By Rafiq Raji, PhD
The South African Reserve Bank (SARB), whose monetary policy committee (MPC) meets this week (19-21 September), has proved to be quite aggressive in protecting its independence. After successfully fending off an attempt by the Public Protector, Busisiwe Mkhwebane, an ombudsman, it has gone on the attack; lest its detractors in the government and elswhere begin to think an assault on its constitutionally mandated role will not be without consequences. In a court affidavit filed recently (11 September), the SARB accuses the ombudsman of conspiring with the office of Jacob Zuma, South Africa’s president, and the State Security Agency (SSA), the domestic spy agency, in deciding on her recommendation that the central bank add the promotion of “balanced and sustainable economic growth” and protection of “the socio-economic well-being of the citizens” to its primary mandate of inflation targeting and protecting the rand. A High Court set aside her instructions in August. More important is what this latest action by the SARB implies. It clearly does not think those seeking to hamper its independence are about to give up. Unsurprisingly, Moody’s, a credit rating agency, has highlighted the matter as a key risk to the country’s rating. But that is just one dimension of a cocktail of political risks in South Africa at the moment.
Of greater consequence momentarily, is the upcoming elective conference of the ruling African National Congress (ANC) party in December. Cyril Ramaphosa, South Africa’s deputy president and one of the two leading contenders for the party’s presidency, who incidentally is also the preferred candidate by market participants, is beginning to face assaults of his own. It was recently revealed he had numerous extra-marital affairs. Why his detractors thought this would undermine his chances is somewhat curious: President Zuma has survived scandal upon scandal in this regard; that is, even as he has numerous wives. In Mr Ramaphosa’s case, though, the revelations were meant to demystify him amongst whites, who incidentally dominate the affluent business community. More importantly, it speaks to the extent that parties to a very high stakes elective conference would go to have their way. Mr Zuma, who it is believed wants his ex-wife and former African Union Commission chairperson, Nkosazana Dlamini-Zuma, to replace him, has allegedly been putting state resources behind her campaign to put her ahead of his deputy. It has also been confirmed that she would be sworn-in as a member of parliament (MP) this week (18-22 September) with a view, it is reckoned, to being appointed to the cabinet. Perhaps a greater ploy is at hand, some muse: it may well be that she is being positioned to replace Mr Ramaphosa as deputy president. In that event, Mr Zuma could simply resign to enable her take his place before the December conference. With state resources and patronage at her behest consequently, she could prove too formidable for Mr Ramaphosa to beat.
Another rate cut likely
But would these considerations matter at the SARB’s September MPC meeting? Yes, definitely. More importantly, the committee would likely try to weigh how all of these could impact on the inflation outlook and hence its decision on interest rates. I believe there is room for at least another rate cut to 6.5 percent before end-2017, after a 25 basis points cut in July to 6.75 percent. This is consistent with the consensus view. Where I differ is in the timing. Fellow economists, at least those polled by Reuters, believe that this would happen at the September meeting. My view is that the committee would wait till the next meeting. It would almost certainly be watching closely the deliberations of the Federal Reserve, the American central bank, which will decide on interest rates on 20 September, a day before its own. I am of the view the Fed would probably not be as hawkish as it was hitherto. Domestic factors likely outweigh any global market considerations for the SARB at this time, however. Those who support a September cut suppose doing so later would be too close to the elective ANC conference in December; when market participants might likely be a little jittery. Pressure point in this regard would emanate from the rand, which often reacts to negative political news; albeit lately, it is proving to be somewhat resilient to the noise. Otherwise, the inflation outlook is quite benign, although risks remain. The maize harvest is expected to be bumper; an exportable surplus is expected even. There is ample power supply. Fuel prices continue to be sensitive to a resurgent international crude oil market, though, rising by at least 3 percent in September. Annual consumer inflation which came out at 4.6 percent in July is likely to rise to 5.0 percent in August, but it should moderate subsequently; based on my forecasts. What is key, though, is that inflation is likely to remain within the SARB’s target band of 3-6 percent over the short to medium term.
Finance minister Malusi Gigaba has set 25 October for the delivery of his medium-term budget policy statement (MTBPS). A key focus would be how he plans to deal with state-owned enterprises (SOEs), most of which are haemorrhaging cash; if they have it, that is. Top amongst them is South African Airways, the national carrier, which the Treasury plans to bailout to the tune of 10 billion rand (US$760 million) in October. Even though under new management, it is supposed that perhaps the carrier might stand a chance of coming out of the doldrums, any bailout package that either takes money from better run SOEs (or sells lucrative stakes in firms like Telkom SA) or public pensions would be unwise. Whether it is the airline, another ailing SOE or the economy, what is needed is not another fiscal push but a structural fix.
Also published in my BusinessDay Nigeria newspaper column (Tuesdays). See link viz. http://www.businessdayonline.com/south-africa-political-risk/