Tuesday, January 07, 2020
/05:27AM / By FDC / Header Image Credit: African Business Magazine
Spare a thought for South African President Cyril Ramaphosa and his top two national economic management officials - Finance Minister Tito Mboweni and Governor of the South African Reserve Bank (SARB), Lesetja Kganyago, as they collectively set out to stabilize the economy. Mboweni has the unenviable task of steering the economy onto a higher GDP growth trajectory, narrowing the fiscal deficit and the GDP/public debt ratio, attracting more inward FDI and lowering the youth joblessness rate of over 50%. All this over the lifetime of the current parliament, following the ruling African National Congress's (ANC's) landslide election victory in May.
The evidence suggests that the response of 'Team Ramaphosa' has hitherto been high on aspirations, good intentions and rhetoric but low on substantive policies. It seems that the President is still coming to terms with how to deal with the legacy and economic mismanagement of his predecessor, Jacob Zuma, the perceived pariah of the Rainbow Nation's current woes and architect of the infamous 'state capture' of assets. The response has also been undermined by a debilitating ideological struggle at the heart of the body politic - between a neo-liberal outlook, and the ANC's socialist statist vision of an economy serving the majority of the population to promote justice, equality of opportunity and prosperity.
The President is also held hostage by the endless factional infighting and jockeying for patronage within the ANC between his own supporters, the militant left in the COSATU trade union, the ANC's coalition partner, the South Africa Communist Party 8 (SACP), and remnants of the surviving Zuma apparatchiks. This governance volatility has been a feature of the South African body politic almost from the start of ANC rule in 1994. The political acumen and sheer personality of the iconic President Nelson Mandela put a temporary lid on it, but his successors, Thabo Mbeki and Jacob Zuma, were incapable of managing dissent and factionalism. This fault saw both removed from the ANC presidency and the leadership of the government. This is the yardstick that the Ramaphosa presidency will also be measured by.
According to Fitch Ratings, since the May election, in-fighting within the ANC party between supporters of President Ramaphosa and his predecessor, Jacob Zuma, has continued.
SARB on slippery surface
The Governor of the Reserve Bank, Lesetja Kganyago is caught between a rock and a hard place. The good Governor is one of the few South African officials who have maintained an international reputation for operational independence and competence, especially in setting monetary policy with its emphasis on maintaining price stability.
He could hardly have expected better endorsement than that from the likes of Fitch Ratings in its latest Outlook on South Africa report: "The credibility of SARB and its inflation-targeting regime are an important credit strength. Inflation has recently undershot expectations, allowing SARB to cut its interest rates in July. The banking sector is well-regulated and healthy. The non-bank financial sector (including pension funds and long-term insurance) is large, with assets of 184% of GDP at end-2018. Given the sector's exposure to government debt is relatively low and caps on foreign investment, it could help absorb a potential outflow of foreign investors."
However, for Governor Kganyago, the writing may be on the wall, not because of the commendable work SARB has done but because of the looming political 'interference' through government proposals to nationalize the currently privately-owned Reserve Bank. Both key state officials have good reason to feel insecure despite their own excellent performances. There have been ominous precedents of finance ministers and central bank officials being unceremoniously dumped if they fail to follow the instructions of political masters.
Pace of reforms very important
The economy needs to grow at over 5% per annum for the country to start meaningfully addressing the issues of high unemployment, high economic inequality, lowering the cost of living and a more equitable wealth and income distribution. The reality is that GDP growth forecasts at best remain modest and below population growth. The IMF's forecast for 2019 is 0.7%; Fitch's latest forecast is 0.5%, the fourth year of GDP growth that is below the population growth of 1.6%.