The policy debate resumes

Following calls for the nationalization of the mines and ultimately much else, there was the Presidential indication that nationalization was not government policy.

Clearer was the green light given to Trade and Industry to resurrect the old import-substitution policies linked to infrastructure and other state procurement opportunities, with much of manufacturing apparently targeted in the process and suggestions of nearly three million decent (formal) jobs these next ten years.

Once the Finance Minister had reconfirmed inflation targeting as a policy, the target of 3%-6% and SARB independence, with a letter written to the SARB Governor requesting that the state of the economy at all times be flexibly taken into account in policy deliberations, there followed another explicit public call from the ranks of labour for the abolition of inflation targets and their substitution by employment targets.


The aim of some appears to be to achieve a policy of easy money as opposed to the far harder task of achieving genuine supply-side reform and improved trade competitiveness, higher productivity, more flexible resource markets and a lesser inflation inclination.

Similarly there had been the call to ensure that the Rand not be overvalued and thereafter be ‘pegged’. The Minister of Finance indicated that such pegging might not be feasible, given that outside forces such as commodity export prices and capital inflows tend to shape the Rand beyond our control. However, he expressed himself in favour of the SARB continuing with a policy of foreign reserve accumulation. More importantly, he announced another round of exchange control relaxation, allowing banks prudentially to use up to 25% of their liabilities to support clients abroad in their financial dealings.

Indirectly the emphasis on a flexible inflation targeting regime could mean relatively low interest rates for some while, given the condition of the economy, and therefore less attractiveness to foreign carry trade inflows supporting the Rand over time.

On nearly all these scores the outspoken preference for certain commercial and political interests is for intervention in the economy’s allocation mechanisms, wanting to take over from the market place and believing that such supervision can provide superior national returns.

In contrast, actual policy apparently remains guided by a deep pragmatism, taking its cue from best practice overseas, though willingly indicating at every turn that the world is a changed place, nothing will be the same henceforth and that if only we all sing from the same music sheet all will be well.

This furore isn’t new in this country or abroad. It is a debate that has been waged many times before, with varying results, considering the many cul-de-sacs of old socialist Western Europe, the statism of old communist Eastern Europe, the early experiences of state capitalism in democratic Africa and India, the bewildering earlier detours of China, and the achievements of modern Asia.

As for easy money policy, farmers and industrialists have always been in favour to whose ranks we may now add labour.

To change employment prospects for millions of people, more needs to be done than only print money, as otherwise Zim next door would have become the ultimate successful role model, with its trillion Dollar notes being worth only a few South African cents.

Source: Cees Bruggemans, Chief Economist of First National Bank.