The Reserve Bank’s decision to reduce interest rates by a modest quarter of a percentage point last week marks the turning of the interest rate cycle. It will be a positive indicator to businesses and consumers that the tight monetary environment of the last 15 months is starting to ease, hopefully supporting investment. But it is a small step, unlike the leap made by the US Federal Reserve last week in cutting rates there by a full half a percentage point.
The risk, of course, is inflation, and the Reserve Bank is again proving its conservative approach. Inflation is bad for business and consumers, making it hard to plan for the future and eroding the value of money. Inflation is driven by supply and demand dynamics, and expectations about the future. A central bank that is well respected for its tough stance on inflation will have a better grip on expectations than one that is too quick to reduce rates. If expectations are kept under control, we may see the rate-cut cycle accelerating. That must be what we should hope for, though the bank’s commitment to a low inflation environment is ultimately the best for business, as well as savers and those earning wages who must be able to trust that their money can maintain its spending power.
However, the shift in rates in some of our key markets, combined with the positive political sentiment linked to the Government of National Unity, is having a positive impact on foreign investor sentiment. The Rand last week hit its strongest levels in 18 months against the US dollar while long bond yields are still falling, making it cheaper for government to borrow. That shows foreign investors are now being attracted by our relatively higher interest rates and improving risk outlook. That is good for the business environment too.
We have another major opportunity to support positive international sentiment toward South Africa when we host next year’s G20 meetings. South Africa will be chairing the G20, a group of the biggest economies in the world (19 countries, the European Union and the African Union), that works together to support economic growth and policy coordination. South Africa chaired the G20 once before, in 2007 with Trevor Manuel leading it, but it did not then host annual summits. That time was, though, a relatively high point for South Africa’s economic performance, with the economy growing over 5% and a fiscal surplus. Our growth rate next year will not be nearly as robust, but it is an opportunity to demonstrate to the world that we are moving in the right direction.
Brazil is hosting this year’s summit in November, which will mark the conclusion of several different working groups and task forces ranging from women’s empowerment to energy transition. Several international cooperation agreements are likely to be signed at the summit, reflecting the work done.
Alongside the G20, business groupings host the private sector forum which is called the B20. Last week, business leaders in South Africa held a meeting with the leaders of Brazil’s B20 initiative to ensure we can pick up the baton following their hosting of the summit. They shared their experience of hosting and the journey they have been on.
The B20 is hosted a month before the main G20 meeting and connects the business community with the G20 governments. It has been discussing urgent and important topics since the beginning of the year ranging from trade and investment to employment and education.
I expect our hosting of the B20 will be an opportunity to show how South African business is ready to scale, and to demonstrate how partnership between business and government can solve challenges and unlock growth. BLSA and Busa will be leading the charge to ensure we host a successful event during South Africa’s chairing of the G20.
It is an opportunity to cement the narrative of South Africa as an emerging success story where we are resolving our challenges and finally delivering growth.
- This column was first published in the Business Leadership South Africa (BLSA) weekly newsletter. The author Busisiwe “Busi” Mavuso, is the CEO of BLSA.
