After asking what was done with the excess food, I was repeatedly told by a staff member that they threw it away. In a country like SA with so many hungry people, that is an absurd policy.
Fortunately, government has not specialised in absurd policies. Outcomes-based education has been one of the larger disasters, but the bulk of government policies are good, only badly implemented. Included in this are the long delays in infrastructure spending through the late 1990s and early 2000s.
Though there have been unwanted side effects, like the layoff of good teachers in the mid-1990s, macroeconomic, fiscal and monetary policy has been soundly crafted and implemented. There were threats of SA falling into a debt trap in the mid-1990s, but the government debt burden is now sound. And though many (including myself) view last week's decision to keep interest rates on hold as mistaken, overall monetary policy is stable and far from the knee-jerk moves of 1998.
Therefore it is worrying that there seems to be increasing uncertainty over macroeconomic policy formulation. Treasury has long been the steward of macro policy. Last year, President Jacob Zuma introduced a new dimension when he created the economic development ministry. I expected this ministry would tackle the glaring microeconomic inefficiencies holding back job creation. Unfortunately much of the ministry's commentary has centred on the exchange rate.
There seems to be a belief among many that the local purchasing power of workers can be raised at the same time as SA wage costs are lowered in global terms by weakening the exchange rate. That is almost impossible to achieve. Since 1994, the rand has depreciated by 55% on a trade-weighted basis and 74% against the Chinese renminbi. If currency weakness were the panacea, SA would have had no growth problems.
Unfortunately any improvement in competitiveness was always temporary, as the benefits were eroded by higher wages and inflation. In contrast, nominal Chinese factory wages have essentially been flat since the late 1990s. This, together with huge labour productivity growth, accounts for the bulk of China's competitive advantage.
A weaker rand will certainly help SA's miners and manufacturers. However, it is not the magic potion to resolve the huge rate of unemployment the country faces.
SA needs to finance a government budget deficit of around 6% of GDP in the fiscal year that starts April 1 after financing a deficit around 7,5% of GDP in the current fiscal year. Add in the public infrastructure programme, and this year's total public-sector financing requirement will be above 10%. As a result, SA is increasingly reliant on the kindness of strangers to finance the deficit. This means the rating agencies need to remain comfortable with SA's medium-term outlook. The uncertainty over policy formulation needs to be resolved or SA could well be put on rating s watch for a downgrade by at least one of the major agencies.
This would make financing the deficit more difficult. I don't expect any major policy changes. Any derailment of macro policy would make it hard for Eskom to finance its infrastructure programme. So I don't foresee any "we throw away the excess food" policies in the near future. But it's also vitally important that the uncertainty be resolved.
Fortunately other hotels in Cape Town have much more sensible policies than the one mentioned above. Many have arranged for charities to pick up their excess food. They will be getting all my business in future.
Moola is a director with Macquarie First South
Ranking the Analysts 2009
