‘DUAL’ MANDATE FOR SARB A POSSIBILITY?

This article appeared in the 8 July edition of Legalbrief Today, under Policy Watch

South African Reserve Bank (SARB) governor Lesetja Kganyago has confirmed that his counterpart in New Zealand (NZ), Adrian Orr, has been invited to SA ‘because of excitement in some circles’ about a recent amendment to its mandate – which, since 1 April this year, has been to ‘protect price stability … while also supporting employment growth’ (Fin24). Kganyago revealed this recently during a business breakfast in Johannesburg, when he also drew a clear distinction between the issue of the SARB’s ownership and that of its mandate. In Kganyago’s view, by ‘conflating’ the two issues and introducing the controversial matter of ‘how to deal with inter-governmental debt’, the ANC leaders concerned (Reuters) have turned the debate on the central bank’s ownership into ‘a Trojan horse’: something that is not what it appears to be’, a ‘zombie discussion … impervious to facts’.

The mandate of the NZ Reserve Bank (NZRB) was changed ‘to address emerging policy challenges, … operate with greater transparency and accountability … (and) reinforce … (the bank’s) societal legitimacy’ according to Orr. Because his country enjoys ‘low and stable inflation, low unemployment, and broad financial stability’ – and has prospered for 30 years – the new, dual mandate appears to have been prompted more by its government’s obligation to offer ‘a coherent and unified response’ to potential global financial crises such as the one in 2009 than by any domestic challenges. Historically, the NZRB ‘has always taken labour market developments into account while formulating monetary policy’.

Last Wednesday, during a meeting of the National Assembly’s Trade and Industry Committee, Minister Ebrahim Patel provided members with a comprehensive analysis of the structural constraints facing SA’s government as it grapples with the challenge of formulating policies to stimulate ‘faster, inclusive (economic) growth’. One is that the country’s labour force (people of working age, including the unemployed) has grown by 134% since 1996. According to the Minister, this growth has been fuelled largely by more women and young people looking for work instead of remaining at home or participating in SA’s subsistence economy. During the same period, employment opportunities grew by 84%, but not enough to absorb the significantly higher labour force. The Minister also referred to the mismatch between available skills and those for which the demand across business is high.

It is against that complex backdrop that, when asked on Friday if monetary policy and ‘the limited mandate of the SARB’ has impacted negatively on growth, Kganyago is reported to have emphatically blamed the ‘contraction’ in GDP during the first quarter of 2019 (Business Day) firmly on ‘electricity constraints’, ‘strikes in the mining sector’ and ‘construction sites hijacked’. ‘You can’t solve that with monetary policy,’ Kganyago told guests at the business breakfast, adding – possibly with justifiable frustration – that ‘it just doesn’t work that way’. ‘Employment is an outcome of growth. South Africans speak about jobless growth but it’s a useless statement. When this economy was growing, you had jobs.’ The question asked of Kganyago should surely have been, ‘What, if anything can the experience of NZ as a developed economy contribute to the debate?’