The SA unemployment rate increased by 1.4 percentage points from 27.6 percent in the first quarter of 2019 to 29 percent in the second quarter of the year. Picture: Phill Magakoe/African News Agency (ANA)
JOHANNESBURG – The Association of Black Securities and Investment Professionals (Absip) held its annual conference last week, with the theme “Economic growth that creates Jobs”.

The panellists all quoted various statistics to emphasise the calamity facing South Africa.

According to Statistics SA, the unemployment rate increased by 1.4 percentage points from 27.6 percent in the first quarter of 2019 to 29 percent in the second quarter of the year.

In his presentation, Absip president Zwelininzima Vavi did not mince his words. According to him, what we have in South Africa is not monetary policy, but an interest rate policy.

He believes this approach of targeting inflation via controlling the price of money (interest rates) is not appropriate for a developing country. It is a policy suited for advanced economies such as the US and UK.

Vavi suggested that it was not acceptable for interest rates to be as high as 4 to 6 percent. This encouraged the hoarding of money by corporate South Africa.

Should this rate be closer to 0 percent, then companies and institutions would be forced to seek returns by investing in the economy, resulting in growth and employment opportunities for workers.

Vavi also referred to regulation 28 of the Pension Fund Act as an instrument to be used in prescribing to institutions to invest a portion of their funds under administration in certain sectors.

I believe it is a fair question to ask why the Public Investment Corporation should be the only fund with a socio-economic mandate.

In my opinion, a comparison with other countries that introduced a policy that took interest rates close to zero may be ill- advised as that on its own will not create long and sustainable growth and greater employment.

The financial crisis occurred in 2008 because deficient regulation allowed huge risks to develop within the financial system itself, leading to a sub-prime mortgage loan crises.

But the depth of the subsequent recession, and the long period of slow growth that followed, was the result not of continued financial system fragility, but of the excessive leverage in the real economy that had developed over the previous half-century.

In the US, they calculate a so-called misery index. The misery index helps determine how the average citizen is doing economically and it is calculated by simply adding the annual inflation rate to the seasonally adjusted unemployment rate.

As inflation rises the cost of living increases, and as unemployment rises more people cross the economic line sink into poverty. Therefore, this index is a quick and dirty meter to gauge the health of the economy, since both high unemployment and high inflation are major adverse factors to the average wage earner. Perhaps it is time for South Africa to take an honest look at our own misery index.

The 2008 financial crises have inaugurated a decade of dramatically lower interest rates. In this new normal, still more unorthodox policies – including forms of monetary finance – may in some countries be needed to maintain reasonable growth.

But, a decade later, developed-economy interest rates are stuck far below pre-crisis levels and likely to remain so, with or without increases in policy rates for another decade.

It remains to be seen if fully developed country policies will work for a developing country such as South Africa. Perhaps we should concentrate on fixing state-owned entities such as Eskom, in particular, and worry less about radical policy changes.

Corrie Kruger is an independent analyst.

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