High noon for South Africa is nigh as a high level mea culpa chorus converges in a dissonant tone of the Gwara-Gwara state, writes Dr Pali Lehohla
South Africa bit the apple in the Garden of Eden and the innocence is gone. Recently, there has been a number of tactical shifts in South Africa on the economic front which unfortunately add to zero at best and at worst negative impact. The first was on the release of the IMF South Africa: 2023 Article IV Consultation, the second was the flight by business to the oracle to secure wisdom, the third is the way the Monetary Policy Committee (MPC) will review and consider the determinants of interest rates which was announced by the governor of the Reserve Bank, the fourth is the U-turn on, or euphemise it as a call to review South Africa’s Just Energy Transition (JET) announced by the President, the fifth is the request for proposals (RFP) for Developing Socio Economics of Repurposing Komati coal fired power station that is said to have reached its end of life in October 2022, and the sixth is the failure of uptake of 1 000 megawatts of Window 5 that now cannot reach financial close amidst our most important hope towards clearing the off inimical loadshedding.
We could also talk about the important Ukraine-Russia peace mission that Polish authorities frustrated and transformed into a junket of presidential proportions. According to reports, this was because of poor forward arrangements by the South African authorities. The sum total of the impact of these tactical shifts only add to zero. They are but a symptom of the lack of, first, a national agenda, second, a credible programme of whatever agenda because a national agenda is non-existent, and, third, no discernible path towards it. Instead, we are basking on a junket of deluge.
On the IMF 2023 Article IV Consultation, we need only to juxtapose their current rhetoric to that of the end of GEAR period around 2000. In this instance, South Africa obeyed to the letter each and every one of the IMF recommendations and transformed that into its own structural reform programme as Growth, Employment, and Reconstruction (GEAR). The promise of this as outlined in the Mont Fleur Scenarios written in 1993 was Inclusive Growth and Democracy. At the end of that period, there was neither growth nor employment nor reconstruction, save for building RDP houses. Whilst democracy was inclusive, growth was not and has since not been inclusive to date, thus raising the fundamental question of what is the benefit of inclusive democracy in a house of have lots and have nothings? What South Africa did in 2002 was to take a different direction from that advised by the IMF. And in 2002 to 2008 the results were positive, but the poisoned chalice suitor had the chain always dangling on South Africa’s neck, and with 2008 financial crisis the noose was tightened, and the IMF bible has been followed.
The summary of the IMF 2023 Article IV Consultation is too telling.
It concludes thus, “While recognising South Africa’s strong fundamentals, Directors noted that the post-pandemic recovery is petering out amid several shocks, exacerbating economic and social challenges in a context of elevated poverty and inequality. They stressed the urgency of reforms to promote the sustained and inclusive growth needed to address these challenges. Directors commended the South African Reserve Bank’s commitment to price stability and endorsed the pace of monetary policy normalisation, which should bring inflation back within the target. They recommended maintaining a data dependent approach to monetary policy decisions. Directors supported enhancing the inflation targeting framework by formalizing the current focus on the midpoint of the target range and lowering the inflation target, as conditions allow and with adequate communication.”
The questions South Africa has to ask are: What are these strong fundamentals? Is poverty not a fundamental and what is so strong about it? Is inequality not a fundamental and what is so strong about it? Is unemployment not a fundamental and what is so strong about it? But because the IMF sees poverty, inequality, and unemployment as collaterals that can be fixed by Milton Friedman’s private sector leadership in pursuit of profit, these cannot be fundamentals. According to them, the fundamentals are the market. And it does not take a genius to understand how flimsy the conclusions are. They assume that their approach of advice over three decades of inflation targeting and communication strategy can resolve these fundamentals, which, in their problem definition, do not simply feature but are collateral damage to be resolved by market-based, so-called structural reforms and inflation targeting.
This IMF report sets the scene for the review of mechanisms on which inflation targeting is based, which is the second feature of the mea culpa chorus. In an article from 12 December 2021 titled, “Is the Reserve Bank’s Consultation a Farce?”, I argued that by not engaging discussions with the local protagonists, the Reserve Bank is avoiding the real debate of the role of the Bank as that of “balanced and sustainable growth”. It has exclusively focused on inflation targeting. Such a debate would not only seek to expand this to a triple mandate that includes employment, but that questions and interrogates how the bank considers balanced and sustainable growth. To this end, the affirmation by the IMF of the Bank’s so-called steadfastness could not be more tone deaf to its mandate of “balanced and sustainable growth”. Thus, the three decadal IMF free market fundamentalist advice of structural reforms and inflation targeting has proven to be tired and useless, and will never take South Africa forward. It is simply fool hardy.
South Africa is failing to draw from its own lessons of momentary glory of 2002 to 2008 where in presenting the SONA in 2008, President Thabo Mbeki made a fundamental observation that unemployment dropped by ten percentage points, gross fixed capital formation grew annually by two digits, public expenditure grew, credit extension was in two digits, and GDP growth averaged five percent. All these positive indicators of government-led development through massive government spending occurred with rapid decline in debt to GDP ratio, which achieved its lowest ever. This abused indicator of debt to GDP ratio continues.
Redge Nkosi has had made a very sharp critique on how the Reserve Bank’s approach to this has been. He wrote thus under a title, ‘SARB’s Monetary Policy Implementation Framework: A Botched Macroeconomic Surgery’, in the Sunday Times in December 2021.
“Indeed, one and half years later, the SARB has published a monetary policy implementation framework proposing exactly what I had proposed: divorcing money from monetary policy. It consulted many leading reserve banks in the world and decided to copy and paste the New Zealand and Norwegian approach. While it is comforting that macroeconomic science has finally trumped ideology, I reject the New Zealand and Norwegian approach as inconsistent with South Africa’s macroeconomic dynamics. Here is why. First, my proposal for a monetary implementation framework where money is decoupled from monetary policy rests on the clarity that monetary policy does not revolve around money or the price of money (interest rates). Non-monetary instruments are central. From this conceptual framing therefore, the central bank’s balance sheet becomes the primary monetary policy tool, and not SARB’s interest rate policy as is the case today, where the size of the balance sheet is primarily driven by autonomous (exogenous) factors.”
But true to form, the Reserve Bank has just corrupted the approach by arguing that they are now going to measure sentiment when in actual fact they are avoiding to deploy fiscal instruments to resolve the development challenges pointed out by Nkosi in his article. This is why the IMF is applauding.
The third feature was the flight by business to the Oracle. And back from there they got three scripts of crisis, and a committee each was formed. One on energy, one on crime, and the third on logistics. Of course, now that the IMF has announced itself on structural reforms, the triple challenge of poverty, inequality, and unemployment has been by fiat taken care of.
A fourth feature of the high noon is the U-Turn that the President announced on the Just Energy Transition as captured in News24. Many, including myself, pointed out to the fact that the JET is a Trojan Horse and signing it in its current form was betrayal of South Africa’s development. For the President to wake up this late in the game when the destruction machinery has long bolted is disingenuous. The only saving grace to many a voice of reason on this matter has been the sad raging Ukraine-Russia War, otherwise the truth about the lie of Just Energy Transition would have been buried deep in the bowels of Komati coal closure. This leads to a real treasonous act playing out. At her Centre for Social Justice at Stellenbosch, Professor Thuli Madonsela points to why social justice should be the measure of success or otherwise, and this measure should consciously be validated and precede any policy action. Eskom’s Request for Proposals after the closure of Komati runs counter to this golden rule. Komati had to be closed at all costs in order to secure $8.5 billion. Now the loan is explicit in the Request for Proposals and forms the rump of the $8.5 billion. Minister Barbra Creecy is on record haplessly saying they are not sure what they are negotiating on around the JET. Now she knows that they were negotiating on the Trojan Horse, and it seems only Andre de Ruyter knew, and Cabinet was kept in a dark, hence the President wakes up too late to argue for something else. It is too late; the country has been mortgaged. The record of the developed world is known, you do not bite that poisoned chalice, which at least in the years of GEAR and subsequently, South Africa refused to bite.
Lastly, the so-called Just Energy Transition is hamstrung as the financial closure for the much punted fifth window proves to be more expensive. So says Mike Scholey: “A dozen projects, with a combined capacity of more than 1,000 megawatts, remain hamstrung because of increases in financing and other charges. The government announced the preferred bidders in October 2021 in the nation’s fifth bid round.”
Adil Nchabeleng in the Business Report correctly argued that South Africa should deploy solar only if we industrialise and produce the panels as a country, otherwise this is not going to benefit South Africa. We need to endure the pain of coal.
The high noon shows that when scientists do not play their part, we get led through ignorance and that is bound to end in a Gwara-Gwara state. We need to read the seminal book by Jagdish Bhagwathi titled, ‘Immiserising Growth’. I read it as a student of demography in 1980 at the University of Ghana. It is most revealing and relevant as we try in vain to wiggle ourselves out of the Just Energy spaghetti of neo-liberal policy space par excellence. True confession is now needed about the apple we bit in the Garden of Eden—there is no snake to accuse.
Dr Pali Lehohla is the director of the Economic Modelling Academy, a Professor of Practice at the University of Johannesburg, a Research Associate at Oxford University, a board member of Institute for Economic Justice at Wits, and a distinguished Alumni of the University of Ghana. He is the former Statistician-General of South Africa.