New route: A reserve fund for Joburg could tackle the infrastructure backlog and help restore cash balances if they drop below acceptable levels. Picture: TYRONE ARTHUR
New route: A reserve fund for Joburg could tackle the infrastructure backlog and help restore cash balances if they drop below acceptable levels. Picture: TYRONE ARTHUR

Throughout history, periods of economic slowdown have acted as a launch pad for leadership and innovation. This is evident in a number of events, including the contraction of the global economy around the First World War.

The subsequent terms of the Treaty of Versailles imposed on Germany compelled a young Cambridge economist, John Maynard Keynes, to champion a different economic reality, which proposed a demand-side anti-austerity worldview.

Similarly, the dawn of the Depression in 1929 resulted in US president Herbert Hoover choosing an unfamiliar economic revival measure. After the Second World War, the Marshall Plan rescued Europe from hard economic times.

The above suggests that structural constraints are defeated through innovation.

In providing solutions to recent economic challenges, for four years, the US Federal Reserve spent $75bn in monthly asset purchases.

Similarly, European Central Bank president Mario Draghi used policy statements and the monthly outlay of assets into the regional economy. All these financial policy creations were unusual and assisted in reducing the economic slump and stimulating the economy.

SA is at an economic crossroads. The economy continues to weaken, and the IMF estimates growth will be below 0.5%. A number of causal factors explain our economic tragedy, including softening industrial output, a weakening and volatile currency and political risk, which unsettles investors.

Credit risk spreads are not improving, and, with the sovereign credit rating in negative outlook, a further adverse sovereign movement may be in the offing.

The status quo must shift. The theory of public policy tells us that intelligent problem structuring and the execution of effective public programmes is a precursor to development.

As the policy leader of the Johannesburg finance portfolio, I believe our policy designs are informed by the need to grow the city’s economy, accelerate infrastructure development, tackle bottlenecks, increase revenue and — yes — assist in the broader transformation of the financial services sector.

Against this background, I will be proposing to the mayoral committee and the municipal council that the city establishes what I have named the contingency reserve fund.

This will be used to finance infrastructure development and will contribute to reducing the more than R170bn infrastructure backlog. This initiative is a prudent approach that will assist in restoring cash balances if they fall below acceptable levels and will also accommodate excess financial receipts, especially those secured through nontraditional revenue streams.

This initiative is a prudent approach that will assist in restoring cash balances if they fall below acceptable levels and will also accommodate excess financial receipts, especially those secured through nontraditional revenue streams

Importantly, I will further propose that an appropriate governance structure be in place to monitor the fund and all other investment initiatives.

Our administration is committed to a pro-poor budget, and this financing initiative aims to provide innovative instruments to fund the city’s service delivery mandate and stimulate local economic growth.

One of my intentions is to use my position to advance the transformation of the financial service sector and the upliftment of the black asset management industry.

Therefore, in the midst of a weakened national economy, our administration elects to walk the trailblazing path that draws on its foundation and provides economic leadership.

Our economic and financial dreams are a deliberate move towards the realm of treasury innovations. Our financial innovation will build and extend the good work done by other treasury policy wonks who came before us.

After the American Revolution (1775-1783), the newly independent nation was burdened with extremely high public debt. At the time, the US was a volatile and quarrelsome republic, and as such, there was little agreement on how to settle this public debt. Most bond holders were citizens and they held little faith these would be honoured.

Against popular thinking and much to president George Washington’s surprise, Alexander Hamilton, the first US treasury secretary, chose rationality and offered to pay the debt via tariffs and excise duties on luxury imported goods.

While this payment method may seem trivial today, it was innovative at the time and this intervention stabilised the new republic, laid the financial foundation for a prosperous US and provided greater confidence in government securities.

Time and space do not allow for a detailed discussion of subsequent treasury innovations that are reviving and sustaining global markets.

Financial innovations are the main drivers of China’s economic growth narrative. At a time when advanced economies are growing at an average of just 2%, the IMF forecasts China’s GDP will grow 6.7%, an upward revision from 6.6%.

Creations such as the banking union, very low interest rates and demand-side policy decisions have led to a turnaround in the EU economy. The EU’s balance of payments position is in surplus for the first time since the 2012 debt crisis. Moreover, unemployment is retreating and growth returning. Greece’s sovereign credit rating has recently been upgraded to B-from CCC+.

A financial history analysis of the Bank of England by Martin Wolf of the Financial Times observes that in its 323 years of existence, the bank had never reduced interest rates to below 2% prior to 2009.

However, by August 2009 a series of cuts had pushed rates down to just 0.25%, an innovative break from the past.

The Bank of England’s balance sheet contains £435bn in UK government "gilt-edged" securities and £10bn in corporate bonds. To quote Robert Skidelsky, Keynes’s biographer, this is evidence of the "return of the master", a celebration of the innovations of finance.

Seen through the foregoing perspective, contrarianism and innovations are therefore inalienable ingredients of the economic development policy success. In the poem, The Road Not Taken, Robert Frost tells us that policy combination does the trick:

Two roads diverged in a wood, and I took the one less travelled by, And that has made all the difference.

The City of Johannesburg embraces financial investment innovations as stimuli of economic progress and solutions for development, and that will make all the difference.

• Dagada is a member of Johannesburg’s mayoral committee for finance.

Please sign in or register to comment.