PALI LEHOHLA | Here’s a poisoned chalice to wash down the apple, Eve

High noon for South Africa is nigh as a high-level mea culpa converges in a dissonant chorus. South Africa bit the apple, and innocence is gone. In the past two to three weeks there have been tactical shifts on the economic front that unfortunately add up to zero at best and at worst negative impact: the release of the IMF South Africa: 2023 Article IV Consultation; the flight of business to the oracle for wisdom; the monetary policy committee’s (MPC) coming review of the determinants of interest rates, which was announced by the governor of the Reserve Bank; the U-turn on South Africa’s just energy transition (JET) announced by the president; the request for proposals for repurposing the Komati coal-fired power station; and the failure to take up 1,000MW of Window 5 that now cannot reach financial close amid our most important hope towards ending load-shedding. 

We could also talk about the important Ukraine-Russia peace mission that Polish authorities frustrated and transformed into a junket of presidential proportions. According to reports this was because of poor arrangements by the South African authorities. The sum of these tactical shifts add up to zero. They are a symptom of the lack of a national agenda and no discernible path towards it.

On the IMF, we need only juxtapose their rhetoric with that of the period around 2000. In this instance South Africa obeyed to the letter the IMF recommendations and transformed that into its own structural reform programme, the Growth, Employment and Reconstruction (GEAR). The promise of this, as outlined in the Mont Fleur Scenarios written in 1993, was inclusive of growth and democracy. At the end of that period, there was neither growth, employment nor reconstruction save for building RDP houses. While democracy was inclusive, growth was not and has not been inclusive to date. What is the benefit of inclusive democracy in a house of have-lots and have-nots? In 2002 South Africa took a different direction from that advised by the IMF. And in 2002 to 2008 the results were positive, but the suitor had the rope around South Africa’s neck. With the 2008 financial crisis the noose was tightened, and the IMF bible has been followed. The summary of the IMF 2023 Article IV Consultation is too telling. 

For the president to wake up this late in the game when the destruction machinery has long bolted is disingenuous.

It concludes: “While recognising SA’s strong fundamentals, directors noted that the post-pandemic recovery is petering out amid several shocks, worsening economic and social challenges in a context of elevated poverty and inequality. They stressed the urgency of reforms to promote the sustained and inclusive growth needed to address these challenges.”

“Directors commended the South African Reserve Bank’s (Sarb) commitment to price stability and endorsed the pace of monetary policy normalisation, which should bring inflation back within the target. They recommended maintaining a data-dependent approach to monetary policy decisions. Directors supported enhancing the inflation-targeting framework by formalising the focus on the midpoint of the target range and lowering the inflation target, as conditions allow and with adequate communication.” 

The questions South Africa has to ask: what are these strong fundamentals? Is poverty not a fundamental and what is so strong about it? Is inequality not a fundamental? And unemployment? But because the IMF sees poverty, inequality and unemployment as collaterals that can be fixed by Milton Friedman’s private sector leadership in pursuit of profit, these cannot be fundamentals. According to them the fundamentals are the market. And it does not take a genius to understand how flimsy the conclusions are. They assume their approach of advice over three decades of inflation targeting and communication strategy can resolve these fundamentals, which in their problem definition simply do not feature but are collateral damage to be resolved by market-based “structural reforms” and inflation targeting.   

This IMF report sets the scene for the review of mechanisms on which inflation targeting is based, which is the second feature of the mea culpa chorus. In a December 2021 article titled “Is the Reserve Bank’s consultation a farce?” I argued that by not engaging discussions with the local protagonists, the Reserve Bank is avoiding the real debate of the role of the bank as that of “balanced and sustainable growth”. It has exclusively focused on inflation targeting. Such a debate would seek to expand this to a mandate that includes employment and interrogates how the bank considers balanced and sustainable growth. To this end, the affirmation by the IMF of the bank’s so-called steadfastness could not be more tone-deaf to its mandate of “balanced and sustainable growth”. Thus the three-decade IMF free market fundamentalist advice of structural reforms and inflation targeting has proved to be tired and useless.

South Africa is failing to draw from its own lessons of momentary glory of 2002-2008, where in presenting Sona in 2008, then president Thabo Mbeki observed that unemployment dropped by ten percentage points, gross fixed capital formation grew annually by two digits, public expenditure grew, credit extension was in the double digits and GDP growth averaged 5%. All these indicators of government-led development, through massive government spending, occurred with a rapid decline in debt to GDP ratio. This abused indicator of debt to GDP ratio continues in the face of this experience.

Redge Nkosi sharply criticised the Reserve Bank’s approach in the Sunday Times in December 2021. “Indeed the Sarb has published a monetary policy implementation framework proposing exactly what I had proposed: divorcing money from monetary policy. ... My proposal for a monetary implementation framework where money is decoupled from monetary policy rests on the clarity that monetary policy does not revolve around money or the price of money (interest rates). Non-monetary instruments are central ... The central bank’s balance sheet becomes the primary monetary policy tool, and not Sarb’s interest rate policy, where the size of the balance sheet is primarily driven by autonomous (exogenous) factors.” 

But true to form the Reserve Bank has just corrupted the approach by arguing they are now going to measure sentiment when in fact they avoid deploying fiscal instruments to resolve the development challenges pointed out by Nkosi in his article — this is why IMF is applauding.

The third feature was business’ flight to the oracle. And back from there they got three scripts of crisis, and a committee for each was formed: one on energy, one on crime and the third on logistics. Of course, now that the IMF has announced itself on structural reforms, poverty, inequality and unemployment have been by fiat taken care of. 

A fourth feature of the high noon is the U-turn on the just energy transition as captured by News24. Many including myself pointed out that the JET is a Trojan horse for South Africa’s development. For the president to wake up this late in the game when the destruction machinery has long bolted is disingenuous. The only saving grace to many a voice of reason on this matter has been the sad Ukraine-War, otherwise the truth about the lie of the just energy transition would have been buried deep in the bowels of Komati coal closure. This leads to a real treasonous act playing out.

At her Centre for Social Justice at Stellenbosch, Prof Thuli Madonsela points to why social justice should be the measure of success or otherwise, and this measure should consciously be validated and precede any policy action. Eskom’s request for proposals on repurposing Komati runs counter to this golden rule. Komati had to be closed at all costs to secure $8.5bn (R160bn). Now the loan is explicit in the request for proposals and forms the rump of the $8.5bn. Minister Barbara Creecy is on record haplessly saying they are not sure what they are negotiating on around the JET. Now she knows they were negotiating on the Trojan Horse, and it seems only De Ruyter knew, and cabinet was kept in a dark. It is too late now; the country has been mortgaged. The record of the developed world is known; you do not drink from the poisoned chalice.     

Lastly, the JET is hamstrung as the financial closure for the much-punted fifth window proves to be more expensive. So says Mike Scholey: “A dozen projects, with a combined capacity of more than 1,000MW, remain hamstrung because of increases in financing and other charges. The government announced the preferred bidders in October 2021 in the nation’s fifth bid round.”

Adil Nchabeleng in the Business Report correctly argued that South Africa should deploy solar only and only if we industrialise and produce the panels as a country, otherwise this is not going to benefit South Africa. We need to endure the pain of coal.   

When scientists do not play their part, we are led through ignorance and bound for a Gwara-Gwara scenario. We need to read the seminal book by Jagdish Bhagwathi, Immiserising Growth. I read it as a student of demography in 1980 at the University of Ghana. It is revealing and relevant as we try to wiggle ourselves out of the JET spaghetti of neoliberal policy. True confession is now needed about the apple we bit in the Garden of Eden — there is no snake to accuse. 

Dr Pali Lehohla is the director of the Economic Modelling Academy, a Professor of Practice at the University of Johannesburg, a Research Associate at Oxford University, a board member of Institute for Economic Justice at Wits and a distinguished Alumni of the University of Ghana. He is the former Statistician-General of South Africa.