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Sarb accused of causing economic downturn

SA can cut interest rates, boost infrastructure spend and liquidate the PIC: Duma Gqubule.

The South African Reserve Bank (Sarb) is implicated in causing the last three recessions, as well as the current economic downturn, says Duma Gqubule, founder of the Centre for Economic Development and Transformation.

Speaking at the Black Business Council (BBC) conference, he said weak economic growth and record high unemployment are hindering economic transformation in South Africa.

According to Gqubule the domestic economy grew at 1.6% from 2009 to 2016, while the number of unemployed people increased by 3 million since December 2008.

“The unemployment rate for black African people is at a staggering 41% – in any language, that is a crisis. Transformation is about getting black people to participate more in the economy as employees, as managers and [as] owners of businesses, so we’re missing out on the first critical pillar of transformation, which is job creation,” he said.  

He said South Africa’s economic downturn preceded the global financial crisis, with high interest rates – set by the Sarb’s Monetary Policy Committee (MPC) – compounding the effects of the crisis.

“They started increasing interest rates well before and after the start of the global financial crisis. The immediate reaction of most central banks when there is a crisis is to cut rates, no matter what the consequences, to make sure that there is more liquidity in the system. That is best practice in the world,” he said. The Sarb increased interest rates by 250 basis points each before and after the start of the global financial crisis and by a further 200 basis points from January 2014 to date.

Gqubule said the Sarb’s mandate must be changed to include growth and unemployment, and that the MPC should include members of civil society. “I would even argue that we have to start debating the independence of the Reserve Bank. I don’t understand why it has to be independent because best practice, in terms of economic policy, requires close coordination of monetary, fiscal and industrial policies. That is what happened in Asian countries that grew fast over the past 15 years,” he added.

He said structural reforms, mooted by the ratings agencies, are not enough to stimulate growth over the short term. “That is economist code for policies to make the labour market more flexible, so that you can hire and fire people. It is also code for us to privatise certain of our State-owned enterprises, which are admittedly in chaos,” he said.

Citing the International Monetary Fund’s (IMF) latest World Economic Outlook, he said structural reforms don’t deliver short-term growth. “In the short term, they also have a cost. As South Africans we can’t be following that route because we can’t have more pain for another year,” he said.

Only monetary stimulus, in the form of the Sarb purchasing government bonds, and fiscal stimulus of 3% of GDP or R400 billion over three years, can boost growth over the short term, he said.

“There is a narrative that has taken grip of South Africa that South Africa is broke. South Africa is not broke. South Africa has got a debt to GDP ratio of 50% – one of the lowest in the world. The same [ratio] for the rich countries in the OECD is about 90% plus. So we can take on more debt, as long as the debt is invested in infrastructure,” he said, alluding the multiplier effects of spending on infrastructure.      

He also said that liquidating some of the Public Investment Corporation’s (PIC’s) assets could provide funds to invest in infrastructure development. “The level of funding of the PIC is obscene. They’re sitting on R1.6 trillion, while we’re sitting on the worst post-apartheid economic crisis,” he said.

And with the threat of a sovereign ratings downgrade, which may affect country’s ability to access foreign capital markets, he said that only 10% of the country’s R2 trillion debt is foreign debt.

He also called the credibility of ratings agencies into question. “During the global financial crisis, it was shown that the ratings agencies are corrupt businesses. They gave AAA ratings to companies that were actually junk and they were charged in the United States for their corrupt practices,” he said.

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The M2 money supply increased by 500% since the year 2000. The lack of job opportunities cannot be blamed on the lack of money. There is more than enough money, we have got a chronic shortage of brainpower and skills in this country, and it emanates from Luthuli House.

Duh. The SARB, like the Fed, are price fixers.

How unhealthy do you want your economic system to be?

Solution: a free market system, without price fixers. But then unemployment of economists, bankers and financial commentators and hedge fund managers will be 41%.

Pick your poison

Sometimes it is best to call someone a muppet and move along. Some “debates” don’t deserve debating.

Sorry this was with reference to Mr Duma Gqubule, not your comment.

The lack of understanding here is embarrassing. We have a 50% debt to gdp because that is what we can afford at the interest our bonds attract (which are higher because of the same Zuma the BBC supports). We can only go to 90% if SA bond rates fall massively.
The SARB did not cause the last three recessions, global markets did! SA didn’t manage to enter a recession after JZ fired Nene despite the market and currency volatility. Why, because of global factors again.
Our problem is policy and a lack of execution. The infrastructure spending programme was announced, and barely a dry cent spent on major projects. Labor laws remain business unfriendly and BBBEE policy isn’t having the desired impact and is crippling the mining sector. Business sits on a pile of cash as a result,many those that are investing are choosing to do so far from JZ and crew…
Wake up bbc…you’re not doing much for your image as jzs lap dog….

Just look at Japan, ECB and US. They have been doing monetary stimulus for decades, and the result? No economic growth. You can lower interest rates right down into the negative. None of those countries implementing it generated any growth. Instead the reserve banks have generated massive piles of debt, that can never be repaid.

Monetary stimulus will not and has never worked! The main reason for the low employment and no growth, is our labour laws and BBBEEE. Period. DO not punish the Reserve Bank, blame our government.

Repo Rate – June 1998 24%, July 2012 5%(all time low).

The economic downturn in SA has been caused by none other than the Private Sector in SA. At the slightest sign of slowing growth employees are culled in their tens/hundreds of thousands, CEO’s are paid obscene amounts of money!!! Just by working for an organisation you can become a Billionaire!! Why start a business???? The share price is king, it is all that matters!!! South Africans are advised to get their money out ASAP!!! That is the problem in SA!!! That is why SA will NEVER become a winning nation!!! Simple As That!!!

The financialisation of the world: “Price is King, value is nothing”

It’s called capitalism which doesn’t work too well with communist leadership. But communism always fails as it makes promises that can it cannot fulfill, because at the end of the day, there’s always someone who gets the top jobs and pay and authority (Stalin, Castro?). So it morphs into a pseudo capitalism, but the difference is that the masses remain downtrodden, unhappy and demotivated. With true capitalism (USA, European countries), there are people at the top, as it always will be, but the workers are generally happier, as they have a chance to move up the ladder. Capitalism, and its running mate, democracy, aren’t perfect, but it’s the best system there is. Once the corruption of the ANC, Zuma and pals are history, this country can rise again and be a properly governed country. The private sector responsible for the downturn? What nonsense. If it weren’t for them SA would be in an even more dire situation. But clearly you have a socialist outlook, and will never understand the truth. Like Mantashe and Nzimande, believing in a philosophy so tainted that it has failed every time. Oh, China? That’s going the same way now. They know which side their bread is buttered on. You want to be a b/millionaire? Then be an entrepreneur or work yourself up the ladder at a corporate, get to understand the business, and you may be in receipt of an obscene salary, but you will find it less obscene than you thought while moaning about how hard done by you are. You will have competition, but that’s the whole idea. And you know what, you will be able to buy the shares of the company and add to your wealth. When you win, the nation will also win. Employees are correctly shed when things get tight. But the problem is that the government is supposed to provide the infrastructure and the environment in which businesses can prosper. But they are too busy lining their own pockets. I can understand how this happened after apartheid was consigned to the waste basket, now its our turn, but it’s well over 20 years now, and the leaders should be leading. It’s not rocket science. The current political uncertainty is very unhelpful. I hope someone will wake up and smell the coffee fairly soon, or your vision may just come true. Is that what you want? SA will never be a winning country is everyone thinks like you.

The Lord preserve us from Transformation Talk like this piffle!
The major reason South Africa is doing comparatively well or is perceived that way is because of local HIGHER INTEREST RATES.
Zero to negative interest rates have been all the rage in the US and Europe for the past 96 months and the results speak for themselves, massive so-called paper profit gains in the stock market and the rest of the economy/middle class society is driven into the ditch.
May I make an observation here? Why is there a BLACK Business Council in this country??
One must surely assume that to be fair, there is also a WHITE Business Council. If there is such a body will MW also be publishing their perceptions regarding the SARB and our future interest rates?
Can’t wait for it next week.

They need their own business council because normal business does not cater for ignorance, incompetence and the victim attitude. They need to exploit the destructive emotions of self-pity, low self-esteem and victim-hood for that is their only advantage over the rest of us with the current government. In the rest of the civilized world it would be a joke, but here it is the way of lobbying incompetent politicians who share the same character traits.

Have to ask, what is this dudes relationship to Zwane, as this sounds like an attempt to justify said minister(if you can call him that)farcical move on the banks

Unemployment of 41%. Perhaps the people destroying universities, trains etc, and stealing copper cable could be employed making and mending roads. It would be a good grounding for degrees in civil engineering, and deflect them from silly degrees like social-politics etc. Then we might not need SANRAL at all. Or perhaps a stretch in the army might instill some discipline. They can’t go round destroying the country, that is sabotage and treason.

If we South Africans have to rely on the financial wisdom of people like Duma Gqubule, heaven help us.
Does he realize that, whatever his opinion of the ratings agencies are, the world economies are lead by their ratings and thus have an impact on the rate at which we borrow money.
It is clear that the peoples money, the “obsene” R1.6 trillion in the PIC, are being circled by the Hayena’s and Vultures. If only they can get their hands on this and somehow attach “feeding tubes”
Also get control of the SARB and helicopter money to the targets he and Zwane will supply.
Zimnomics!!!!!!

teach a man to fish and you feed him for life. give him fish everyday and he becomes a beggar.Caveat is the desire to learn to fish.a lion roams the jungle and fends for himself and his family start feeding him and soon he wants to eat you. ANC has been feeding the masses via social security and other freebies like the lion those are the people who have lost the desire to learn to fish and are now baying for the blood of the feeder viz a viz “feesmustFall” no prepaid meters er al.
start the reduction of unemployment by making the trough feeders redundant

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