Address by Mr T T Mboweni, Governor of the South African Reserve Bank, at the BER conference on Growing the South African Economy, in Somerset West on 9 November 2005 Thank you for your invitation to speak at this conference on Growing the South African Economy. Over many years the Bureau for Economic Research (BER) has in numerous ways helped to inform economic analysis and policy in South Africa. It has for instance in recent years been commissioned by the South African Reserve Bank to survey inflation expectations in South Africa. This has been very helpful in the deliberations of the Bank’s Monetary Policy Committee. But apart from this narrower interest which the Bank has developed in the activities of the BER, the Bureau and its respondents provide a wide range of economic indicators which warrant the attention of analysts and policymakers alike. The BER also stirs debate on highly relevant topics, as again demonstrated by today’s conference.  The economic situation in and outlook for South Africa have already been covered earlier today, alongside the possible direction of political developments. Industrial policy and fiscal policy have also already been discussed. My remarks on monetary policy and sustainable growth will consist of some thoughts on enhancing the tempo of growth and development in general, before narrowing in on what monetary policy can do and cannot do in this regard and reflecting on some developments which are important in informing current monetary policy decision-making. Sustainable economic growth Vibrant growth, sustained over lengthy periods of time, opens up exciting possibilities.  Some of the most dynamic examples in this respect are Korea, where real gross domestic product per capita is now four times its level in 1980, and Botswana, where the same comparison yields an increase to 3,3 times what it was 25 years ago.  In South Africa real gross domestic product per capita has been rising steadily since 1993, but this followed a gradual decline during the preceding 13 years, resulting in real per capita production at present being quite close to its level a quarter of a century ago. Stepping up the tempo of per capita gains of the past 11 years is an important focal point, and is currently receiving the attention of government, business, labour and community. A G-20 conference on economic growth, co-organised by the South African Reserve Bank together with the People’s Bank of China and the Banco de Mexico, was hosted in the Bank’s conference centre in August this year. It might be worthwhile recalling some of the points made at that meeting of minds. While it was generally agreed that economic growth is one of the most important challenges facing all countries, it was emphasised that no universal recipe for growth exists since each country faces a different set of constraints. There is more to growth than good macroeconomic policy. To obtain higher growth does not seem to require a large set of very fundamental or deep reforms, but rather a more effective focus on a small set of binding constraints. It is extremely important that appropriate strategies be developed to properly identify such binding constraints. Such action requires an institutional setting that allows for a dynamic process where problems are identified, on the one hand, but also effectively addressed, on the other. In doing so not only government failures have to be dealt with, but also market failures, such as large externalities, that require government action. The list of possible binding constraints is virtually endless. Some studies have suggested that high levels of taxation discourage growth through their effect on incentives to work, save and innovate. Others have pointed to the importance of protecting private property rights if growth is to be dynamic. Still others note the importance of human capital, and highlight the role of education as a determinant of economic growth. Excessive rules and regulations can stifle economic progress, slowing fixed capital formation, undermining flexibility and discouraging pro