The demands by the ANC that the South African Reserve Bank should consider quantitative easing on the very same day that dismal GDP figures were released, appeared to be deliberate. ANC Secretary-General Magashule was flexing his muscle to remind Ramaphosa that he was not totally in control. The problem that Ramaphosa has, is that the decision to change ownership at the Reserve Bank was taken at Nasrec by the ANC’s national elective conference. Magashule and other allies of former President Jacob Zuma are likely to use this decision and other resolutions taken at the conference, including land expropriation without compensation and the closing of the Israeli embassy, to frustrate and embarrass Ramaphosa who has been trying to tread a careful path between ANC policies and investors demands. And overseas media and investors have noticed. In an article in the Financial Times, it is said that Magashule could use the ANC policies like an axe to hurt Ramaphosa… – Linda van Tilburg
By Thulasizwe Sithole
President Cyril Ramaphosa’s tough slog to turn South Africa’s economy around just got harder after a decision by ANC Secretary-General Ace Magashule to tamper with the independence of South African Reserve Bank’s mandate. Ramaphosa, who was given a fresh mandate in May this year has inherited a country “skirting with recession and threats to growth”. The ANC has added to his woes by calling for “quantitative easing for developmental purposes”, which spooked the markets leading to a drop in the rand.
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The statement by ANC Headquarters, Luthuli House re-opened a debate on the independence of the Reserve Bank and whether the current “unusual” private shareholder structure should be continued. The ANC also added growth and employment to the bank’s inflation targets. Magashule was immediately repudiated by Finance Minister Tito Mboweni who took to Twitter and Facebook to say he was exasperated by the constant attacks on the Reserve Bank and reminded ANC members that it was enshrined in the Constitution. Efforts to tamper with the mandate of the Reserve bank have been described by the governor of the Reserve Bank Lesetja Kganyago as a “trojan horse” which is threatening the bank’s autonomy.
Ramaphosa tried to calm investor fears by adding that the debate was “undermining the confidence of citizens and of investors.” The value of the rand dropped by 2.5% against the dollar on the back of the ANC statement and the release of the country’s latest GDP figures showed the economy contracted by 3.2% in the first quarter of 2019.
The Financial Times believes the dispute between officials in the ANC headquarters, Ramaphosa, Mboweni and the Governor of the Reserve Bank “reflects fears of a return to the systematic undermining of independent institutions that was rife under Jacob Zuma”. Ramaphosa supporters believe that Magashule is deliberately picking a fight over the Reserve Bank. He is seen to be an old ally of President Jacob Zuma who is accused of looting, although both Magashule and Zuma have denied the allegations against them.
“It has also exposed the fragility” of Ramaphosa’s grip on power. The new President is saddled with policies that were adopted by the ANC in December 2017 when he narrowly got the support of the party to become President. The policy on the Reserve Bank is also backed by trade unions linked to the ANC. However, as political analyst Lukhona Mnguni remarks, investors have backed Ramaphosa to bring economic stability to the country with the understanding that the ANC were unable to implement its own resolutions.
It does however leave room for Zuma-allies to make Ramaphosa’s life difficult and they appear to have no regard for what effect it may have on investors. The FT points out that despite its private ownership which it inherited from the pre-1994 financial system, the shareholders “have no control over policy.” Current monetary policy does take some of the issues raised by the ANC into account which include growth and unemployment.
The Reserve Bank does not have the power to alter unemployment which stands at 27.6%. The FT says the unemployment rate “largely reflects structural blocks that impede jobseekers in the black majority.” The ANC has not removed these blocks. Economist Thabi Leoka says she believes the SARB has protected the Rand and has dampened inflation, which means the Governor of the Reserve Bank “is obviously doing all the right things.”
The latest call by the ANC to change the mandate of the Reserve Bank has caused a rift between the party and the workings of the monetary policy. Inflation stands at 4.5% and the repo rate is 6.75%, which means South Africa does not have falling prices that “prompted bond-buying in other countries.” Analysts believe that anti-Ramaphosa elements in the ANC are using the privatisation of the Reserve Bank as an “entry point” for other beliefs including quantitative easing. Some argue that they can end the predicament of the state-owned-enterprises including Eskom if they can print money.
One political analyst, Khaya Sithole said “you could change ownership – if you believed that would really be the end of the conversation.” Speaking about the demands for privatisation, Ramaphosa said that “we recognise the desire for the South African Reserve Bank to be publicly owned”, but cautioned that it will come at a cost in the present economic and fiscal situation which is “simply not prudent.”
Ramaphosa runs the risk that failure to act on the demands on the Reserve Bank may give ammunition to Zuma’s allies. “They are in a tough spots.” Zuma is fighting legal battles costing money and many of his supporters were ousted from their cabinet posts in the latest cabinet reshuffle. The FT says Magashule may use ANC policies that embarrass Ramaphosa “almost like an axe” under the guise of acting for the ANC.
Analyst Mnguni says “he has realised that in Ramaphosa he has someone he can torment quite well” and “this clash of personalities is going to carry on.”
