Confusion over policy hampering growth

Uncertainty over economic policies such as nationalisation was hampering efforts to raise SA’s growth rate, business said yesterday, while acknowledging confidence improved slightly last month.

The South African Chamber of Commerce and Industry (Sacci) business confidence index showed only a slight increase last month, according to data released yesterday , suggesting business was still pessimistic about SA’s future.

The index rose 0,6 points to 87,6 last month from 87 in November.

"It will be challenging to muster the momentum towards growth while investment and household spending are driven by credit, and while employment and fixed investment remain subdued," Sacci said.

Has monetary policy independence been undermined?

Address by Gill Marcus, Governor of the South African Reserve Bank to the 1926 Rand Club, Johannesburg - 30 November 2010 

We are nearing the end of a difficult year, a year that began with so much promise but is now ending on a note of high uncertainty. On the global front, the expectations of a normalisation in the advanced economies were proved to be wrong, and indications are that low growth and accommodative monetary policies are likely to be sustained for some time. This has contributed to the strength of the rand exchange rate as capital continues to flow out of the advanced economies in search of higher yields. Domestically, growth has also disappointed. However the strong rand has contributed to the more benign inflation environment which, along with a persistent negative output gap, has contributed to lower interest rates.

Patel's New Growth Path

In summary

• Create five million jobs over the next 10 years, especially in the green economy, agriculture, mining, manufacturing and tourism.
• Infrastructure investment will focus on energy, transport, communication and housing.
• An African development fund will be established to invest in African infrastructure.
• State agencies, including the Reserve Bank, will be reoriented to ensure the state "is not hostage to market forces and vested interests".
• Monetary policy will be looser to support a more competitive exchange rate.
• A state mining company and state bank must be established.
• Wage settlements will be moderate to save jobs, create jobs and address inequality. This includes a "modest increase above inflation" for employees earning between R3000 and R20000 a month, increases pegged to inflation for those earning between R20000 and R45000 and pay caps or increases below inflation for those earning over R45000.

Bring haves and have-nots together

Patel, the minister of economic development, believes workers and bosses can agree on a package of productivity, wage restraint and price moderation. Gordhan, the minister of finance, believes new money and old can be persuaded to consume less conspicuously and stop looting the public purse.

The new growth path framework tabled in parliament on Tuesday will test the optimism of the minister of economic development, who will run it, and the minister of finance, who will fund it, because it presumes a national conversation that will quickly deliver a consensus on how to take the country forward to common prosperity, even at the cost of some personal profit.

Gordhan’s medium-term budget policy statement

Finance Minister Pravin Gordhan announced bold steps to stem the appreciation of the rand yesterday, and forecast a series of smaller than expected budget deficits despite political pressure for higher spending.

Part of an almost R30bn tax revenue overrun this year would be used to build foreign exchange reserves while exchange controls were eased, both for individuals and companies, he said.

The news knocked the rand 1,7% weaker to R7,07 against the dollar, erasing some of the hefty gains over the past year which threaten the economy’s recovery.

Calls for big policy shifts damaging confidence

Business confidence is under pressure from “ill-conceived” demands for debate about drastic shifts in economic policy, the South African Chamber of Commerce and Industry (SACCI) has warned.

The warning comes amid a standoff in the ruling alliance over calls for a radical rethink of policy on nationalising the mines, scrapping the inflation target framework and introducing taxes on capital inflows to curb unwelcome gains in the rand.

Cosatu's demands to ANC

Trade union federations wants gold mining companies nationalised, tightening of foreign exchange rules, says Reserve Bank should resist rand appreciation and states the SARB's primary role should be job creation

Cosatu called on Tuesday for a reversal of measures taken to relax exchange controls and for taxes on short-term capital flows.

The positions laid out in an economic policy paper put pressure on the ruling African National Congress to reconsider its foreign exchange and economic policies when it holds a major strategy setting session next week.

"Due to relaxation of capital controls, (company) profits were repatriated in the form of dividend payments ... The outflow of funds increased South Africa's dependence on short-term capital flows to finance expenditure," it said.

Who is in charge of economic policy?

The country still does not know who is in charge of economic policy, despite important announcements by President Jacob Zuma on Friday.

Zuma said that ministers were in the process of signing performance agreements with the presidency, which would be "cascaded down to deputies and directors-general to ensure the entire government reads from one script".

At the same time he announced the names of the members of the National Planning Commission (NPC), chaired by Trevor Manuel, the Minister in the Presidency responsible for national planning.

Relevance of the SA Reserve Bank to the development agenda

Address by Dr Monde Mnyande, Advisor to the Governor and Chief Economist, South African Reserve Bank (SARB), at the Inkululeko Media & Marketing Power Breakfast, Avianto Hotel, Muldersdrift,
09 April 2010

Stable prices, that is, low inflation, stable currency value and stable financial systems are bedrock ingredients for the economic wellbeing of any society. These ingredients form the core of what the South African Reserve Bank or any other central bank for that matter does. Explained differently, the realisation of these ingredients is the most important way in which the Bank can contribute to the developmental agenda of South Africa.

... The Bank's mandate is explicitly set out in the Constitution of our Republic as “protecting the value of the currency in the interest of balanced economic growth”. The main contribution therefore that the Bank can make to the development agenda of South Africa is primarily through the fulfilment of this mandate. The Bank fulfils this mandate by ensuring 1) price stability and 2) financial stability. To ensure price and financial stability, the Bank uses monetary policy and provides a variety of other essential financial services to the economy.

Patel announces his panel

Economic Development Minister Ebrahim Patel has appointed a panel of advisers packed with left-leaning opponents of former finance minister Trevor Manuel's hardline economics - including renowned Nobel laureate Joseph Stiglitz. 

Patel's panel could be expected to recommend lower interest rates and, possibly, state intervention to manage the foreign exchange value of the rand.

Manuel has yet to choose 20 members from among more than 1000 nominations for a seat on the statutory National Planning Commission he has been appointed to head.

Patel has already taken over management of the response to the global economic slowdown, the Competition Commission and the Industrial Development Corporation.

Patel said his panel would include Stiglitz, Cosatu economist Chris Malikane from Wits University, former Cosatu economist Neva Makgetla, who is now the lead economist in the development planning division of the Development Bank of Southern Africa, and Investec Bank strategist Michael Power.

All have extensively criticised inflation targeting or other planks of the strategy Manuel used to establish South Africa's international reputation for fiscal prudence and macro-economic stability.

Nene: Inflation targeting will remain

Excerpt from the Address by the Deputy Minister Of Finance: Nhlanhla Nene on the impact of the budget on the transformation of the economy, 5 March – Bull Nose Maponya Mall Soweto

Sound policy foundations
... 
Part of South Africa’s success over the last decade can be attributedto the stabilising influence of the Reserve Bank’s inflation targeting policy. This policy will remain in place, although we will establish and maintain an open dialogue on this policy stance with our social partners. Part of this dialogue will no doubt require the Reserve Bank to demonstrate that inflation targeting necessarily takes into account a broad set of factors such as growth, employment and exchange rates. Price stability is important to people who have an income that cannot be augmented by other means when things go bad. Keeping inflation low is also an important part of ensuring a competitive real effective exchange rate, but this alone cannot raise our productivity. Competitiveness is driven over time by improving skills, reducing the costs of doing business, more efficient logistics systems and higher investment ...

Patel gives clarity on role

The role of Economic Development Minister Ebrahim Patel’s new department was clarified when he presented his medium-term strategic vision to Parliament yesterday.

The 56-page document Patel tabled states that his department has a “cross-cutting mandate” affecting no fewer than 15 departments and will work in “strong partnership” with other departments and public service institutions including the National Planning Commission and ministries in the economic cluster.

The department’s key responsibility is economic development policy. Patel has also taken charge of regulatory bodies and development finance institutions which are key instruments of the state in its efforts to stimulate growth. These include the Industrial Development Corporation, the Competition Tribunal and the Competition Commission.

No policy to nationalise

Nationalisation of SA’s mines was not government policy and was unlikely to become so, at least in the immediate future, Trade and Industry Minister Rob Davies, pictured, said yesterday on the sidelines of a UK-SA business forum.

Asked if it could ever become government policy, he said: “I don’t think it’s imminently so and I think it’s unlikely to become so, in the immediate future anyway.”

A dozen cabinet ministers and 200 business executives are accompanying President Jacob Zuma on a state visit to Britain. Zuma also said on Tuesday it was not policy to nationalise the mining sector.

Mining Minister Susan Shabangu repeated yesterday that nationalisation was not government policy

Patel’s strategic plan

Economic Development Minister Ebrahim Patel is to present his much-awaited “strategic plan” to Parliament today, with strong protectionist elements central to a government push to prop up local companies and preserve jobs.

If implemented, the plan could reverse SA’s enthusiastic embrace of tariff liberalisation early in the democratic era, and could usher in an emphasis on government protection for companies — especially those funded by the state.

It also emerged yesterday that Patel’s role in government, and especially in formulating economic policy — the subject of intense speculation — had been broadened, even if details remained hazy. His department will now have “oversight” of important economic regulatory agencies, among them the International Trade and Administration Commission, which sets tariffs on imports.

Stop intoxicating public discourse and focus on real issues

Cosatu union Nehawu issued an unusual statement. It was a scathing comment on the pathetic state of public discussion.

The statement said: "These puerile, attention- seeking and rudimentary verbal sparring spats are an insult to the founding fathers of the new South Africa like Nelson Mandela, who were principled, humble and inspiring leaders. Ours is a nation liberated through principled resistance and dialogue, and we all should strive to defend and honour the legacy of heroes and heroines who sacrificed for our liberation and inspired our nation."

What is certain is that their appeal for reason will be drowned out by puerile, attention-seeking responses.

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.

2010 Budget Speech: Monetary policy and the exchange rate

Excerpt from 2010 National Budget Speech: Monetary policy and the exchange rate

Mister Speaker, monetary and exchange rate considerations are also important elements both in adapting to global developments and in creating an environment supportive of growth and employment creation.

Let us remind ourselves about what Section 224 (1) of the Constitution says about the mandate of the Reserve Bank:

The primary objective of the South African Reserve Bank is to protect the value of the currency in the interest of balanced and sustainable economic growth in the Republic.

As required by the Constitution, the Bank should pursue its mandate independently and without fear, favour or prejudice. The Governor and I will consult regularly to ensure that South Africa is prepared to respond with agility and flexibility to changing economic circumstances.

Zuma's response to nationalisation issue lacks clarity

Jacob Zuma yesterday confronted the calls for the nationalisation of the mines by ANC Youth League leader Julius Malema. His stance was that what Malema was saying was not government policy, but he had every right to say it.

"We have noted that political formations including the ruling party's youth wing have decided to debate the matter. What members should do in an open democratic society, if Julius Malema raises nationalisation, is raise their counter arguments with him, debate the views of Malema and don't confuse a debate raised with policy of government," Zuma said.

He pointed out that changing the ruling party's policy was a long process leading up to the adoption of policy at the ANC's national conference.

"On matters of policy, the ANC is very clear and those who are there in the ANC know the process I am talking about, and have been party to it."

Patel appointments

Economic Development Minister Ebrahim Patel’s seemingly moribund department has sprung to life with the appointment of two key members of staff who will be transferred from the Department of Public Service and Administration and the Treasury.

Public Service and Administration Director-General Prof Richard Levin will become the Director-General of Economic Development from next month.

The National Treasury loses its Chief Director of the Financial Sector Development Unit, Olano Makhubela, who will become Chief Director of Policy under Patel.

The appointments announced yesterday will, to some extent, quieten mounting concern that Patel’s department was drifting without a structure, strategic capacity and a clear sense of its role and direction.

It has taken more than six months for Patel to take the first public step in establishing a fully functioning office.

The concerns were heightened by the departure at the end of last month of Patel’s special adviser, Neil Coleman, who was seconded from the Congress of South African Trade Unions and who left amid speculation of a fall-out with Patel over the latter’s alleged tendency to micro-manage, though this was denied.

Since President Jacob Zuma created the new ministry last May, there has been a great deal of controversy over whether Patel would be able to carve out a niche for himself in the realm of economic policy making when this has been the domain of the Treasury and the Department of Trade and Industry. There were suggestions the appointment of former trade unionist Patel to the Cabinet was a sop to the labour movement that lacked substance.

Levin will bring with him a wealth of knowledge about public policy making and the internal workings of government gained over more than a decade in the department and as Deputy Director- General of the Public Service Commission.

Makhubela, who has been with Treasury since 2000, has a masters degree in development economics from the University of London.

A joint statement by Patel and Public Service and Administration Minister Richard Baloyi said Levin’s priority would be “to take the establishment of the Economic Development Department into its second phase”.

This would include staffing and the transfer of the department’s financial management function from Trade and Industry.

Source: Business Day

ANC looks to state solution for free market

The African National Congress (ANC) says the global financial crisis presents an opportunity to think differently about economic policy and planning, signalling that possible policy changes may be in the offing.

This weekend the ANC said there was near-universal recognition that “an unfettered free- market system does not have the capacity to address serious social and economic inequalities”.

This admission by the party, for the first time since President Jacob Zuma came to power, also suggests it is willing to make concessions on the economy that its leftist allies have demanded.

The comments in its January 8 Anniversary Statement contradict assurances some ANC leaders in the party and the government have given on maintaining SA’s conservative economic policies.

The ANC calls for tighter regulation, saying “global financial markets must be regulated and governments must play an active role in the economy”.

The party was “determined” to use the space “strategically” to put in place a “more inclusive economic growth path” that addressed structural flaws in SA’s economy.

“Fundamental to the transformation of the economy for the ANC is the need to eradicate apartheid production relations and to bring about a more equitable ownership and distribution of wealth and income,” it said.

Centre for Democracy political analyst Steven Friedman said the ANC’s statement suggested there was a view within the party that believed a pro-poor policy needed to be pushed through, but he said the extent to which a shift in economic policy would occur depended on the balance of power in the ANC.

“Roughly, there are three views, one epitomised by Finance Minister Pravin Gordhan, who cares about macroeconomic stability; another group which agitates for leftist pro-poor policy; and a third group, which is bound by business links based on patronage from the state.”

Gordhan’s warning, that government revenue had declined and would affect the ability of the Zuma administration to make good on its promises, has been accepted by the ruling party.

The ANC said the global economic crisis had affected the “pace and sequencing” of delivery but pledged to take “bold steps” to mitigate the crisis.

It nevertheless recommitted itself to ensuring expenditure of the budgeted R787bn on improving infrastructure, and tailoring fiscal and monetary measures in a manner that complemented trade and industrial policies.

Zuma said there were indications SA might be recovering from the worst of the crisis but warned the recovery might be “slow” and perhaps even “temporary”.

“It should also be expected that the creation of new jobs on a massive scale will lag behind the economic recovery,” the ruling party said.

Gordhan’s warning, that government revenue had declined and would affect the ability of the Zuma administration to make good on its promises, has been accepted by the ruling party.

The ANC said the global economic crisis had affected the “pace and sequencing” of delivery but pledged to take “bold steps” to mitigate the crisis.

It nevertheless recommitted itself to ensuring expenditure of the budgeted R787bn on improving infrastructure, and tailoring fiscal and monetary measures in a manner that complemented trade and industrial policies.

Zuma said there were indications SA might be recovering from the worst of the crisis but warned the recovery might be “slow” and perhaps even “temporary”.

“It should also be expected that the creation of new jobs on a massive scale will lag behind the economic recovery,” the ruling party said.

The government’s promise to create 500000 jobs by December has become the first promise on which Zuma could not deliver. SA has already lost close to 1-million jobs and all indications are that there will be little relief this year.

Labour federation the Congress of South African Trade Unions is likely to use the opportunity to push the government to demand action on this front.

Source: Business Day