[miningmx.com] — “WE’VE done more or less all we can,” declared Reserve Bank governor Tito Mboweni following the bank’s Monetary Policy Committee (MPC) last meeting in May, when the lead-directing repo rate was cut by one percentage point.
Really?
This was Mboweni’s way of saying that another reduction should not be expected at the next MPC meeting, due to take place this week at the bank’s Pretoria head office.
Meanwhile the National Union of Metalworkers of South Africa (Numsa), backed by trade union federation Cosatu, is starting to exert serious pressure on Mboweni.
Two marches to the bank initially took place during MPC meetings. During the second, when the agitators wanted to hand Mboweni a protest note, he sent a lower-ranking official to receive it, rather than accepting it himself.
Big mistake. Numsa took this as a shocking insult in the power struggle to get at Mboweni.
At its inception in the 80s and early 90s, Numsa was one of the most influential unions in Cosatu. It was more militant than the National Union of Mineworkers (Num), which is actually regarded as the father of the present-day labour movement.
At the time Numsa was the breeding ground for leftist intellectuals – to a greater extent than Num, whose leadership focused more on day-to-day politics.
The eccentric founding leader Moses Mayekiso left Numsa in 1993 – initially to head the SA National Civic Organisation (Sanco). He also played a major role in the SACP, later entering the business world by founding an investment company for Sanco and becoming involved in it full time.
Watch this man
The bearded figure of Mayekiso was a true liberal intellectual and political strategist. He had the support of Alec Erwin and Enoch Godongwane, among others. The latter succeeded Mayekiso in 1993, but in 1999 became MEC for Finance in the Eastern Cape. He is today deputy minister for public enterprises.
Since Godongwana’s departure Numsa has suffered a decade-long dearth of quality leaders protecting their easy chairs with leftist rhetoric sans substance. Until last year, when secretary general Silumko Nondwangu was deposed at Numsa’s congress owing to his support for former president Thabo Mbeki.
Nondangwu was followed by Irvin Jim, who had long harboured ambitions as Numsa’s regional secretary in the Eastern Cape, the heartland of South Africa’s motor and component-manufacturing industry.
Don’t underestimate Jim. His attempts to pressure Mboweni and the Reserve Bank carry all the hallmarks of a well-considered long-term strategy that, at the very least, will spark serious debate over the country’s monetary policy.
At worst or best, depending on one’s view on the role of monetary policy in the macroeconomy, Jim’s campaign could result in South Africa’s real interest rates coming considerably closer to those of the country’s principal trading partners – lower than at present.
Mboweni had realised his mistake by the time he met Jim and some of his cohorts last week, which included Azwell Banda, former general secretary of the Zambian trade union federation, which had played a key part in ending President Kenneth Kaunda’s domination of Zambian politics. Today Banda is Numsa’s “strategic adviser”.
Mboweni has a standard collection of PowerPoint presentations he shows guests wanting to discuss monetary policy. “He usually pretends not to hear what you say – he simply continues with the presentations,” reports an individual who has previously attended these.
The Numsa party was similarly received last week. It was told how inflation, measured by the consumer price index, had for the past 50 years responded to real interest-rate movements.
This clearly shows how cuts in the repo and prime lending rates push up inflation. Over the last 40 years of the previous century double-digit inflation was the rule rather than the exception. Since inflation targets were introduced in 2001, inflation has been significantly lower, although this could also be attributed to the exceptionally high interest rates of the late 90s contributing to forcing inflation downwards.
Exeptional times call for exceptional measures
In the late 70s and early 80s interest rates were even lower than the headline inflation rate. This of course was during the oil crisis and sanction years, when the PW Botha regime did everything in its power to stimulate growth – naturally a highly unhealthy approach. Indeed, in such circumstances it is better to borrow than to save.
Unhealthy, yes, but those were exceptional times.
And who’s to say that today’s unemployment rate of more than 40%, according to observers earnestly studying the problem, does not also constitute exceptional circumstances?
Does it make any sense to have real interest rates higher than the inflation rate while the country is in the grip of its worst recession in decades and the economy is contracting?
“We are not proponents of high inflation, but we believe that the time for slavishly following inflation targets has passed. Inflation rates must be in line with those of our trading partners. Economists reckon they should be cut by about four percentage points. We would be content with their being cut by two,” declares Jim.
Ten days ago, Numsa and Solidarity conceded to a reduction of working hours at ArcelorMittal SA – which in fact amounts to a wage reduction – to ward off job losses.
The decision did not receive much attention, but is an indication of how bad things really are out there. In Europe this has been been a regular occurrence during the global financial crisis, but in South Africa, with its deep divide of inequality, it is wholly unprecedented.
Mboweni would seriously err if he and his monetary policy committee close their ears to the appeal.
