Govt wrong to debate inflation

Johannesburg - Unions and government should avoid becoming ensnared in arguments about inflation targeting and should focus their energies on improving South Africa's global competitiveness.

This is the view of Rian le Roux, chief economist at the Old Mutual Investment Group South Africa.

"There are bigger problems than inflation targeting," said Le Roux, who added that South African authorities should make the country's products more globally competitive.

Outgoing SA Reserve Bank (Sarb) governor Tito Mboweni has crossed swords with trade federation Cosatu over his rigid stance on inflation targeting. Sarb lifts interest rates when it wants the economy to cool and to contain inflation.

Mboweni has been criticised for keeping interest rates higher than necessary at the cost of economic growth - a move Cosatu argues has cost the country jobs.

Gill Marcus, who may be more sympathetic to unions, has recently been appointed as Mboweni's replacement and is scheduled to take over in November 2009.

The World Economic Forum (WEF) recently numbered an inadequately educated workforce, infrastructure and crime as "the most problematic factors for doing business", said Le Roux. These concerns topped tax regulations, government instability and inflation.

Said Le Roux: "That's where the attention of the regulatory authorities needs to be focused."

Economic recovery would be delayed until 2010 as South Africa lagged the global cycle, said Le Roux. The "generally accepted" view was that South African economic growth of 4% may be "too ambitious", he added.

The strong rand, which has crimped gross sales of local mining and manufacturing sectors, and the fact that the South African consumer remained under pressure with limited disposable income were factors behind his pessimism. Global growth prospects also remained weak, he said.

- Fin24.com