Positive signals from Tito Mboweni

2019-07-18 05:26

President Cyril Ramaphosa’s choice of Tito Mboweni as finance minister has anchored SA’s economic policy to promote real growth, writes Lumkile Mondi

In 1994, I was perturbed when Tito Mboweni was appointed as the minister of labour.

I had expected him to be appointed as the minister of finance, given his postgraduate development economics qualification from the University of East Anglia.

Mboweni took the portfolio head-on and was instrumental in legislating the labour market regime, which some have argued is inflexible.

In 1998, he joined the Reserve Bank as an adviser to then central bank governor Chris Stals.

After Stals finished his term, Mboweni was appointed as Reserve Bank governor from August 8 1999 and ultimately completed his second term on November 8 2009.

Mboweni’s charm, and pragmatic and effective capability informed the transition of the South African monetary policy regime from being eclectic by managing a floating currency peg, broad money supply and leaning against the wind to defend the peg when under pressure, as was the case during the Asian crisis of 1997, to an inflation targeting framework, which was adopted in February 2000.

At a dinner following his appointment as governor in 1999, which I attended, Mboweni sat next to former vice-chairperson of the Federal Reserve Stanley Fisher, thereby getting all the advice and guidance he needed.

Economics is the undisputed language of power, both within African states and between them and the main sources of investment.

And the usually uncontested dominance of economists in shaping policy, and in controlling resources, has been one of the distinctive features of contemporary African economies including South Africa.

However, some in the ANC and its allies had resented the economic policies being implemented by the government of former president Thabo Mbeki, which led to his defeat as the leader of the ANC in 2007 in Polokwane.

Some members of the ANC and its allies in Cosatu and the SACP saw the ousting of Mbeki as the defeat of the Class of 1996’s growth employment and redistribution policy, and neoliberalism.

For them a new economic policy had to emerge.

In 2009, following the general elections and the appointment of Jacob Zuma as president, I expected Mboweni to be appointed minister of finance given his success at the Reserve Bank in closing out the Net Open Forward Position (NOFP), which was around $9 billion in 1999.

The NOFP is the difference between the Reserve Bank’s forward book and net reserves, and measures the central bank’s uncovered foreign exchange liabilities.

The NOFP has its origins in the 1985 debt standstill under the apartheid government and amounted to $12 billion in 1985, increased to $25.8 billion by March 1995 and by March 1996 it had been reduced to $8.5 billion.

However, this was not to be the case because of internal opposition to his candidacy from Cosatu and the SACP, which were instrumental in Zuma’s ascendancy to the highest office in South Africa.

They were happy to support Pravin Gordhan as the minister of finance.

Because economics is a language of power and the main sources of investment, President Cyril Ramaphosa looked to Mboweni in October 2018 to assist him in bringing back fiscal and financial restraint and improving South Africa’s image as an investment destination.

Mboweni, who served on the national executive committee of the ANC before his appointment, had been a very active commentator on social media.

Following his appointment as the minister of finance, Mboweni was advised to stay off social media, advice he has not heeded.

For me, Mboweni has for the first time brought some freshness to economic matters and at the same time made himself vulnerable for all to witness.

Perhaps, he realises that the reversal of 10 years of economic mismanagement requires all South Africans to participate and what better way than by being active on social media.

Ramaphosa and Mboweni have sent a very positive signal to the financial markets, the lenders and society at large that for South Africa to come out of economic mismanagement, malefesasance and corruption, it needs policy predictability.

However, at certain times this has not gone down very well with some of his comrades in the ANC, as was the case with Gauteng premier David Makhura, on the user-pay principle of infrastructure and e-tolls.

Ramaphosa has delegated the matter to Minister of Transport Fikile Mbalula, Makhura and Mboweni to resolve the issue and present a recommendation by the end of next month.

It can only end one way, with the minister of finance winning decisively.

South Africa could find itself in a recession should the second quarter 2019 GDP figures resemble the negative growth of 3.2% of the first quarter.

However, some economists are forecasting a rebound in growth in the second quarter.

Mboweni has inherited a weakening budgetary process where many targets have been missed.

For example, government has been revising up the debt outlook after every budget and debt is estimated at 57.8% to GDP in the current fiscal year.

With the growth outlook being revised down, South Africa could find itself at 58.9% debt to GDP ratio by fiscal year end – reflecting a structural deficit between revenue and expenditure.

Drivers of spending include wages, social grants, bailouts of state-owned enterprises and new policy commitments such the fee-free higher education.

Despite tax increases, such as for the rate of valued added tax and the fuel levy, revenue shortfalls have grown over the past four years.

Rising debt means that an increasing share of revenue is going to interest to service state debt.

President Cyril Ramaphosa with Fince Minister Tito Mboweni. Picture: Supplied/ Argief

Should the trend continue there will be less money going to social wages, leading to curtailing it with serious consequences, particularly on poverty and inequality.

The recent debate on the monetary policy was closed last Wednesday with the appointment of the two internal candidates of the Reserve Bank, Rashad Cassim and Nomfundo Tshazibana, and the extension of governor Lesetja Kganyago’s contract to a second term.

Ramaphosa and Mboweni have sent a very positive signal to the financial markets, the lenders and society at large that for South Africa to come out of economic mismanagement, malefesasance and corruption, it needs policy predictability.

What better way than by anchoring the existing monetary policy regime.

Politically that ideological debate among technocratic pragmatists, left-leaning heterodox and populists with the ANC and its allies will continue but the policy has been anchored.

Mboweni’s engagement on social media is a call on all of us to support him in his job to fix the country’s finances.

There will be a push back as Makhura did last week.

Ramaphosa and Mboweni should finish what they have started when anchoring the monetary policy regime by calling on all stakeholders including business, labour, political parties, non-governmental organisations, community-based organisations and the church for a new political settlement, economic growth and inclusivity based on user-pay and enforcement of contracts.

Given the challenges that Mboweni faces, it is not surprising he has turned to cooking for therapy sharing his recipe step by step with his followers.

He may be seen to be absent from the job at hand but behind him there are capable professionals at the National Treasury, who have been given space to succeed.

Not to mention all his followers on social media who also now have to support Mboweni by paying up what is due to “Caesar” through the user-pay principle.

Mondi is a senior lecturer at the Wits School of Economics

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January 12 2020