Economic lessons from Dingaan’s bloody days
STATISTICIAN-General Risenga Maluleke announced that the gross domestic product third quarter growth results quarter on quarter, came in at 2.2 percent and year on year was 1.1 percent.
This came as a relief to a struggling economy that had gone into a recession. This was especially so because manufacturing came in much higher.
Exports also showed a sharp increase, even though imports came in at a similar gradient, but higher than exports both in percentage increase and in absolute rand value.
Although the economy has walked out of recession, the question that remains vexed is that in the face of growth numbers that have remained comatose for a very long time, what confidence do we have that we shall not slide back into that state? Is there an end in sight?
Let us explore the scenario.
Prince Mhlangana, brother to King Shaka and Prince Dingaan, was seen sharpening his spear. When Prince Dingaan asked Mhlangana, why he was sharpening his spear, Mhlangana replied, “I am going to kill a goat.”
Dingaan was pretty scared in case the goat Mhlangana referred to might be himself.
The matters of the Zulu Royal family as captured in the Rivers of Blood were in a crisis at that time. Mkabai, the aunt to the princes, arranged a meeting by the river where Mhlangana and Dingaan were to meet. Mhlangana was never seen again, dead or alive.
Reserve Bank Governor Kganyago increased the repo rate by 0.25 points from 6.5 to 6.75percent on November 22. He had promised to take action once evidence suggested that the consumer price index was dangerously approaching or getting out of range, including on the evidence of what global markets and attendant risks were. All the factors he considered militated against economic prospects for South Africa and he decided on that basis to act. So he actually now killed the goat.
Mhlangana and Dingaan were preparing for the interment of King Shaka. But the Amabutho were still in the war field, hardly knowing what had happened. Tensions between the two heirs apparent were running high. The Zulu Kingdom was in a crisis.
Under any circumstance managing inflation targeting is not easy, but in times of crisis it gets too difficult to come out with a balanced and acceptable solution, especially to contesting stakeholders.
If the governor had known that manufacturing would come out better than expected, would he have increased interest rates?
This is given that in his statement he also referred to the struggling growth numbers.
After announcing the repo rate, the rand performed better and to date has remained below the R14 mark to the US$.
But this strengthening has a couple of immediate implications.
First, the cost of borrowing capital will increase and those manufacturers who accessed capital at reasonably low rates may have to look elsewhere for capital or reduce their plans for expansion.
Second, this implies South
African exports have become more expensive for importers.
What is certain is that South Africa is coming out bleeding to near death from the state of state capture.