Hon. M Mahlaule
The rising cost-of-living is way too important a domestic crisis to be ignored or denied.
Most South African citizens already know about and acknowledge the rising cost-of-living as it was frequently debated in the 6th Parliament.
President Ramaphosa has completely agreed with Parliament before that swift action on the rising cost-of-living was needed, and he was excited at the thought of collaborating with Parliament to find useful and better solutions to this crisis.
So, debating the rising cost-of-living is like kicking an open door. We have moved on from talking about this crisis to solving this crisis by taking action.
Not surprisingly, this debate on the rising cost-of-living is not socially, economically, and politically neutral. Implicit in the debate is an attempt to look for a villain, rather than solutions to the rising cost-of-living. It seems to come very naturally for the DA to decide that when the South African economy is hit by a crisis, it must be because of the short-sightedness of the ANC in government.
Such a conundrum gives rise to an unrealistic conclusion that the rising cost-of-living is the intention of the ANC in government, with the implicit assumption that the control over the cost-of-living is better taken out of the hands of the government and left to the perfectly working, if not self-correcting, unregulated markets.
The ANC rejects the DA’s fundamentally flawed dogma of simply privileging markets over the government, not only because unregulated markets are inherently unstable, but also because not a single effort is shed on the DA’s side in asking what determines the rising cost-of-living in South Africa.
From a DA liberal wisdom, the rising cost-of-living in South Africa is strictly endogenously determined.
In other words, inefficiencies in the railway, ports, and electricity networks, for example, increase production costs for firms and in turn firms pass the increased production costs on to their customers. As a result, exogenous factors (i.e., increases in oil prices as well as in key inputs that produce staple food items such as wheat, maize, and grain and the raising of domestic coal prices nearer to import parity) are taken as exogenously given constants and are therefore unexplained in the rising cost-of-living.
The ANC differs with the DA’s finger-pointing perspective which undermines our ability to prevent the rising cost-of-living from happening again because it is obsessed about blaming the ANC. Whilst the ANC acknowledges that endogenous factors may account for the rising cost-of-living, the party is convinced that exogeneous factors dominate endogenous factors. But this does not imply that endogenous factors are desirable, or even acceptable.
Undesirable and unacceptable endogenous factors include the use of ‘buyer power’ by giant retailers to negotiate discounted wholesale prices which seldom transmit to lower consumer prices. Rather, discounted wholesale prices enable giant retailers to generate super oligopoly profits by maintain high retail prices. This analysis is missing in the DA’s wildly inaccurate link between the rising cost-of-living and endogenous factors. This omission is deliberate because most giant retailers were formed during colonialism and Apartheid, and they have partially co-opted the DA.
To be clear, the rising cost-of-living is driven mainly by a ‘cost-push’ or imported inflation which prolongs declines in output, employment, and investment, and is responsible for long-term damage to the South African economy. A good illustration of this is the Competition Commission’s Essential Food Price Monitoring Report of March 2023 which reveals that food prices in South Africa remain vulnerable to exogenous factors.
For example, South Africa imports about a third of its wheat from Ukraine and Russia and, hence, the impact of the conflict between these nations has been a significant increase in wholesale prices of bread and cereals which were transmitted to retail prices. Whilst the effects of this conflict on imported inflation have subsided, lower price of imported wheat has not been transmitted into lower bread and cereals prices due to the opportunistic behaviour of supermarkets with high market power in the grocery retail industry.
For current purposes, it is sufficient to note that the DA allows this opportunistic behaviour because the posture informing its policy is that unregulated markets generate optimal prices even if optimal prices hurt poor and working-class customers.
Another most telling evidence of the nature of a ‘cost-push’ inflation is the rise in Free-On-Board (FOB) and post-duty prices of frozen bone-in pieces, following the April 2021 and March 2022 decisions to introduce anti-dumping tariffs on frozen bone-in pieces and to ban imports of chicken from the European Union (EU) in response to the Avian flu outbreak, respectively. These decisions have resulted in poor and working-class customers paying higher chicken prices in South Africa.
Whilst FOB and post-duty prices of frozen bone-in pieces declined, causing higher chicken prices to collapse, this did not come without any economic cost.
Most obvious is that poor and working-class households have been relying on micro-finance instruments from ‘loan sharks’ and credit flows from commercial banks to hedge themselves against food price hikes, and the downside of this development has been the rising of both household debt and debt-income ratios. More crucially, attempts to control inflationary pressures of cost-push variety through interest rates hikes have been self-defeating as they increase debt servicing costs and reduce the purchasing-power-parity of poor and working-class customers.
We need a rapid intervention on this issue.
But it must not be a drastic and panicky intervention as often suggested by slothful parties crying wolf like the ATM, EFF, and MK.
International oil price hikes, following Russia’s invasion of Ukraine, further completes the ‘cost-push’ inflation argument advanced by the ANC. Higher oil prices have an effect primarily through increases in domestic fuel prices. Simply put, higher oil prices filter through higher domestic fuel prices and thereby trigger food inflation as food items and other essentials must be transported from farms and factories to distribution centres and from there to retail stores.
A neat illustration of this is to consider the common practice by giant retailers of raising margins to correspond to transportation cost increases.
Government intervention, in this case through unchanged Road Accident Fund (RAF) and General Fuel levies during the 2022/23 financial year, was seen as totally effective relief measures. These relief measures simply neutralised the negative effects of higher fuel prices on transportation costs, thereby countervailing food inflation and the high costs of both private and public transport. But these relief measures did not eventually tame the rising cost of living in the long run for two reasons.
Firstly, the liquidation of Comair which operated Kulula.com and British Airways (BA) resulted in higher transportation costs and, hence, relief measures were slow to adjust to changes in transportation costs.
Secondly, the inverse relationship between the relief measures and the value of the Rand did not exhibit the countercyclical behaviour that the Government had hoped for, since the value of the Rand is crucial for domestic fuel prices.
In short, if the Rand is weaker relative to the U.S. Dollar, we pay more for fuel as a net importer of refined petroleum products, and the value of the Rand has been on a downward trend for years now. Interestingly, one of the factors that weaken the Rand is deregulation of exchange rate and capital controls which were championed by the National Party, which the DA has morphed into, during the negotiations for a democratic South Africa.
Lastly, electricity tariffs have been set above inflation for a while now. The ANC appreciates critics against Eskom’s electricity tariff increases, but only within a framework that respects evidence. The persistent increase in electricity tariffs is partly due to the cost overruns at Medupi and Kusile which the media use to create an automatic mistrust between the citizens and the ANC.
Nonetheless, cost overruns are not the deeper cause.
The deeper causes of increases in electricity tariffs that the media filters are pricier diesel which Eskom has been using to fuel its emergency plants to offset higher loadshedding stages amid international oil price hikes and higher import parity prices for coal which Eskom uses to run its coal fleet. The higher costs of diesel and coal must be recouped since below-cost electricity tariffs are no different to “throwing gasoline on fire”.
In the City of Cape Town, increases in electricity tariffs exert pressures on the rising cost of living, simultaneously with unaffordable water tariffs and the asset bubble in the property market which results in inflated property rentals. The costs of inflated property rentals are not shared equally across all races in the City. Inflated property rentals squeeze black people from all sides but benefit white people who are property owners and are therefore the DA’s natural constituents. That’s how economic apartheid works or how you keep the so-called others out.
In truth, inflated property rentals are Apartheid by proxy.
If the DA is a brave and patient servant of the people, not to mention the true saviour of the country, it should halt the rising cost-of-living in the City.
Thank you.