For decades, South Africa’s economy has been shackled by a policy that, while ostensibly designed to manage inflation, has instead stifled growth, discouraged investment, and crippled job creation.
The margin between the repo rate and the lending rate, first introduced by Dr. Chris Stals during the Apartheid era, has had devastating consequences on the country’s economic fabric.
This policy—artificially inflating the cost of borrowing—has not only restricted access to credit for businesses and individuals but also entrenched a cycle of economic stagnation.
It’s time to confront the fact that the South African Reserve Bank (SARB) has played a significant role in throttling the country's economic potential.
High Interest Rates:
A Stranglehold on economic growth the SARB’s approach to interest rates has long been touted as a tool for inflation control, but it comes at a steep cost.
By maintaining a wide margin between the repo rate and the lending rate, the SARB has kept borrowing costs prohibitively high for decades.
This is no mere inconvenience for South African businesses and households; it is an economic choke hold that has systematically undermined growth. Small and medium-sized enterprises (SMEs), which are critical drivers of job creation and economic diversification, are particularly hard-hit by high borrowing costs.
When the cost of credit is inflated, businesses that rely on loans to expand, hire more workers, or purchase equipment find themselves unable to do so.
High interest rates also deter potential entrepreneurs from taking the risk to start new businesses, cutting off the very lifeblood of innovation and job creation.
Larger corporations may have more resources to weather high borrowing costs, but even they are affected in terms of long-term capital investment.
The result is a national economy that cannot grow fast enough to absorb its rising population and address the deep structural issues of poverty and unemployment.
Unemployment:
A national tragedy exacerbated by SARB policy the relationship between economic growth and job creation is clear: when the economy grows, jobs are created.
However, when growth is stifled—as it has been by the SARB's interest rate policies—unemployment soars.
South Africa’s unemployment rate remains among the highest in the world, a stark reflection of an economy strangled by high borrowing costs that make business expansion and job creation nearly impossible.
The SARB’s policies are not just abstract numbers on a spreadsheet—they have real, human consequences.
South Africa’s youth unemployment crisis, which sees nearly two-thirds of young people without jobs, is exacerbated by these high interest rates.
By inflating the cost of doing business, the SARB has directly contributed to the shrinking of the job market, leaving millions of young South Africans without hope or prospects for the future.
Inflation Control:
A narrow, misguided focus the SARB has long justified its high interest rate policies as necessary for controlling inflation.
However, this narrow focus ignores the broader economic devastation these policies cause. While inflation management is important, an economy cannot thrive if businesses cannot access affordable credit to grow, innovate, and hire workers.
The obsession with inflation targeting, at the expense of fostering a dynamic, growing economy, has proven disastrous.
Moreover, the SARB’s methods have been outdated and rigid, failing to account for the nuanced needs of a developing economy like South Africa’s.
Rather than employing a balanced approach that takes into consideration both inflation and growth, the SARB has sacrificed one for the other—at the cost of millions of jobs.
Adri Senekal de Wet is the Editor-in-Chief at Independent Media.
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