Is Team Zuma in shape for the big challenges?

Extract from Sunday Times article by Colen Garrow, Chief Economist at Brait:

When reviewing the influence President Jacob Zuma has had on economic policy over the past six months, it's easy to focus more on the role-players in government's economic cluster and to forget the role of new monetary policy decision-makers.

The appointment of Gill Marcus as Governor of the South African Reserve Bank is a presidential one. But while the seamless handover strengthened the continuity in monetary policy, the perception that it's business as usual for Zuma's government is misguided. A few months into his tenure as finance minister, Pravin Gordhan introduced bold, investor-friendly moves to dismantle exchange-control restrictions and to ignite a much-needed debate on the inflation-targeting mechanism. Alliance partners on the left of the ANC have been vociferous in their condemnation of the inflation target. And rightly so. It is only recently that inflation has fallen into its target range after being out of the band for more than two years. The issue surrounding the mechanism is that it has guided the direction of interest rates, but has not allowed the policy rate to fall more significantly. In the process, the economy has been robbed of growth and jobs.

It is uncertain where the debate will end, but what is certain is that government formulates policy and the bank implements it. Hopefully, the debate will end when the target is widened to, say, 4%-7% [currently 3%-6%] to accommodate exogenous shocks, like the pending energy tariff increases that consumers and monetary authorities have little control over. Widening the band will hopefully also allow consumer interest rates to fall to single digits, providing the economy with a much-needed leg-up in the recession it has just exited.

While there seems to be continuity in monetary and fiscal policy, the same cannot necessarily be said of macroeconomic policy. Take the National Planning Commission headed by Manuel. Some of the edge his policy would have played in the broader economy has been taken by Ebrahim Patel, the minister of economic development. The perception is that there is some turf war going on, with the left succeeding in weakening Manuel's influence. An indication of the leftward tilt in policy is the role Patel and trade and industry minister Rob Davies played in trying to save those sectors considered too big to fail, like textiles and motor vehicle manufacturing.

Trying to arrest a sector that continues to slide in its value-added contribution to GDP is daunting. The rand exchange rate, policy measures, such as export incentive schemes and inflexible labour legislation, must be looked at more urgently.

An Achilles heel in an otherwise good macroeconomic policy is the 24.5% unemployment rate and the almost one million jobs lost this year.

It may be premature to judge whether the route on which Zuma is taking the economy will succeed, but enough pieces of the puzzle are emerging to indicate that a blend of policy is developing where market-friendly elements of capitalism are likely to rub shoulders with more regulated socialism, and an even greater amount of common sense.

Source: Sunday Times