Reserve Bank warns policy uncertainty may deepen economic slump

The Reserve Bank has warned that an economic slump may deepen if the government doesn’t address political turbulence and a policy vacuum in mining and agriculture.

“We have to get rid of policy uncertainty,” Lesetja Kganyago, the bank’s governor, told lawmakers in Cape Town on Tuesday. “The uncertainty is impacting on the confidence of investors. Unless you restore that confidence you are going to have a problem.”

A succession of political scandals and weak demand for South African exports pushed the economy into recession in the first quarter, when it contracted an annualised 0.7%. The central bank forecasts expansion of just 0.5% this year.

President Jacob Zuma’s suggestions that land could be seized without compensation and moves by the mines ministry to raise levels of compulsory black ownership for the industry and indefinitely freeze the granting and renewal of mining rights have undermined investor confidence.

“If you are to sink a mining shaft for 30 years and there is a change in mining policy every time there is a change of government or of a minister, why would you want to do it?” Kganyago said. “Ditto if you are a farmer who must worry about long-term strategy. Decisions when they are taken have got to look beyond the term of any particular government.”

Kganyago questioned the rationality of a proposal by South Africa’s ruling African National Congress to do away with the central bank’s private shareholders and bring it under the control of the state. The current ownership structure boosts accountability and transparency and changing it could be very costly and involve a protracted legal process, he said.

“We should ask ourselves: should we be using this amount to do something else that will benefit society or should we rather be paying it to these private shareholders for what benefit?” Kganyago said. If any changes to the ownership structure “encroach on our mandate and our independence, you should expect a fight,” he said.

- Bloomberg