Our economy is on a cliff edge

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The Reserve Bank that the current account deficit widened to 2.9 percent of gross domestic product (GDP) from 2.2 percent in the previous quarter. File Photo: African News Agency (ANA)

The staggeringly irresponsible calls by ANC leaders, many who lack any market, business or public credibility, for the South African Reserve Bank, the central bank, to be nationalised and its mandate changed, which can crash the economy, is now proof beyond doubt that the public economic policy debate within the ANC is now truly “captured”.

Economic policy debate within the ANC is increasingly purely done for populist reasons, political self-interest and out of ignorance, and not in the public interest, raising the spectre of the economy falling down the cliff. South Africa’s public policy now increasingly lack credibility, meaning that whatever economic policy coming out of the ANC – even if they may have merit, will lack public, market and business credibility, trust and believability.

Some ANC leaders want to change what they call the ownership and mandate of the bank to transform from supposedly private to state ownership, and to change the mandate of the bank from fighting inflation to employment creation. Some ANC leaders are well-meaning, but are hopeless ideological arguing for the Reserve Bank to be nationalised as they oppose private ownership for purely ideological reasons; arguing wrongly that only the state can deliver on development. The reality is off course nowhere has only the state successfully brought long-term development. Successful development needs a combination of state and private sector.

The ownership and mandate of the bank is not the main reason for the lack of jobcreation, sluggish growth and low development. South Africa’s unemployment, poverty and low growth is structural, meaning there are fundamental problems in the overall system of the economy. So bad is the corruption, collapse of the public service and state-owned entities and the lack of quality leadership,  policies and ideas within the governing ANC; that the actions of the Reserve Bank itself, whether it is nationalised or not; or whether its mandate is changed from keep inflation down to creating jobs or not, will have little  impact whatsoever.

Monetary policy cannot solve the structural weaknesses – political, economic, social and leadership – of the economy. The consequences of an ANC that lacks credibility, at this moment “nationalising” the Reserve Bank and changing its mandate, will increase unemployment, cause more deindustrialisation – the flight of factories, investment and skilled people that can make products that create local jobs, and bring more poverty.

Because corruption, mismanagement and incompetence has increased public debt levels, reduce government income and tax receipts, South Africa now need local and foreign funds to create jobs, boost development and industrialisation. 

Growth, industrialisation and employment in South Africa is now more threatened by corruption, whether through the capture of policies, looting of the state and incompetence is responsible for low growth, poor public services and declining development. The economic “solutions” debate in the ANC is increasingly focusing on the wrong priorities; which is compounding the existing economic crisis, pushing South Africa further towards an economic collapse which may not be reversed for generations.

The capacity of the South African public service and SOEs have been so decimated; and the corporate culture so corrupted – appointments and tenders so captured, and the political  opposition to change them so strong, that we may as well write off parts of the state for the immediate future.

Nationalising the Reserve Bank, will quickly turned it into another state failure like Eskom, SAA or Denel; and will erode the central bank’s credibility, which will means no one would belief whatever monetary policy, whether it is called developmental or not, that comes from it. The Reserve Bank is majority publicly owned – with minority private shareholders. There are 650 private shareholders in the Reserve Bank. Private shareholding is restricted to 10 000 shares per shareholder. The Reserve Bank has two million issued shares.

Private shareholders get a fixed return of 10 cents per share on Reserve Bank annual profits. Ninety percent (90%) of Reserve Bank profits are given to government. Private shareholders do not own the Reserve Bank. They do not determine monetary or financial stability policies. They do not manage the bank. They do not appoint board or executive members. Private shareholders are not entitled to the foreign exchange reserves of the bank. The government can off course buy out the private shareholders. This could potentially be costly.

South Africa’s constitution says that in exercising its functions the bank must regularly consult, hold discussions and engage with the Minister of Finance. The ANC is the governing party, who appoints the Finance Minister and who sets policy. The South African Reserve Bank is accountable to Parliament to whom it must submit its annual report every year. The monetary and financial stability policies of the Reserve Bank are determined by Parliament. It meets regularly with the Portfolio Committee on Finance – the corresponding committee in the National Assembly that oversees the Finance Ministry; and the Select Committee 0n Finance which conduct oversight for the National Council of Provinces.

The Governor of the bank is obliged to hold regular discussions with the Minister of Finance. The Constitution says: “The primary object of the SA Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.” Since 2002, following the bank – following a policy initiative led by the ANC, is also focusing on financial stability of the economy.  

There are many central banks that are fully owned by the state, but are independent and execute their mandates successfully.  When inflation is high over the long-term it reduces the buying power of money – and affects the poor the most. There is merit in a debate over whether moderate inflation could be good for a developing country in the short-term, and within specific contexts. On both occasions, the right contexts for these debates is when there is sufficient public confidence in the credibility of a country’s economic policies, intentions and leaders.

 

William Gumede is Chairman of Democracy Works Foundation (www.democracyworksfoundation.org); and author of South Africa in BRICS (Tafelberg).