Last week, South Africans received a much-needed break from the interest-rate hikes that have been implemented by the Reserve Bank since 2021. The hiking cycle — which took the repo rate from 3.5% in November 2021 to 8.25% — had resulted in an income squeeze for citizens that came at the same time as the prolonged cost-of-living crisis. The connection between the two — where the cost-of-living crisis pushed inflation beyond the Bank’s tolerance level of 3%-6% and forced it to react to counter inflation — has created new murmurs about the Bank’s role in squeezing already-suffering citizens.
Fikile Mbalula — the secretary-general of the ANC — uttered that the party had directed finance minister Enoch Godongwana to engage with the Bank and urgently hold discussions to explore other measures to manage the current economic challenges other than raising interest rates.
As expected, Treasury swiftly dismissed the idea of any discussions about an intervention. The immediate rebuff once again highlighted the ANC’s internal dilemma between being seen to address key challenges affecting the electorate, and the roles that its deployees have to play once they wear their government hats. As the finance minister who oversees a Reserve Bank whose role, function and independence are crystallised in the constitution, Godongwana has to express support for the Bank’s implementation of its constitutional duties for as long as it sticks to its mandate. Departures from the script would create the type of anxieties that would add to the scope of the problems the Bank is trying to solve.
Optics vs substance
The problem for the ANC is that its electoral prospects hinge on the ability to give the impression that it is addressing the types of problems that have left South Africans unemployed and living with high interest rates.
The focus on the Reserve Bank may get political mileage, but remains a matter of optics rather than substance. Ironically, it is the Reserve Bank itself that keeps providing hints to the ANC on how it can substantively initiate interventions that will assist citizens.
When addressing parliament in 2020, governor Lesetja Kganyago highlighted that even though inflation at large had been contained within the target range, administered prices for electricity, water and municipal rates far exceeded the general inflation rate. The rises in administered prices — which are set by different government entities and structures — create an upward push on the costs of doing business that eventually comes back to bite citizens. In July 2023, as inflation finally showed signs of easing, the Reserve Bank indicated that administered prices had shot up by 14% in 2022. This indicates that the recent restoration of the inflation rate to within the band has actually occurred in spite of the pressures inflicted by these prices.
It is the Reserve Bank itself that keeps providing hints to the ANC on how it can substantively initiate interventions that will assist citizens.
These data points do not seem to have persuaded the ANC to focus on the parts of the economic value chain that not only play an amplified role in driving inflation, but also fall within the scope of political decision-making through fiscal policy measures.
The poor municipal collections rates — on the back of low employment and economic growth — increase the reliance on rates and taxes that can be extracted from ratepayers with some affordability. The costs of running Eskom in light of its challenges has resulted in tariff increases the state-owned entity argues are still not enough, yet citizens regard as excessive.
Funding the maintenance of bulk infrastructure to avoid the type of tragedies witnessed in Hammanskraal requires better infrastructure investments or higher tariffs. These types of considerations remain within the ambit of the government and, given their universal impact on citizens, are unlikely to face political opposition.
For a party that wants to address this dimension of the socioeconomic challenge, a focus on reducing the layers of governance and bureaucratic costs that drive up administered prices may present a stronger electoral strategy than a focus on the institution that reacts to it all.
• Sithole (@coruscakhaya) is an accountant, academic and activist.
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