Capricious government impedes Bank
When Reserve Bank governor Lesetja Kganyago presented the outcomes of its monetary policy committee (MPC) meeting last week, his concerns over average wage growth were striking.
It was not about the fact that average wage growth remains elevated, at about 7% over the forecast period, but his concern over the perceived lack of support from the government in promoting public sector wage restraint.
The takeaway message from the MPC’s statement is the glaring lack of policy coherence in the government. Perhaps it has to do with the instability at the Treasury, which has experienced an exodus of technocratic capacity.
A resolution from the ANC’s elective conference in December called for the nationalisation of the Reserve Bank. Asked about the proposed move Kganyago welcomed the resolution, alluding to the Reserve Bank’s readiness to engage with policy makers in the discovery process of the impact of such a change.
The ANC’s approach to the Bank and broader discomfort with the market is accompanied by its de-emphasis on growth. It appears as though growth only matters when it can be distributable, with cronies at the head of the queue while the rest of society follows.
I am therefore not perturbed by the growing labour militancy and above-inflation wage demands as workers try to cover their bills.
The domestic economic growth outlook for 2018 is also weaker than expected. After the broad-based contraction of 2.2% in the first quarter and early indications of modest growth in the second, the Bank’s forecast now indicates a growth rate of 1.2% for 2018, compared with 1.7% previously. The forecast for 2019 is 1.9%, marginally higher than the previous forecast of 1.7%, while the forecast for 2020 is unchanged at 2%. At these growth rates, the negative output gap is wider in the near term but is still expected to close in 2020 should the economic team gets its house in order.
Countries that experience economic and political turmoil usually change course as the trauma of hardship becomes too much to bear. In 1988, when PW Botha unveiled a major economic package and signalled a significant policy change towards monetarism and free markets, he was reacting to the collective memories of economic trauma of the 1980s, which demanded pragmatism. Botha’s pragmatism involved appointing technocrats with specialised training in economics, who promised to improve governance and avoid repeating past crises.
Chris Stals, who had been a director-general in the Department of Finance, sat on the boards of state-owned companies. His approach to financial and fiscal discipline was adopted by the ANC after 1994. Unlike Stals, Kganyago appears to be isolated and is frequently under attack from the ANC. It is to be hoped that the past nine years of hollowing out the state will influence President Cyril Ramaphosa to increase its technocratic capacity.
Many studies have shown that in resolving complex economic woes there is an incentive for the head to rely on appointing highly technocratic policy innovators, or “technopols”. Ramaphosa can appoint technopols to generate and implement politically difficult remedies, despite criticism that technopols sometimes speak a language only economists understand.
The Bank technopols in the MPC need more support from the Treasury and departments of economic development, public enterprises and minerals and resources. Through technopols, some funds pledged by the Saudis and Chinese could be deployed to drive growth and development, creating jobs for the millions who have not participated in the labour market since 1994.