More Holes Than Belt? on Top of the Ravages of the Global Recession, South Africans Are Being Battered by a Tide of Utility Price Increases, Property Rate Hikes, and Soaring Food and Fuel Prices. How Much Further Can the Belt Be Tightened? Asks Tom Nevin
Nevin, Tom, African Business
The South African economy, Africa's biggest, appears to be defying the economic recovery touted by economists and some government quarters.
Mired in recession and now further weighed down by a succession of heavy electricity tariff increases; property tax hikes that have been doubled in some cases; steadily rising petrol, diesel and gas prices; the soaring cost of food; and sky-high interest rates, South Africans are discovering how wrong the pundits were when they predicted that South Africa, and most of the rest of the continent, would be spared the economic tempest hammering industrialised countries.
None has escaped the effects of the crash and not even South Africa's diversified economy has anywhere to hide, while mono-economies like diamond-rich Botswana, copper-dependent Zambia and the oil producers in western and central Africa have fared worse than most as their bread-and-butter commodity prices refuse to get off the ground.
Adding to the economic thumbscrews is a successful drive by the South African Reserve Bank to strengthen the rand currency by keeping interest rates as high as it dares--in an effort to maintain the flow of hard currency through the domestic equity, money and bond markets in the hope of propping up the rand.
This ploy's qualified success has further hammered already embattled miners and manufacturers, causing widespread job shedding as traditional markets turn away from South African goods made too expensive by the artificially-inflated rand, and mining houses battle for survival as their dollar-based income buys fewer high-priced rands to meet their cost of production.
Reserve Bank governor Tito Mboweni insists that the actions of the Bank's monetary committee, which he chairs, are dictated by a Department of Finance decree that inflation be contained within a targeted 3%-6% range. The Reserve Bank automatically increases the interest rate when inflation strays outside its target.
Many in the economist and analyst communities maintain that inflation targeting in developing countries such as South Africa's does more harm than good.
Some believe the confines of 3%-6% range are too narrow and do not leave enough room for growth anomalies to flex to the extent they need to in an emerging economy.
In the vanguard of such thinking is Nobel economist laureate Joseph Stiglitz, recently on a lecture tour of South Africa.
"I am very strongly opposed to rigid inflation targeting," he insisted during a July visit to Johannesburg, saying it caused central banks to lose the thread of financial stability and growth.
His observations will cheer South Africa's communist party and labour organisations, which have been badgering the government to scrap the targeting mechanism.
The finance ministry's response has been a cautious "we're open to debate", but few foresee any change in the mechanism anytime this year.
Stiglitz is a professor at Columbia University in the US, a former senior World Bank vice president and critic of "free-market" economics and globalisation management.
In his comments, Stiglitz observed that there is an idea that low inflation is necessary and is sufficient for strong and stable economic growth. "What a nonsense idea, and it was adopted by many governments," he said. He declined to speculate on what might be an 'acceptable' inflation rate for South Africa.
South Africa's main inflation rate has continuously breached its target since mid-2007, rising to 8% in the year to May. The Central Bank cited stubborn inflation when it declined to cut interest rates in June in line with international markets.
In Stiglitz's view the global crisis, the worst since the 1930s, should be seen as the result of a political and economic failure: he calls US rescue attempts "another form of American corporate welfarism". …