given the opportunities the pandemic has created.

Ultimately, the success of a sustainable recovery will boil down to just a few key decisions.

Central to this will be the various infrastructure developments under way, including the construction of bulk water infrastructure, the construction of roads and implementation of the Integrated Resource Plan. It’s an opportunity for DFIs such as the Development Bank of Southern Africa to spearhead a recovery premised on infrastructure investment.

In a post-Covid world, we expect that a number of industries will rebound as localisation of products becomes a dominant theme and supply chains are realigned globally. The IDC will push for a transformed economy, which provides equal opportunities across the racial and gender spectrum while supporting the creation and development of black industrialists.

The question is, what is holding back DFIs from playing a more active role in reviving our economy?

Unlike the 2008 economic crash, Covid-19 has affected the ability of DFIs to respond as they would like to. Their portfolios have been hammered by the declining fortunes of their business partners — value has been erased and income curtailed.

It means new and dynamic responses are needed. That’s why the CEOs of SA’s largest DFIs have set themselves the challenge of responding to the current crisis in a collective manner, so that the sum of our interventions, as a DFI system, is greater than our individual efforts.

We realise that for DFIs to play a meaningful and effective role we need to partner not only with each other, but with the government, our shareholder, and with businesses and clients. We need to look at accessing extra funding to help the economy bounce back. We need to think creatively about how to strengthen DFIs’ balance sheets to provide the muscle for them to play their countercyclical role.

It’s a significant change from the way we’ve operated before. It means that as much as Covid-19 has reset SA’s economy, the country’s DFI system is also witnessing a new and more productive dawn.

  • Nchocho is CEO of the IDC



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