But with no resolution on sight so far, the Reserve Bank, mindful of its core mandate to keep inflation in check, has increased the repo rate by 0.25 to 5.75. The Governor took us through the context one more time: weak growth barely kept aloft by household expenditure, labour relations strife, exchange rate depreciation and current account pressures.
The moderate increase of 25 basis points seems to be driven by the need to strike a balance between restraining inflation (which, as she points out is as a result of supply side shocks, not run-away consumer demand) without dampening economic growth. However, this might not be the last interest rate hike. According to the Governor, future moves will be gradual and data-dependent.
The central bank has lowered its growth forecast for 2014 to a pitiful 1.7%. The metal strike has not been factored in fully into the bank’s analysis and it’s not clear how deep that strike will turn out to be. Wage demands, if unaccompanied by productivity gains as the Governor warned, also pose a risk for higher inflation. And there’s Eskom tariff demands to add to the mix. Only in the second quarter of 2015 is inflation expected to be back within the 3 to 6% range.
It’s also concerning that private sector investment and job creation remain weak. Recent statistics have shown that employment gains have been in the public sector; whereas the private sector shed jobs, especially in mining.
The Governor was at pains, as always, to point out that monetary policy cannot generate economic growth. She thinks that trust issues between labour and employers have to be addressed. And the structural reforms suggested by the National Development Plan have to be implemented. The NDP mantra has probably done little to calm anxieties in the economy. Clear communication from the government on implementation plans or progress is overdue.
I spent this morning at the Branson Centre for Entrepreneurship in Braamfontein, listening to their entrepreneurs pitch their business ideas to James Caan of Dragon’s Den fame. He was known as the nice dragon for his constructive approach to criticism in an otherwise tough show. It’s always inspiring to engage with people who are building businesses from scratch.
In years to come, we should be talking about businesses such as Vuyo’s (which could easily become a food empire) or Ubuntuism (a business built on a strong values-infused brand) or Yivani Cosmetics (an export-oriented enterprise).
I’m optimistic that determined entrepreneurs will push through anyway, in spite of the difficult economic climate, but it would be much better if we made it easier for them to succeed. It’s not that entrepreneurs are homogenous and demand similar policy stances from the government. In today’s group, there were importers and also exporters, with obviously different views on the exchange rate. But the basics: such as the supply of electricity and its pricing, stable labour relations, effective logistics, affordable credit; should be a non-negotiable package whose existence new businesses can take for granted. These are some of the reforms called for in the NDP. In fact, the very premise of the NDP is that economic growth will come from mass entrepreneurship.
The Governor should meet the passionate people behind these business. This won’t change her monetary policy stance, but it might cheer her up a bit.