This afternoon, the Governor of the South African Reserve Bank, Lesetja Kganyago, will in all probability raise interest rates again and by 50 basis points. Inflation, though cooling in the latest data from Statistics South Africa, is still outside its 3% to 6% target range, and as dutiful as ever, the Reserve Bank will act. It is the mandatory job of the bank, which is ultimately to protect the purchasing power of the embattled rand.
Higher borrowing costs will not be conducive to our growth prospects in the near term, as they will reduce the purchasing power of those exposed to mortgages, vehicle financing and credit cards. But this is only a small percentage of people in the country.
For most, whether rates go up or down matters very little in the short or medium term. (The only thing the most vulnerable care about when it comes to monetary policy issues is whether a weak rand is fueling the rise in the price of staple foods like bread and cornmeal.)
What matters most is that South Africa cannot get out of a low-growth trap that was set up almost 10 years ago. In all our legitimate hysteria about Eskom and creaky infrastructure, we live in an economy that has been adrift for a generation.
It is a harsh reality that I was reminded of in a column written in the financial times by Tim Harford on the UK’s 15 years of economic trouble since the 2008 financial crisis. Despite record unemployment in his country, the writer laments the fact that the UK economy has barely been able to pick up speed for 15 years .
The UK is just as stuck as we are and the only reason I would say ours isn’t as long as theirs is the lagged effect of the 2008 recession in South Africa and other emerging markets like Brazil. An investment world spooked by the crisis sought the greatest growth potential offered by the developing world when it saw financial giants like Lehman Brothers collapse before its eyes.
In practice, what that meant was that all the cheap money as a result of the world’s top central bankers cutting borrowing costs to boost their economies found its way into markets and economies like ours. Think about when Wal-Mart, the world’s largest retailer, bought Massmart. It was in the years immediately after the 2008 crash. We were on the money and South Africa was heralded as a result for how quickly we recovered from that global recession.
But five years later, in May 2013, the main central bank, the US Federal Reserve, raised the prospect that the era of cheap dollars was coming to an end. In that moment, our world changed as investors lost their taste for South African history and its rogue president, Jacob Zuma. The same thing happened in Brazil, the presidency of Lula, once spoiled, was embroiled in a corruption scandal.
South African history has never recovered from that shift in global sentiment, the years of state capture depressing it further, and then the Covid pandemic crushing our prospects for an economic recovery that much further.
It is a story of a decade. What is scary as we enter 2023 is that Eskom looks set to become almost insurmountable in the short to medium term to boost our growth prospects and in turn improve confidence in South Africa. This year is going to be a very significant year for all of us.
A decade is a long time to drift. The UK’s 15 years of stagnant economy led a generation to define bad decisions in choosing to leave the European Union. We hope our future policy decisions as we deal with an energy crisis won’t be as damaging.
