Forget populist shaming and slash rates
Listening to the Reserve Bank speech presented by governor Lesetja Kganyago at the Association of Black Securities and Investment Professionals conference recently, on the tears that accompany populist economic policies, I was reminded of the dangers of shaming or labelling that blind SA’s macroeconomic policy.
It is time for the Bank to stimulate aggregate demand by cutting interest rates by 100 basis points.
Even the World Bank’s systematic country diagnosis of SA acknowledges that historical disadvantages remain a determinant of income, wealth and opportunity. As such, the economic transition from a system of exclusion under segregation and apartheid remains incomplete.
The legacy of exclusion in land, labour, capital and product markets hampers growth. At the same time, high inequality and the legacy of exclusion fuel contestation over resources, increasing policy uncertainty and deterring investment while also undermining the financial stability of state-owned enterprises and their ability to provide quality public services.
When the distribution of income and assets is contested and a large number of citizens are excluded from job opportunities and joining the middle class, it puts pressure on the social contract. A fragile social contract is a symptom of the incomplete transition, as the World Bank argues.
Should I keep quiet and allow the prevailing macroeconomic framework to prevail because I am scared to be labelled a populist? No. I would be failing the promise of the 1996 constitution and those patriots who died in pursuit of an equal, nonsexist and nonracist SA.
I was persuaded by arguments that the Reconstruction and Development Programme (RDP) would be difficult to implement given the fiscal space and the need to attract foreign investment in a globalising world, and the shift to Growth, Employment and Redistribution (Gear).
Fiscal discipline and financial prudence was acceptable, and so was the inflation targeting framework.
The success of these policies on the back of the commodity supercycle was symbolised by a decline in poverty levels, improved access to basic services (such as electricity, water and sanitation), the provision of more than 4-million houses through state programmes, and the expansion of the social wage.
But the mismanagement of the economy by the ANC, particularly in the past 10 years, and the corruption of its cadre deployment policy, have reversed a number of these gains. The education, health and social infrastructure are collapsing and about 9.8-million South Africans are unemployed.
SA has experimented, and we have learnt that the prevailing macroeconomic policy framework of austerity is painful. When growth does happen it is uneven, which worsens inequality.
In 2018, the world is changing rapidly towards protectionism. Brazil and India face huge economic challenges under right-wing governments, and the bureaucratic authoritarian regimes of China and Russia are no different.
SA is well positioned to chart a new path for Africa’s economic development. The African economic development agenda towards 2063 requires a bold and innovative macroeconomic policy to boost aggregate demand, thereby creating jobs and addressing inequality.
This entails loosening macroeconomic policy by 100 basis points to stimulate aggregate demand while at the same time allocating credit to companies to tool themselves for a bigger economy.
The rest of Africa is SA’s biggest trading partner, comprising 26% of diversified exports. President Cyril Ramaphosa has re-emphasised continental economic relations in an attempt to raise long-term growth potential for SA and countries in the rest of Africa.
Signing the African Continental Free Trade Agreement is a step towards this goal. A rate cut will put SA firms in a stronger position as we push for industrialisation and increased population density in African urban areas.
Relaxing monetary policy will be labelled populist by some, but the time has come to take the leap.