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.

COSATU shocked by jobs statistics

The Congress of South African Trade Unions is shocked at today’s report by Statistics South Africa that the country lost 79,000 jobs in the first quarter of 2010.

From January to March, employment in the formal, non-agricultural economy fell by 1% - to 8.08 million. This comes on top of the loss of 870,000 jobs last year. Then we were in the midst of a major recession which pushed the unemployment rate up to 25.2% - 32.5% if you include those who have given up seeking work.

In the first quarter of 2010 however, the economy expanded by an annualised rate of 4.6%, yet still the jobs are disappearing! The construction industry alone lost 7,000 jobs in the first quarter from the previous three months compared with the same period last year, mainly from the completion of the World Cup stadiums.

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 ...

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

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

Union federation says SARB's mandate should change

The mandate of the SA Reserve Bank (SARB) should be changed, the Federation of Unions of SA (Fedusa) said on Tuesday.

The reasons for the change would be to focus on creating decent work and improving economic growth as well as creating a competitive exchange rate, Fedusa's general secretary Dennis George said in a statement.

"Many central banks across the globe no longer consider employment creation as part of their mandate. ... Yet limiting monetary policy solely to price stabilisation cannot guarantee that economic growth will improve since low inflation does not necessarily lead to high and stable economic growth," he said.

He added that it was vital for Fedusa to place employment at the centre of economic and social policies.

"Nobody wants rampant inflation but there is a case to be made to balance the effect on employment with interest rate cuts."

George said the strong rand was choking SA's exports which had resulted in massive unemployment in local manufacturing industries.

Turning to industrial policy, George added that SA now had the opportunity to implement a policy that emphasised manufacturing and services.

"The manufacturing and services sectors can play an important part of placing our economy on a growth path to create quality employment for all."

George said the manufacturing sectors had proved to be very labour intensive.

Fedusa also believed that the role of state owned enterprises, public utilities and development finance institutions should be evaluated by the National Planning Commission and the Monitoring and Evaluation Commission.

The purpose of the evaluation would be to ensure that these organisations' strategic priorities were focused on the creation of decent work as well as the country's development goals.

"There has been a tendency for these boards to focus more on corporatisation instead of decent employment opportunities that have been destroyed by the encouragement of practices such as outsourcing, subcontracting and casualisation to support Black Economic Empowerment."

Source: Business Report