RUFARO MAFINYANI: Rethinking SA’s economic policy

SA stands at a crucial economic juncture. Conventional policies, both contractionary and expansionary, seem inadequate, riddled with limitations and pitfalls that exacerbate inequality and fail to stimulate genuine growth. In this context, the Brics Alternative Payment & Settlement (APS) system emerges as a potential catalyst for change.      

Our current economic model thrives on debt. Banks create money primarily through fractional reserve banking, lending out multiples of their deposits. This fuels a never-ending debt spiral, prioritising asset holders over real job creators and productive investment. Conventional policies merely tinker with the edges of this system, offering temporary relief but failing to tackle the core issue. 

Raising interest rates, a common weapon in contractionary policies, primarily benefits financial elites. Hot money rushes in seeking higher returns but creates no lasting jobs or investments. Meanwhile, local entrepreneurs and businesses struggle with higher borrowing costs, stifling growth and innovation. 

Lowering interest rates might seem attractive, promising to boost spending and growth. However, it often disproportionately benefits asset holders, inflating wealth gaps. And while consumers gain some disposable income, much gets absorbed by debt repayment or saved by cautious individuals, failing to translate into significant economic activity. Moreover, a flood of hot money can destabilise the currency and inflate asset bubbles, further enriching the privileged few. 

It is time to look beyond these flawed approaches. SA needs a new engine, one that prioritises sustainable, inclusive growth over temporary fixes. This is where the Brics APS enters the picture. 

To fully understand the limitations of conventional policies we need to delve deeper into the debt trap. Here’s a breakdown: 

• Fractional reserve banking means banks can lend out up to 10 times their cash deposits, creating money out of thin air. This means 92% of the world’s money is created by commercial banks, not central banks. 
• As more loans are issued the overall debt in the economy grows exponentially, exceeding the actual amount of money available. This creates a constant need for new debt to pay off old debt, trapping everyone in a cycle of dependence — a debt spiral. 
• This system inherently benefits those who already hold assets, as rising debt levels inflate their value. Meanwhile, those without assets struggle to keep up, widening the inequality gap. 

A better measure

Traditional economic indicators such as GDP often fail to capture the true effect of policies on a society. To assess the effectiveness of economic policy we need a more comprehensive measure that considers job creation (how many new jobs are created for every unit of economic growth?); Smal and medium-sized enterprises (SMEs) growth (how many viable SMEs are established?); tax revenue (how much additional tax revenue is generated?); export boost (how much do exports increase?); and import reduction (how much can imports be reduced?).

Let’s assume an additional R10bn in disposable income in SA. With a spending propensity of 75%, domestic demand increases by R7.5bn. Using estimated multipliers, this could lead to 750 new jobs, 150 new SMEs, R8.25bn in additional tax revenue, a R9bn increase in exports and a R3.75bn reduction in imports. This translates to a total economic benefit of about R21.125bn, a far more holistic picture than traditional metrics. 

Imagine ditching the dollar for a regional barter fair powered by digital currencies. The Brics APS works like that. Each Brics nation uses its own central bank digital currency to settle trades directly, skipping the expensive, sluggish Swift system dominated by the dollar. This blockchain network automatically adjusts exchange rates based on supply and demand, ensuring fair pricing. It’s like a self-driving economic highway — fast, transparent and free from Western toll booths. 

While conventional policies stumble amid the debt trap, the Brics APS shines as a potential alternative, particularly for SA while it grapples with its economic crossroads. But before diving into the Brics APS let’s acknowledge its limitations. It’s not a magic bullet, and its success hinges on several factors. 

Internal challenges include implementation (careful execution is crucial, requiring political will, robust infrastructure and regional co-operation); disparities within Brics (addressing internal inequalities within member states to ensure everyone benefits from the system); and external pressures (navigating complex geopolitical dynamics and potential resistance from established global powers). 

The promise 

Despite the challenges, the Brics APS offers several enticing possibilities for SA: 

• Reduced reliance on the dollar — breaking free from the dollar-centric system could lower borrowing costs and stabilise SA’s currency; 
• Boosted intra-Brics trade — direct currency settlements within the Brics bloc could significantly increase SA exports and diversify trade partners; 
• Regional collaboration — Brics co-operation on development projects, technology transfer  and knowledge sharing could foster sustainable growth and tackle shared regional challenges; and 
• Investment diversification — attracting investment from outside the traditional Western sphere, potentially leading to more equitable and long-term focused projects. 

SA’s economic future is not preordained. By critically examining the limitations of conventional policies, exploring unconventional alternatives such as the Brics APS and actively shaping its own economic destiny, SA can break free from the debt trap and forge a path towards inclusive, sustainable growth.  

• Mafinyani is risk advisory & financial modelling partner at Decentralized Secured Finance, a specialised financial technology & risk advisory firm operating in the Sub-Saharan region.