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Mpumelelo Mkhabela: There are very good reasons to listen to Lesetja Kganyago


Governor of the SA Reserve Bank might sound like a stuck record, but he's playing a consistent tune: reform, reform, reform. Mpumelelo Mkhabela explains why its a good idea to listen to him.

So consistent has he been that parts of his statements urging the government to effect economic policy changes appear like a cut-and-paste job from previous ones. But it isn't trivial. It is a cry by a central banker to change the economic direction.

Mpumelelo Mkhabela (file)

In a April 2020 monetary policy statement which forecasted a 6.1% economic contraction due to Covid-19, Kganyago said monetary policy on its own could not improve the potential for growth and reduce fiscal risks.

This he said while announcing a 100 basis point reduction in the repo rate as a response to the economic slowdown induced by Covid-19.

Kganyago added growth and the government's fiscal position should be addressed by prudent macroeconomic policies and structural reforms. These should lower costs in the economy and increase investment opportunities and job creation.

This was a repeat of a call he made in his March statement.

In January, he inserted the world urgent in his appeal for policy changes.

In November 2019, there was a prefix to the appeal: "As previously highlighted by the [monetary policy] committee…"

In September, there was the phrase "remain urgent".

In July the committee "remained of the view" that monetary policy alone could not solve low-growth challenges. The implementation of structural reforms to raise growth potential and lower the cost structure of the economy "remained urgent".

In May, Kganyago repeated the committee's monetary policy stance. He added it was "even more urgent" to implement structural reforms.

In March, exactly a year ago, he said prudent macroeconomic policies combined with structural reforms that raise potential growth and lower the cost structure of the economy "have become even more urgent".

In January, he said the implementation of credible structural policy initiatives that made a marked impact on potential output and employment and lower the cost structure of the economy "should be prioritised".

Kganyago and his monetary policy committee have in vain called for urgent action. The economy continues to weaken and the country recorded a record unemployment rate of 30%.

It would be inaccurate to say no one in the government was listening. Finance Minister Tito Mboweni has no shortage of enemies from the left purely because he has also been calling for structural reforms, including selling off debt-addicted state-owned companies like South African Airways.

The unheeded calls for structural reforms ensured that, when Covid-19 struck, we were in an economically weaker position. We were short on contingency reserves, which are partly the reasons why Mboweni is talking to a number of funders, including the International Monetary Fund.

It would have been unthinkable to budget for the full Covid-19 response, partly because it was unforeseen and also because the scale of the impact is unprecedented. There is, however, no evidence that we have set aside funds to deal even with incidents of far less a proportion.

State-owned companies have over the last few years sucked the country's contingency reserves dry. In 2018, Parliament's Select Committee complained about the depletion of the contingency reserves by SOEs. The reserves are meant for unforeseen expenditure, such as emergencies of the type Covid-19 presents.

The recent refusal by the government to extend a R10 billion "restructuring grant" to SAA, citing, among other things, the priority to fund the response to Covid-19 is telling. It is a belated admission that that government's priorities, in relation to the continued support for SAA, was wrong.

This surely has to be the end of the spoon feeding of SAA. It is also a lesson not to make policy based on pride; SAA is a business.

Waiting for when options have run out before you take the right decision doesn't constitute good policy making. Policy choices must be made before you hit a point of no return.

The restructuring of SOEs - inclusive of outright privatisation, seeking strategic equity partners to inject cash and skills, disciplining them by setting profit-making targets for those that remain in the state - should by now be a foregone conclusion.

But they are not the only urgent structural reforms necessary to get an economic upswing. Some of the required actions are contained in Mboweni's growth plan which he fought hard for so that his political colleagues could pay attention to it. It must now be revised and be made bolder. It is his moment to take charge.

The government might want to consider a reduction in corporate taxes and increases in dividend taxes to incentivise investment.

But it can't end with shareholders taking cuts - as is happening with the banks - and the government forgoing income in corporate taxes to incentivise investment and job creation as suggested here.

Labour, that is, the few that will be employed after Covid-19, and the many unemployed have to make sacrifices. Labour laws should be adjusted to favour the fast-absorption of millions of unemployed young people.

Broad-based black economic empowerment (B-BBEE) has to be revised radically. The highest B-BBEE scores should be given to companies that create the most jobs, and that offer black employees profit-sharing opportunities linked to productivity levels and to which bonuses of managers are also linked.

We should make the creation of jobs - and by extension B-BBEE - a prestigious achievement for companies. In this way, we can rescue B-BBEE from the ugly clutches of political connections and repurpose it to increase employment.

Incestuous board appointments at both private and public sector companies should be outlawed and there must be a limit to the number of boards each director should serve. More young, qualifying and imaginative people should be appointed to boards.

The performance of public office bearers, including ministers, must be assessed on the basis of the number of jobs they facilitated the private sector to create.

In public finances, we must prescribe the period in which an accounting officer responsible for financial mismanagement such as fruitless expenditure is arrested and put on trial.

The idea is to make it respectable for state officials to manage taxpayers' money honestly. For now, it's rewarding to be corrupt.

An inclusive post-Covid-19 economy has to be built on the basis of clearly articulated and different set of policies, honesty in business-labour-government dealings, increased national competitiveness and hard work by all.

- Mpumelelo Mkhabela is a regular columnist for News24.



Disclaimer - The views expressed here are not necessarily those of the BEE CHAMBER

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