OPINION: Voodoo economics spoil the party
The party this week declared war on unemployment, using its favourite weapons: policy uncertainty and voodoo economics.
The timing of this wish could not have been worse, coming just hours after Statistics South Africa (StatsSA) revealed that the country’s economy contracted the most since the 2009 financial crisis in the first quarter, and days after the agency said unemployment now stands at 27.6percent, excluding the lost generation.
Desperate times call for desperate measures, but not voodoo economics.
In a time when rating agencies, international lenders, investors at home and offshore are all calling for policy certainty and structural reforms the ANC chooses to shut its ears.
Its silver bullet to grow the economy is to strong-arm the central bank to expand its mandate to incorporate job creation and economic growth, and they reckon we are on course to see mass employment.
It becomes a mockery to the poor when the party that they trust says it will cut unemployment from 27.6percent to 14percent in five years against runaway government debt, institutionalised policy uncertainty and Eskom, a power utility that is supposed to drive growth when it is on its knees. Whichever beverage was served at the ANC’s three-day lekgotla deserves a special commission of inquiry to investigate.
More worrying, it would appear that Magashule and Finance Minister Tito Mboweni were not in the same meeting, or is their different stance on mandate of the SA Reserve Bank (Sarb) evidence of the day and light difference in their understanding of economics?
We can choose to dismiss Magashule and his cabal at our peril. But the country’s party- based electoral system means that he, as the secretary-general of the governing party, holds a powerful position and can make life for the party’s deployees in the government as uncomfortable as he so wishes.
“Aaaaaace ... Aaaaaace” - as his supporters scream every time he opens his mouth - reminded the deployees, including President Cyril Ramaphosa, that the ANC was the centre of power and not them. Decoded, this means that even Ramaphosa is answerable to Magashule as the person who runs the party machinery.
The dire jobs numbers and declining electoral support has pushed the ANC into a corner and desperate economics to remain in power.
The implementation of structural reforms should have been at the top of the lekgotla agenda, but reading the ANC’s statement one got the feeling that expanding the mandate of the central bank and using the state’s supply chain will unlock economic growth.
Sarb governor Lesetja Kganyago will soon have a big decision to make: either to stay on in the role and ready himself to run a bank with an expanded mandate of job creation and economic growth as the ANC wants, or move on when his term of office ends.
Kganyago, some would say, has stubbornly resisted any attempts to meddle with the Reserve Bank’s mandate, looks set to lose the battle after the ANC instructed its government to ensure the bank’s mandate goes beyond price stability in order to include growth and employment.
The ANC’s untimely attack on the mandate and independence of the Sarb deflects from what I think is a long-overdue debate in South Africa on monetary policy.
The Sarb’s role must be debated openly and brought to finality to avoid opportunistic resuscitation of the matter every time people feel populism is the best policy.
A well-reasoned debate in a democratic state must be seen as a normal discourse. At one level, the reforms that the country implemented since the early 1990s have seen macro- economic instability reduced, inflation brought under control and the real exchange rate become more competitive.
However, the success of former president Thabo Mbeki-led reforms on key macro-economic variables has not had any effect on unemployment and poverty reduction, hence, the long debate that monetary policy could have played a more significant role in employment
It is standard economics that when employment expands along with production, the benefits of growth will be broadly distributed. It is, therefore, necessary but not sufficient for improving employment opportunities.
The US Federal Reserve’s mandate is to achieve two goals set by legislators: maximum employment and price stability.
But it is a bridge too far to expect what has worked in the US to work in South Africa. The fundamentals of the US economy are very strong, while South Africa’s policy indecision has smothered the economy with many structural defects.
The US also produces one of the best workforces in the world, due to the quality of its education system, while we fail to teach our children to read and write.
The tit-for-tat wrangling of the mandate will only increase policy uncertainty. The time has come to exhaust the debate and move on with building an inclusive economy.
Voodoo economics may appease a few people who want a quick fix, but they will not help to revive an all but collapsed South African economy.