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Explainer: South Africa’s Central Bank – Ownership, Mandate and Independence

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In recent months, various debates about the South African Reserve Bank have focused broadly on three aspects – its shareholding, its mandate and its independence.

The three debates are somewhat convoluted. They are indeed three different issues, but they are interlinked.

Let’s turn to the issue of ownership first.

The South African Reserve Bank is one of only eight central banks in the world with private shareholders. The others are in Belgium, Greece, Italy, Japan, San Marino, Switzerland and Turkey.

The debate about shareholding in South Africa’s Reserve Bank centres around the issue of nationalisation. Some political players, such as the third largest party – the Economic Freedom Fighters – are calling for the ownership of the Bank to be transferred from current private shareholders to the South African government and has tabled a bill in Parliament to achieve this objective.

The issue is very charged. But it’s also confused and not very well understood. There’s an assumption that a change of ownership would automatically mean a change in the role the Bank plays. This isn’t the case because in fact the Bank’s shareholders play no role in its mandate. In that sense it doesn’t matter who the shareholders are. Because they can’t affect its mandate, nationalisation won’t affect the independence of the central bank.

But there are other ways in which the Bank’s ability to do its job can be undermined. This is where the Bank’s primary mandate comes in.

The mandate issue

The mandate of South Africa’s central bank is set out in the Constitution, which says:

The primary objective of the Bank shall be to protect the value of the currency of the Republic of South Africa in the interest of balanced and sustainable economic growth in the Republic.

The Bank also adheres to an inflation target which was put in place in 2000. This requires it to keep inflation within a band of 3% to 6%. The Bank uses monetary policy and interest rate decisions to achieve this objective. In short, when the inflationary trend declines, the interest rate declines and when the inflationary trend increases, the interest rate increases.

The issue of the Bank’s focus on keeping inflation within this band – and the fact that its mandate sets out clearly that managing inflation is it’s core job – is hotly contested.

Those on the left of the political spectrum, including the country’s largest trade union federation, argue that the South African Reserve Bank shouldn’t focus primarily on inflation. Instead, they say, it should also be taking account of economic growth as well as the employment rate in the country.

The Bank’s response has been that its current mandate is broad enough because it says quite clearly that, while managing inflation, it must do so “in the interest of balanced and sustainable economic growth in the Republic”.

For those like myself who oppose a broader mandate, the issue is quite simple: giving the Bank a broader mandate raises the danger that the Bank will take its eye off inflation because it’s having to concentrate on other issues. This, in turn, could lead to rampant inflation.

The Bank’s mandate is crucial in another respect. The SA Reserve Bank’s ability to pursue its mandate without interference from government is how its independence is measured.

South Africa’s central bank has acted on the whim of politicians before. It didn’t end well.

How political interference can hurt

In the 1980s inflation rose dramatically, resulting in the country suffering its highest inflation rates ever: on average about 15% per year for the decade.

Despite the fact that rising prices called for the Bank to act by raising interest rates, it failed to do so on instructions of the government. Inflation wreaked havoc on the earnings of ordinary South Africans, as well as on the value of people’s pensions.

The government’s interference was dramatically brought to light ahead of a by-election in 1984 in a Johannesburg suburb called Primrose. Just prior to the by-election the government instructed the South African Reserve Bank to drop the interest rate. This subsequently became known as the Primrose Prime incident.

Where the focus should be

The debates swirling around the central bank have created uncertainty. This is despite reassurances from South African President Cyril Ramaphosa.

The President needs to do more: he also needs to establish certainty about the executive management of the South African Reserve Bank.

An executive vacancy at the central bank, created by the resignation of one of the Deputy Governors, Francois Groepe, must be filled as a matter of urgency. And the President should make clear his intention to reappoint the Governor, Lesetja Kganyago, and the Deputy Governor, Daniel Mminele, whose terms expire this year.

These appointments are under the purview of the President. The SA Reserve Bank Act stipulates that the President must fill executive positions after consultation with the Minister of Finance and the Bank’s board.

South Africa needs stability at the central bank to ensure a growth trajectory for the country. The President should get the process of filling the vacancy and providing certainty about the future of Kganyago and Mminele underway sooner rather than later. -The Conversation

-Jannie Rossouw: Head of School of Economic & Business Sciences, University of the Witwatersrand

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Haute-Couture Designer Karl Lagerfeld Has Died

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Haute-couture designer Karl Lagerfeld has died at the age of 85, French media reported on Tuesday.

German haute-couture designer Karl Lagerfeld, artistic director at Chanel and an icon of the global fashion industry for over half a century, has died, a source at the French fashion house Chanel said on Tuesday. He was 85.

Lagerfeld, instantly recognizable in his dark suits, pony-tailed white hair and tinted sun glasses, was best known for his association with Chanel but simultaneously delivered collections for LVMH’s Fendi and his own eponymous label.

French celebrity online magazine Purepeople said Lagerfeld died on Tuesday morning after being rushed to a hospital in Neuilly-sur-Seine just outside Paris the night before.

A spokesman for Chanel was not immediately available for comment.

Lagerfeld was artistic director at Chanel. A spokesman for Chanel was not immediately available for comment. -Reuters

Sudip Kar-Gupta

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The Coffee Farmers Betting On Blockchain To Boost Business

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 On a bustling street near the shiny new international airport in Ethiopia’s capital is a small coffee roastery with big dreams. 

Nearly 40 Ethiopians – a third of them women – sift, roast and package prized Arabica beans for export to Europe under the Moyee brand, founded by a Dutch social entrepreneur.

The roastery, together with the innovative use of blockchain technology to ensure the supply chain is transparent, represents an attempt to keep as much of the profits as possible in Ethiopia, one of the world’s poorest countries.

“It’s the world’s favorite drink. We drink over 2 billion cups a day,” said Killian Stokes, who set up the Irish branch of Moyee.

“The industry’s worth $100 billion and yet 90 percent of coffee farmers in Ethiopia live on less than $2 a day.”

That is partly because most exporters process the beans elsewhere, but also down to price fluctuations and other factors that make coffee growing a precarious business.

READ MORE | Ugandan Firm Uses Blockchain To Trace Coffee From Farms To Stores

To make things fairer, Moyee has created unique digital identities for the 350 farmers it currently works with – meaning buyers can see exactly how much each individual grower is paid, with prices set at 20 percent above the market rate.

Now the brand, whose slogan is “radically good coffee”, wants to use blockchain to take that to the next level – allowing buyers to tip farmers, or fund projects such as a new planting program, through a mobile app.

The U.N. Food and Agriculture Organization (FAO) said in a recent report that blockchain had huge potential to address challenges smallholder farmers faced by “reducing uncertainty and enabling trust among market players”.

The technology, used to underpin cyber-currencies like Bitcoin, allows shared access to data that is maintained by a network of computers and can quickly trace the hundreds of parties involved in the production and distribution of food.

Once entered, any information cannot be altered or tampered with.

‘BIGGER THAN THE INTERNET’

Siobhan Kelly, an advisor to the Food Systems Programme at the FAO, said blockchain would ultimately be “much bigger than the internet”. 

“Within 10 years – it’ll take probably 10 years – it’s going to be a major revolution, for everything,” said Kelly.

Fruit farmers in Caribbean nations are also looking at using blockchain to attract better-paying customers, bring traceability and build a credit trail. 

“It’s an innovation that is poised to empower local farmers in the Caribbean region,” said Pamela Thomas, executive director of the Agriculture Alliance of the Caribbean (AACARI), a regional network of nearly 100,000 farmers.

AACARI’s project has two components: auditing by accredited professionals to ensure farmers adhere to the Global GAP (good agricultural practices) standards, and a digital marketplace where buyers can find detailed information about the produce. 

Global GAP is a voluntary standard required by many European and U.S. supermarket chains.

Vijay Kandy, whose company is building the blockchain platform, said the auditing process would allow farmers to deal directly with buyers – bypassing the middlemen that many currently rely on – and make access to credit easier.

“One reason why buyers from faraway places or different countries go through middlemen is because they rely on them to make sure farmers are following these good practices,” he said.

One such buyer is London-based Union Hand-Roasted Coffee. 

The company sources its coffee directly from growers’ cooperatives to ensure higher quality, pays farmers more than minimum price set by the global Fairtrade organization, and works with more than 40 producer groups in 14 countries.

“We currently undertake direct interviews to verify farmers have been paid, but it’s very time- and labor-intensive to do that and to record all that data,” said Steven Macatonia, who co-founded Union in 2001.

“So to have a much more simple system where we can get a confirmation that payment has been received and how much that is, that could be hugely beneficial,” he said.

Price fluctuations and the impact of climate change make coffee a particularly challenging crop to grow.

“Large companies’ profits usually increase when prices are low, but the profit for farmers does not, and in some cases it may cost them money to produce coffee,” said Aaron Davis, head of coffee research at Britain’s Royal Botanic Gardens at Kew. 

Davis’s latest research shows climate change and deforestation are putting more than half of the world’s wild coffee species at risk of extinction.

Ethiopia – the birthplace of Arabica, the world’s most popular coffee – is of particular concern. Up to 60 percent of the land used to grow coffee could become unsuitable by the end of the century, Davis found. 

“The more a farmer is paid, the more resources he will be able to devote to climate resilience,” he said.   

Both Davis and the FAO’s Kelly however cautioned that blockchain technology was not going to be a “quick fix”, with farmers around the world facing multiple challenges.

“Farmers need access to affordable seeds, to affordable finance and credit when they need it … and these things are not going to be given by blockchain,” said Kelly. -Reuters

-Thin Lei Win @thinink

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Morocco Looks To French As Language Of Economic Success

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Morocco’s economy is getting lost in translation.

With so many students dropping out of university because they don’t speak French, the government has proposed reintroducing it as the language for teaching science, maths and technical subjects such as computer science in high schools.

It also wants children to start learning French when they start school.

The country’s official languages are Arabic and Amazigh, or Berber. Most people speak Moroccan Arabic – a mixture of Arabic and Amazigh infused with French and Spanish influences.

In school, children are taught through Arabic although they don’t use it outside the classroom. When they get to university, lessons switch to French, the language of the urban elite and the country’s former colonial masters. Confused? Many are.

Two out of three people fail to complete their studies at public universities in Morocco, mainly because they don’t speak French.

The linguistic morass has stymied economic growth and exacerbated inequalities in the North African country, where one in four young people are unemployed and the average annual income runs at approximately $3,440 per person, according to the International Monetary Fund (IMF) – less than a third of the world average.

The plans to broaden the teaching of French go to the heart of Morocco’s national identity.

They would overturn decades of Arabisation after independence from France in 1956 and have triggered a furor in parliament, where members of the Islamist PJD party, the senior partner in the coalition government, and the conservative Istiqlal party view them as a betrayal.

The disagreement has delayed a vote on the changes.

“Openness to the world should not be used as an excuse to impose the primacy of French,” said Hassan Adili, a PJD lawmaker.

Proponents say the changes reflect the reality that French reigns supreme in business, government and higher education, giving those who can afford to be privately schooled through French a huge advantage over the majority of the country’s students.

“In the Moroccan job market, mastery of French is indispensable. Those who do not have command of French are considered illiterate,” said Hamid El Otmani, head of talent and training at the Confederation of Moroccan Employers.

Even before parliament votes on the changes, Education Minister Said Amzazi has okayed the roll-out of French in some schools, declaring its use in teaching scientific subjects as an “irreversible choice”.

Like many Moroccan politicians, his children received a private education.

“When decision-makers start sending their children to public schools, only then can we say that we have a successful education system,” said Jamal Karimi Benchekroun of the co-ruling socialist PPS party.

Amzazi did not respond to a request for comment.

Frustration over jobs and poverty has fueled periodic protests in Morocco, but the country has avoided the sort of instability suffered by other North African states, where pent-up anger has triggered uprisings and provided fertile ground for Islamist extremism.

King Mohammed VI, the ultimate power in Morocco, has proven adept at introducing limited reforms in response to popular protest. He has spoken publicly about the need to teach foreign languages to students to reduce unemployment and has made the economy a top priority.

Last year, he sacked the minister for finance after calling on the government to do more to boost investment.

C’EST LA VIE

Problems with language are not unique to Morocco. In neighboring Algeria, another former French colony, students are also schooled in Arabic only to be greeted “en francais” in university and the workplace.

French’s pre-eminence reflects Paris’ continuing influence in the region. France is the biggest foreign direct investor in Morocco and large companies such as carmakers Renault and Peugeot employ tens of thousands of people.

Privately-run universities such as the International University of Rabat (UIR) have courses geared toward high-growth industries such as aerospace and renewable energy and offer tuition in French and English.

But a year at UIR can cost up to $10,000 in fees, way beyond the budget of most Moroccans. They go instead to non-fee paying public universities, where the abrupt transition to studying in French is frequently a burden for students and their lecturers.

“Sometimes we find ourselves giving French language courses during economy classes,” said Amine Dafir, economy professor at Hassan II University, a public institution in Mohamedia, near Casablanca.

Hamid Farricha, 37, dropped out of his applied physics and computer science degree at Hassan II University during the first year. He dreamed of becoming an engineer but the language barrier meant he struggled to keep up.

Trying to find Arabic translations for French scientific words was a drain on his time.

He switched instead to studying mechanics at a vocational school. He still had to master French to get hired.

“The biggest challenge after earning my diploma was writing a CV and sitting for job interviews in French,” Farricha said.

He got a job as a technician at a plant repairing car frames, paid below Morocco’s minimum monthly salary of 2570 dirhams, or $270.

Farricha was one of the lucky ones. Morocco’s economy cannot absorb all the young people looking for work. Around 280,000 graduates entered the labor force last year but only 112,000 jobs were created.

The unemployment rate for graduates is 17 percent, above the national rate of 9.8 percent, according to data from Morocco’s planning agency.

Morocco’s reliance on small and medium-sized companies which do not typically employ graduates, and austerity drives which have cut public sector jobs are part of the reason for the high rate of graduate unemployment.

The education system is also failing to prepare students for work.

In addition to high dropout rates, Moroccan students score badly compared to peers on international tests, and at university level, students oversubscribe to social science fields at the expense of technical subjects, according to an IMF report in late 2017. That means many don’t have the skills employers are looking for when they graduate.

Even for roles not requiring a degree, French is a must. On the French website of Morocco’s job promotion agency, almost all employers were looking for French speakers, including for jobs as guards, waiters, cooks and drivers.

Determined to get ahead, Farricha worked on his French while employed at the plant. He read newspapers and books in his spare time and gave himself a daily list of new expressions and vocabulary to learn.

He went back to university in 2014 for a degree in French law and is studying for a masters in diplomacy and international arbitration.

To meet his living costs, he teaches French to other students. -Reuters

Ahmed Eljechtimi

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