Consistent policies crucial for inclusive growth
JOHANNESBURG – Finance Minister Tito Mboweni is clearly frustrated. In a position paper released by the National Treasury, the ministry laid out the country's problems and potential solutions in his characteristic no-nonsense approach.
“The combination of low growth and rising unemployment means that South Africa's current economic trajectory is unsustainable,” states the opening line of the abstract before outlining the need for economic reforms that will promote economic transformation, inclusive growth, and make our economy globally competitive and sustainable.
Given our current circumstances we should embrace this strategy which is aimed squarely at supporting labour-intensive growth and improving competitiveness.
Unfortunately, as citizens we feel in our gut that despite this new-found gusto and determination from Treasury, we are likely to remain as frustrated as the minister.
The surprise release of this paper by Treasury only a few weeks before the Medium Term Budget Policy Statement – and its considerably more strident tone around the need for a solution to Eskom's debt and economic growth – more broadly hints at deeper structural problems that he is unable to overcome.
That problem is a long-standing and overarching lack of policy certainty and policy cohesion between the governing party, the government and its departments. The result is that despite the best efforts of the minister, we get a feeling that what the government promises with the one hand, they are likely to take away with the other.
A case in point would be the signing into law of the National Credit Amendment Bill by President Cyril Ramaphosa just a few weeks ago. As much as I admire Mboweni, it is hard to talk about the need for inclusive growth while at the same time operating within a regulatory environment that is actively working against financial inclusion.
We know that financial inclusion is a key predictor of socio-economic development, and socio-economic development is both a precursor to and a necessity for inclusive growth.
“Financial inclusion” has for several years been a policy buzzword, but we have battled to move beyond vision and into reality.
South Africa has one of the world's most sophisticated financial regulatory systems, yet we still rank below our emerging market peers in terms of the breadth of products used by the average consumer. This is apparent in data from Finmark Finscope, which shows that although 80 percent of the South African adult population has a bank account, nearly two-thirds of consumers still use the services of the informal sector to meet some of their financial needs.
On an individual level, financial inclusion helps to drive socio-economic development because it makes it easier for people to save and preserve wealth, access credit, and insure themselves against financial shocks. The fact that South Africa has one of the lowest savings rates in the world is indicative of these low levels of financial inclusion in our economy.
With this in mind, the new Credit Amendment Bill should work towards the greater goal of improving financial inclusion and socio-economic development.
In principle the bill should help severely over-indebted consumers catch their breath on debt repayments or perhaps even wipe the slate clean, if their situation is dire enough. Sadly, in reality it is highly debatable whether or not the positive intended consequences of the bill will outweigh the negative, unintended consequences.
The main reason for this is that this bill, like the 2017 Amendment to the National Credit Act, and the Treasury’s position paper put forward, exists outside of an overarching and cohesive policy framework. It is this persistent policy uncertainty that has to a large extent underpinned our poor economic performance over the past decade, and it will continue to do so unless we resolve it.
In the lead up to the bill being promulgated, the banking sector repeatedly warned that the bill will make it more difficult – and costly – for banks to lend to low-income customers.
This is clearly contrary to an economic policy that seeks to improve financial inclusion.
Moreover, there are already regulations in place to prevent over-indebtedness and a comprehensive debt-restructuring process overseen by the National Credit Regulator.
Indeed, the very purpose of the Amendments to the National Credit Act that were introduced in 2017 was to protect consumers from reckless lending practices and prevent them from becoming over-indebted and in a situation where they were unable to repay their debts.
The fact that over-indebtedness has remained so problematic in spite of the 2017 amendment suggests that there are deeper underlying issues that need to be addressed. Introducing a new bill so soon is a quick-fix akin to providing Eskom with another bailout.
While it may provide temporary relief, it runs the risk of creating perverse incentives – or worse, making it more difficult and expensive for consumers in the low-income segment to access credit in the future.
By making it more difficult for the low-income segment of the market to access credit, this bill is likely to reverse the country's efforts to improve financial inclusion and much-needed socio-economic development.
This stands in stark contrast to the Treasury’s position paper that specifically aims to improve financial inclusion and economic transformation.
Regrettably, until there is consensus – or at least alignment – of strategy within and between government departments, we and the finance minister are likely to remain frustrated no matter how strident our call to action is.
Adam Craker is the chief executive of IQbusiness. The views expressed here are his own.