Reserve Bank responds to ANC plan to change its mandate

 ·19 Jan 2023

Persistently high unemployment in South Africa is a structural problem that the central bank doesn’t have the tools to address and should be dealt with by changing the nation’s education policy, Reserve Bank Governor Lesetja Kganyago said.

At 32.9%, South Africa’s official unemployment rate is the third highest on a list of 82 countries and the eurozone monitored by Bloomberg. It has exceeded 20% for at least two decades largely due to sluggish economic growth, strict labour laws and bureaucratic hurdles that make it difficult for local companies to hire additional workers.

“Unemployment in this country is structural,” Kganyago said in an interview with broadcaster CNBC Africa in Davos on Tuesday. Policymakers have “got to be alive to the fact” that South Africa’s education system isn’t equipping learners with the skills needed in a modern era, he said.

The jobless rate for people aged between 15 and 24, which includes school leavers and graduates of universities and training colleges, stands at 34.5%. Unemployment, according to the expanded definition, which includes people who are available for work but not looking for a job, is 43.1%.

Kganyago’s comments come after Gwede Mantashe, the governing African National Congress’s chairman, said the party agreed to change the central bank’s mandate to include job creation, a prospect that rattled investors worried that modifications would weaken the South African Reserve Bank’s independence and commitment to its inflation target.

President Cyril Ramaphosa later played down suggestions that the change was imminent, while Finance Minister Enoch Godongwana said an explicit mention of jobs in the central bank’s remit wouldn’t affect its operations.

The ANC failed to meet its targeted unemployment rate of 14% by 2020. The goal was contained in its 2012 National Development Plan, the fifth economic blueprint formally adopted since the party came to power almost three decades ago.

The success of global policymakers in responding to the coronavirus pandemic and supporting their economies in 2020 means “society has got an inflated expectation of what central banks can do,” Kganyago said. “When problems come, people look at the central bank and just say ‘do something,’ even when the central bank wouldn’t have the tools.”

South Africa’s state schooling outcomes lag behind its peers even as education is the biggest expenditure item in the national budget. A 2019 Trends in International Mathematics and Science Study shows the country’s fourth- and eighth-graders are among the worst performers in 64 and 46 countries, respectively.

Learning is also held back by an uneven availability of textbooks and labour unions that “fervently resist any policy to monitor teachers by blocking accountability reforms,” the International Monetary Fund said in a report published the same year.

The central bank, under Kganyago, has repeatedly said that clearing obstacles that would bolster job creation and economic growth fall outside the scope of monetary policy. The Reserve Bank contributes to the economy through its constitutional mandate to protect price stability in the interest of balanced and sustainable economic growth, Kganyago said.

“You cannot do that unless you take into account what is happening to economic growth, what is the potential growth of this economy, what is happening with employment creation and what is the non-accelerating inflation rate of unemployment,” he said.

The bank has addressed the worst global inflation shock in a generation by doubling the benchmark rate since November 2021 to 7%, drawing criticism from some politicians and labour unions.

Its stance meant South Africa hasn’t experienced inflation-target misses of the scale as some African and developed-market economies, and interest-rate hikes haven’t been as large as in other emerging markets.

Read: Bad news for middle-class South Africa

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