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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