When Tito Mboweni, who passed away over the weekend at the age of 65, was appointed Governor of the Reserve Bank, there was some market scepticism over whether he was up to the job. His ANC background and lack of experience in central banking was troubling to the markets.
The markets worried that his appointment was all about cadre deployment, although he gave up his ANC positions when he joined the Reserve Bank. He had degrees in economics and had worked in the ANC. But the most common routes to head a central bank are a long career in a central or commercial bank, or work as an economist in a prominent position.
To ensure that he had the public imprimatur of those who really mattered, the Reserve Bank flew out prominent officials from financial institutions across the world to attend a function. Among them were Stanley Fischer, then the Deputy Managing Director of the International Monetary Fund and William McDonough, CEO of the Federal Reserve Bank of New York.
The Reserve Bank need not have worried about some initial market trepidation about Mboweni. He was soon accepted as a member of the international club of central bankers. Much of the respect was due to the good job he did in implementing the new inflation targeting framework, which involved some big changes in the way the Reserve Bank went about its business.
Under an inflation-targeting framework, a central bank is given a target range for consumer inflation by the government and uses various monetary policy tools to achieve this. In the case of South Africa, the Bank has to ensure that consumer inflation is within a band of between three and six percent a year.
First term
I was Economics Editor at Business Day during much of Mboweni’s first term as Governor of the Bank and frequently attended his press conferences. At the outset he promised to be a “boring” Governor and he was pretty much just that, as there were no local financial crises.
Under his watch, inflation came within the target range from 2003 to 2008. He also managed to deal with a spate of small bank failures that could have shattered confidence in the Bank. And compared to the US and Europe, the South African financial system was relatively unscathed by the 2008/09 Global Financial Crisis. We went into the first recession we had in 17 years, but our financial institutions did not need to be bailed out.
In the absence of a well-managed central bank, we would have faced a lot worse.
As a central banker he turned out to be a very good fit. In the end Mboweni stayed for two five-year terms in the job. He was offered a third term but said he did not want to stay on for the full term, so was not re-appointed.
Gill Marcus, who had departed the Reserve Bank after five years as a Deputy Governor to Mboweni, replaced him as Governor in 2009. It was former President Jacob Zuma who appointed her to the post. After some of Zuma’s other appointments, this seems like a bit of an aberration. She is highly dedicated and has an independent mind.
Marcus had a long history in the party and, while Zuma might have been comfortable with this background, she also had the technical expertise. Marcus had been Deputy Finance Minister under Trevor Manuel, and after leaving the Reserve Bank she had been Chair of the Absa Group.
Technocrat
After Marcus, Zuma appointed Lesetja Kganyago, a technocrat, who took over as Governor in 2014 and remains in place. Kganyago had been Director-General of the National Treasury, and then a Deputy Governor of the Bank. He is well respected and has been tested by the run on the rand and bonds in March 2020, which the Bank managed to halt. He quickly restored confidence among foreign holders of our government’s paper.
What stands out about all three ANC appointments to the post of Governor of the Reserve Bank is that all of them have been independent of the government, reliable, and have performed well as heads of the central bank. There is a lot to be grateful for.
We do not know if they have ever come under serious pressure from the state. But they have never compromised the Bank’s independence and given the government leeway to finance its deficits through printing money. If there had been interminable bail-outs of state-owned enterprises, we would have been on the path to hyperinflation, shortages, and rapid economic contraction.
There is a lot that could have gone terribly wrong, and although there are risks, we have a stable and well-regulated financial system.
Secured by the Constitution
The Reserve Bank’s independence from the state is secured by the Constitution, and it is one of the few privately owned central banks in the world. Yet, as the President in consultation with the Minister of Finance appoints the Governor, its independence could have easily been compromised. And like state-owned corporations, it could also have descended into chaos and corruption in the absence of strong leadership.
This has not happened, in part because the ANC has been prepared to appoint Governors who have been prepared to do their jobs. The ANC clearly knows this works. We would be far worse off if this independence had not been established in practice.
Mboweni certainly upheld certain tenets of ANC ideology. As Labour Minister in the first post-1994 Cabinet, he was behind the passage of the Labour Relations Act, which satisfied the unions, but made it more difficult to lay off workers. He also introduced extensive red tape. He was behind the Employment Equity Act, which brought in racial targets in hiring. Mboweni never regretted this legislation and rejected the idea that these led to high unemployment.
After leaving the Bank, Mboweni withdrew from public life, but came back as finance minister in 2018 for just three years. Mboweni’s main contribution as finance minister was his report on how to reform the public enterprises – “Economic Transformation, inclusive growth and competitiveness. Toward an economic strategy for South Africa.”
It later formed the basis for President Cyril Ramaphosa’s Operation Vulindlela reforms. Implementing the reforms to Eskom, the water sector, rail, and telecommunications has been slow and partial.
In the case of Eskom, many of the proposals have been implemented and we have had relief from power cuts.
Mboweni was a master at the political game, and the report was a way for him to deliver a hard message on the urgency of reform.
After having run the central bank, Mboweni did not like having a boss as finance minister.
He had his own ideas, particularly on what was close to his heart – central bank independence. President Cyril Ramaphosa gave him a “severe reprimand” four years ago, after he criticised the Zambian government for firing the country’s central bank governor.
He resigned the next year, making this a good time for him to make his exit. It was also a good reminder that while the ANC has permitted Reserve Bank independence so far, this might not always be the case. Independence has to be fought for.
The views of the writer are not necessarily the views of the Daily Friend or the IRR.
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