Investment Matters

Monday March 25th 2019

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The latest Investment Matters articles are listed below.

Will South Africa’s new finance minister be able to rebuild confidence and bring some stability?

Tito Titus Mboweni has been announced as the successor to former Finance Minister Nhlanhla Nene.

Mboweni, the nation’s fifth finance minister in less than three years, now faces the challenge of recuperating an economy that’s in recession and will have to hit the ground running. However, he is suited to be South Africa’s finance minister and is highly regarded in the local investment and business community, as well as in global financial circles. His background provides clues to how his thinking has been shaped and how it might influence him in his new role. He has extensive experience in matters of economic policy, starting with his time in the ANC’s economics department and then as Minister of Labour in the Mandela cabinet, where he was responsible for revamping labour legislation.

He is best known for being the governor of the South African Reserve Bank (SARB) from 1999 to 2009 and set up the Monetary Policy Committee, which brought inclusivity, structure and transparency to monetary policy decision-making. Mboweni also introduced inflation targeting, which contributed to lower and more stable inflation and interest rates over time. Importantly, he joined the SARB at a time of great turmoil. Emerging markets were plagued by a series of crises and the
SARB pushed its net foreign currency reserves into negative territory in an unwise attempt to protect the plunging rand. As governor, he rebuilt the forex reserves to more acceptable levels. This experience of crisis management will underline the importance of the sustainability of state finances and inform how he approaches the fiscal crisis, particularly with regard to state-owned enterprises debt. Not much is disclosed of the nature of his advisory role at Goldman Sachs, but it would have given him an updated view of how foreign investors see South Africa. It is also worth mentioning that unlike today, when the headlines are cheering his selection, his appointment as SARB governor was met with some controversy and therefore he knows what is required to build credibility.

The SARB is constitutionally independent in its policy setting, but the Treasury lacks a similar safeguard. Therefore it is important that the Finance Minister has political clout and the complete confidence and backing of the President. Mboweni has this to a greater extent than his immediate predecessors.

The Medium Term Budget Policy Statement is largely finalised by now and if Mboweni introduces changes to fiscal it will only plausibly be felt in next year’s Budget. He can be expected to place an emphasis on continued fiscal consolidation over the long term steering the mix of spending to better support economic growth (more capital spending relative to wages). His keen understanding of the SARB can also contribute to the coordination of monetary and fiscal policy.

As respected as he is, no one has a magic wand to fix South Africa’s problems and he faces an uphill battle to stabilise the public debt ratio without tipping the fragile economy over the edge. However, with Cyril Ramaphosa as President and Tito Mboweni as Finance Minister, economic considerations are likely to feature more prominently in government decision-making than at any point in the past decade. This gives us hope for the future.