This week served as a reminder of the hard work South Africa still has to do to achieve the kind of growth that changes people’s lives.
The University of Stellenbosch’s Bureau for Economic Research released its economic forecasts for the next two years, predicting that growth will average 2,7% this year — up from last year’s tepid 1,9% — and 3,3% next year. Better, but nowhere near enough to start rolling back unemployment.
This is probably why United Nations Development Programme economist Ashgar Adelzadeh argues for a total rethink of economic policy in a stinging critique contained in South Africa: Human Development Report, 2003.
In the report, published this week, Adelzadeh notes how the strong rand and high interest rates are bad for South Africa. He reiterates the left’s long-standing criticism of inflation targeting and calls for ‘aiming directly at real GDP growth”.
Adelzadeh also suggests economic policies that support a shift to labour-intensity in manufacturing, as a necessary step towards 6% growth.
Asked recently whether the Reserve Bank mandate should be broadened to include growth and employment, in addition to inflation targeting, Minister of Finance Trevor Manuel said the bank’s constitutional mandate was to ‘promote price stability in the interest of growth and development”.
This is inadequate. Inflation targeting is good for the stability it brings to wage settlement and a planned spending environment. Where there seems to be a problem is in how it is used and communicated.
For instance, when Reserve Bank Governor Tito Mboweni makes his rates announcements, he frequently refers to the underutilised manufacturing capacity in the economy, which has been running at 80%. Idling resources should be cause for concern — but Mboweni seems to make the point in a smug and nonchalant manner, suggesting there is ‘no risk to inflation”.
It is a source of relief that manufacturing continues its recovery, despite the ongoing strength of the rand. The Investec Purchasing Manufacturing Index dipped from 57,9 in March to 56,2 in April. But this is seen as a blip in an upward trend — more encouraging was the news that the employment variable rose from 49,4% to 54,6%. Globally, manufacturing is on the mend. In Europe, which sustains just less than 40% of South Africa’s economy, manufacturing expanded at its fastest rate in three years.
This led observers to suggest that the eurozone is likely to hold rates steady. The eurozone and United Kingdom’s rates were expected to be announced on Thursday.
Another crucial component of global recovery is the United States, which has produced positive data on manufacturing and job growth. Last week Federal Reserve chairperson Alan Greenspan gave testimony to the joint economic committee in a ‘clear and unambiguous change in tone”, says Martin Jankelowitz, head of markets research at Investment Solutions.
Jankelowitz says Greenspan is preparing the markets for a series of interest rate hikes partly because the real interest rate has been negative for the past 17 months.