COSATU to Present its Submission on Crisis Facing R200 Billion Loan Guarantee Scheme to Parliament

August 19, 2020

The Congress of South African Trade Unions (COSATU) is currently presenting its submission on the R200 billion loan guarantee scheme and the crisis threatening its failure to Parliament’s Portfolio Committee on Small Business Development on a virtual platform today (Wednesday, 19 August 2020) starting at 09:00 am.

The Federation welcomed the R200 billion loan guarantee scheme when it was announced by the President more than three months ago. It was intended to be a key part of the R500 billion economic relief package. In the absence of a stimulus plan, and with an economy in a deep recession, a 40% unemployment rate and millions at risk of losing their jobs; it is one of the few lifelines available to prevent the collapse of the economy.

Three months after its much-vaunted launch, only R13.26 billion out of the R200 billion has been committed to businesses. About 37% of applying businesses have been rejected by the banks applying excessively strict lending criteria. At this rate, the scheme faces the real danger of becoming stillborn and bringing the economy down with it.

Government at the highest levels, Treasury and the banks need to show decisiveness, political will and intervene now to remove the blockages stifling this badly needed scheme and threatening to suffocate our economy.

Key interventions needing to be immediately actioned include:

· Treasury stand surety for 100% (up from 94%) of the loan scheme to remove the major catalyst for banks to loosen lending criteria for applicants.

· Provide cash flows up front.

· Reduce interest rates to make the loans more affordable and attractive to struggling businesses.

· Allow loan funds to be used for salaries.

· Allow loans to be used to restructure existing debt to make it more affordable.

· Convert portions of the loans into grants and equity to avoid overburdening emerging businesses with unsustainable debt levels and to incentivise saving and creating jobs.

· Utilise state Development Finance Institutions and state banks to also disperse funding.

· Require Treasury and the big 5 commercial banks to report fortnightly to Parliament on their roll out of the loan scheme.

The nation simply cannot afford for Treasury and the banks to allow this badly needed cash injection into the economy to die on their watch. Leadership and political will are needed. Workers do not have the luxury of time nor the perpetual handwringing of policy mandarins and miserly banks.

Issued by COSATU

Sizwe Pamla

National Spokesperson

Cosatu House