Story audio is generated using AI
South Africa is facing similar economic constraints to much of the developing world presented by larger economies. Smaller economies should exercise multilateral solidarity to mitigate these impacts.This is according to Guillermo Ortiz, G30 treasurer and former governor of the Bank of Mexico, the country’s central bank, who was responding to last week’s inaugural Tito Mboweni lecture in Cape Town.The lecture was delivered by the former president of the Deutsche Bundesbank Axel Weber.The lecture came as protectionist trade policies such as tariffs from the Global North, mounting US debt, reliance on exports by China and failure to draw infrastructure capital by EU countries have made liquidity markets tighter for developing economies. Asked what he attributes South Africa’s relatively low growth to, Ortiz said structural challenges make it harder for emerging economies to access capital to develop catalytic infrastructure, and the Global North’s challenges intensify these liquidity constraints. “Usually, [this] applies, obviously, to … many emerging markets, [including] Latin America, [which are] also on a stagnant growth path for quite a long time. And obviously, we have structural constraints,” Ortiz said.“It’s the job of the politicians to find their way around these structural constraints … to achieve the desired objectives. In this case, economic growth gets us out of this sense of stagnation [and] seeks more equality or less inequality [among economies].”Weber’s lecture comes while geopolitical tensions and trade protectionism have worsened a dire situation for South Africa, characterised by GDP growth battling to breach 1%, unemployment at 32.7%, and gross fixed capital formation that consistently fail to breach 15% of GDP.The lecture honoured Mboweni, a seasoned politician who was also democratic South Africa’s first labour minister, the first black Reserve Bank governor and a former finance minister. He passed away in 2024. Ortiz said Mboweni excelled at convincing leaders in the Global South to take their fate into their own hands. During his presentation, Weber said a report that he co-authored for the G7 economies warns that the global economy is once again threatened by deep structural imbalances, excessive current account surpluses and deficits, weak investments, industrial overcapacity, high debt levels and declining international solidarity.“We argue in our report that imbalances fuel trade tensions, that financial instability helps to push protectionist pressures and that geopolitical fragmentation is a threat that is real for the global economy,” Weber said. The lecture came while the US has been at the centre of two of the sharpest global inflationary pressures, not least of which is its ongoing war with Iran and a raft of unilateral tariffs imposed on economies worldwide, including strategic geopolitical allies and trade partners. Weber said his report for the G7 advocates for a co-ordinated multilateral response rather than unilateral trade wars or economic coercion. “Our recommendations include stronger international policy co-ordination, increased domestic demand in surplus countries, fiscal consolidation in deficit countries, renewed productivity investments, strengthened IMF surveillance and reforms of the global governance when it comes to trade.”Ortiz said Weber’s lecture gave a vigorous diagnosis that corrects the imbalances in the global economy between mounting US debt, export reliance by China and the inability to draw fresh capital by the EU.“Global imbalances are obviously macroeconomic in nature, rooted in savings and investment differentials across many economies, not in trade policy. The current retreat into tariff centrism is using the wrong instruments for the job, and the consequences are being felt acutely across the globe and in our countries like South Africa and Latin America.”Jacob Frankel, former governor of the Bank of Israel, called to mind an African proverb that Mboweni would tell him, which he repurposed for the theme of the lecture that night.“The story says when elephants fight, the grass suffers. When elephants make love, the grass summons. Too bad for the grass. Well, Tito refused to accept this verdict. He said: ‘If I am grass, I’m either going to become an elephant or I’m going to be resilient.’”Frankel said large countries are introducing many of the shocks to the global economy, while smaller countries bear the consequences. He said smaller economies should “take care of their own destiny” and increase their resilience.
