[Letter] Expanding Bank’s mandate will not address jobless problem

Chris Hattingh | 04 Nov, 2022
The governor was correct in highlighting that, in the context of inefficiencies and constraints that undermine and inhibit job creation, ‘pushing harder on monetary policy is like pushing the accelerator to the floor on a curvy, icy road over a mountain pass’.

SA Reserve Bank governor Lesetja Kganyago recently commented on calls for the mandate of the central bank to be changed, recommending it target both employment and inflation (Adding jobs to the Bank’s mandate will not fix the problem, says Kganyago”, November 1).

The governor was correct in highlighting that, in the context of inefficiencies and constraints that undermine and inhibit job creation, “pushing harder on monetary policy is like pushing the accelerator to the floor on a curvy, icy road over a mountain pass”.

SA is sorely exposed to imported inflation due in part to the steady erosion of the country’s own manufacturing capacity, the result of unreliable electricity supply and repeated attempts to dilute property rights.

Furthermore, supply-side problems such as onerous procurement policies across state-owned entities and rigid labour regulations feed through into higher operational and goods costs, increase inefficiencies and in turn mean higher costs passed onto consumers.

These problems cannot be solved by monetary policy. An additional driver of higher inflation (and therefore another pressure point on the Bank to continue hiking rates) is the decline of trade infrastructure throughout the country. Problems and delays at the ports increase the cost of importing materials, components and goods, and the lack of reliable rail networks forces more companies to use road freight.

When fuel costs increase, so too do those freight operations. Crumbling roads add more risk and costs to moving goods, pushing inflation higher. The Bank’s mandate can be expanded to include job creation and other targets, but no such expansion will address the country’s low-growth, high-unemployment situation.

Letter originally appeared here.

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