Nobody needs to be reminded of how blindsided the world was by the outbreak of Covid-19. Countries both rich and poor scrambled to respond to the pandemic, setting aside funds for emergency procurement and relief measures, seeking aid inside and outside their borders, imposing lockdowns and curfews, and in some cases building entire new hospitals in relatively short time.
The amounts of money that were in play all at one time, and the urgent need to obtain supplies of protective gear and specialised medical equipment, among others, proved too much of a temptation for many. Some cashed in by setting up companies overnight and passing themselves off as suppliers, while others, even major retailers, hiked their prices unreasonably in their desire to rake in more profit. Food parcels were used for unscrupulous purposes, and relief funds allocation favoured some while excluding others.
The victims of all of this are mostly ordinary people, and medical staff.
A new report, released in April 2021 by the Financial Transparency Coalition (FTC), reveals that an astounding 63% of the Covid-19 recovery funds spent in developing countries so far have boosted the bank accounts of big corporations instead of going toward welfare, small firms, or those working in the informal economy.
Towards a People’s Recovery: Tracking Fiscal and Social Protection Responses to Covid-19 in the Global South is the first major analysis of public bailout funds disbursed during the pandemic. Nine countries came under the spotlight – Kenya, South Africa, Sierra Leone, Bangladesh, India, Nepal, Honduras, Guatemala, and El Salvador.
Only a quarter of the funds under scrutiny went to social protection, which says a fair amount about priorities. Just one country – Guatemala – spent more on social protection measures than on other categories, with 54%, followed by India (38%), South Africa (32%), and Honduras (23%).
Furthermore, South Africa is one of several countries that did not allocate a single cent towards supporting workers in the informal sector, even though they form a large proportion of the workforce. Overall, just 2% of funds in all the countries surveyed was used in this way.
The rich get richer
FTC director Matti Kohonen said: “By the end of 2021, 150-million people are expected to fall into extreme poverty due to the pandemic. But in most countries the main bailout funds are going to big corporations, while those most impacted by this crisis in the Global South – the poor, informal workers, and smaller businesses – are being left out.”
This threatens to further widen the gap between rich and poor, he added, and increase countries’ mounting debt, while undermining their healthcare and social protections systems.
The FTC report also expressed concerns about a lack of transparency in how recovery funds, including those provided by the World Bank and the International Monetary Fund, were distributed. In Kenya, for instance, the World Bank provided $50-million in immediate funding to support the country’s emergency response – and these funds are now unaccounted for.
This is partly due, says FTC, to most international monitoring systems looking at initial funding announcements, rather than tracking the actual disbursement of funds.
In the same country, 92% of Covid-related bailout funds went to big corporations, rather than to those facing poverty. This made Kenya’s corporate tax rate the lowest in East Africa and fuelled tax competition.
SA responded early, but skimped on relief for ordinary people
The R500-billion allocation that was earmarked for relief purposes in South Africa was initially understood to refer to new money and would mitigate the shock to the economy and potential subsequent decline. Of this, R276.1-billion or 55.2% was allocated to companies in the form of loan guarantees, tax measures and support for SMEs.
R50-billion – or just 10% – was allocated to social grants aimed at benefiting the economically poor and most marginalised in society. Another R40-billion, or 8%, went to those who were temporarily unemployed – but a report released by Corruption Watch in February 2021, showed that large amounts of these funds were siphoned into individual and company bank accounts and never reached the intended beneficiaries.
The remaining R140-billion went to other government functions.
But most of the above was not new money. Much was reallocated from existing social spend, says FTC, thus complicating analysis of the progressive or pro-poor nature of the reallocations. The funds were financed with equivalent budget cuts of R54.4-billion from national departments, R33.8-billion from provincial departments, and R12.6-billion from local governments. Companies also got a tax reduction of R8.1-billion, meaning that revenue had to be adjusted downwards accordingly.
The Budget Justice Coalition (BJC) pointed this out back in May 2020, saying it was concerned about how much new money was actually being provided, where it was coming from and who it would benefit.
It also expressed concerns about the proposed social grant allocations, saying these were inadequate. “At least 55% of SA’s population (30-million people) live below the Stats SA poverty line of R1 267 per person per month (in 2020 rands) and yet the R50-billion allocated for the social grant component of the disaster relief package represents only a tenth of the total economic relief package of R500-billion.”
BJC voiced further dissatisfaction at the dishonest behaviour of big food retailers, which appeared to be increasing the price of food staples even during the lockdown, and was concerned that eligibility requirements for the unemployment grant, such as banking details or identity documents, would result in the exclusion of millions who did not possess these facilities.
The organisation urged the government to allocate the stimulus package based on human rights, saying these rights could not be implicitly outlined in the Covid-19 response, but had to be explicitly addressed.
“In the context of a global pandemic, investments in the human rights to safe housing, water and sanitation, nutritious food, education, quality, free health services and income security are more crucial than ever. South Africa is in a state of disaster (not emergency) and therefore the Constitution still applies in its entirety.”
However, as noted above, human rights went out the window as companies received five times more than the allocation towards grants, while the temporarily unemployed also got a fraction of the budget.
In June 2020 the National Treasury announced a supplementary adjustment budget that allocated only R145-billion towards the Covid-19 response. Of the allocation of R21.5-billion for health, only R2.9-billion was new money. Of the R20-billion for municipalities, only R11-billion was new money. The R12.5-billion for basic and higher education was financed by net spending cuts of R2.1-billion and R9.9-billion in basic and higher education.
All in all, the R145-billion allocation itself was offset by budget cuts of R109-billion.
BJC commented: “This is not even close to a ‘stimulus’ or even an adequate relief package, at a mere 2% of non-interest expenditure … this budget deepens austerity by proposing wide-ranging cutbacks in critical government programmes.”
Other measures were introduced, such as the temporary six-month social assistance means tested grant, the one-off R300 top-up of the child support grant, the caregiver grant, and the boosts to other social security payments.
The FTC report shows that women directly received almost half of the R48-billion increase in social grants during the 2019/20 fiscal year. However, women who received the temporary caregiver’s grant and the child support grant on behalf of children, were not eligible to receive the social relief of distress (SRD) grant. The SRD, concludes the report, is therefore skewed towards men.
“Due to South Africa’s blunt targeting, over 7-million women – mostly low-income black African women – were denied access to distress grants. That ineligibility stemmed directly from existing patriarchal social norms, which allocates childcare to women – and which left these women ineligible to receive the relief that millions of poor black African men have been receiving,” notes FTC.
Corruption Watch reached out to government, including the Department of Health and the Auditor-General, for comment. The former did not acknowledge our message, while the latter, through its spokesperson Africa Boso, responded only to say that the questions we sent fell outside of its mandate and area of focus.
To bring the disbursement of Covid-19 relief funds into a more balanced situation, the FTC recommends the following:
- Implement a minimum corporate tax rate of at least 25%, together with public country-by-country tax reporting, in line with the proposal from the UN Financial Accountability, Transparency and Integrity panel.
- Adopt or raise taxes on the wealthy, corporations, and high-income earners to ensure those who can afford to pay would shoulder the lion’s share of the cost. These higher taxes should be maintained to pay for the recovery and not only the immediate aftermath of the pandemic.
- Governments should implement adequate universal social protection systems without delay, along with other public services, working to slow and reduce the rising levels of poverty with greater social protection spending.
- Implement public beneficial ownership registries and effective information exchange systems, to reveal the owners of both wealth and companies and ascertain who benefits from recovery spending and profits made during the pandemic.
- The race to the bottom on tax rates should end, and reports measuring business environments and global competitiveness should not reward countries cutting corporate taxes, employer social contributions, or taxes on those earning high incomes, as these are not in any way part of an equitable or responsible business environment.
- Introduce effective accountability and tracking mechanisms to provide transparency on the disbursement of Covid-19 bailout funds, including effective and transparent tracking of the disbursements and agreements by the IMF, the World Bank, and other multilateral development banks.