HOW MUCH MORE RAND WEAKNESS DO WE NEED?
I’VE NEVER BEEN CONVINCED by the argument that a major constraint on economic growth is a strong rand. For several reasons. In the first place, when the rand was introduced, the rate was two to the pound sterling. It’s now more than 14. Just how much more weakness can we need?
In the second place, with the transparency and liquidity of global currency markets, it’s a brave man who says a currency is wrongly priced. Even Lord Keynes nearly went bust when he took the wrong view of currencies in the Twenties, when markets were much more imperfect.
In the third place, I never tire of pointing out that the two greatest economic success stories of the post-1945 decades – West Germany and Japan – were both strong currency countries.
I’ve always suspected that allegations of being hamstrung by a strong rand are cloaks for more fundamental defects. After all, how much would we have to depreciate the rand for our footwear and clothing industries to be competitive with China?
I’ve criticised Alec Erwin on occasion, but that doesn’t mean I don’t have a high regard for his perceptiveness – which I first encountered in our youthful days as trade unionists. A fine example came this week when, commenting on the sad fact that up to 40% of the needs of our infrastructure programme will have to be imported, he said it’s not so much a reflection of the strong rand as of the virtual cessation of infrastructure spending since the Eighties, which meant that vital capacity (and, he might have added, skills) were simply lost.
How true. Advocates of a weak rand should remember that one of its key consequences will be to push up the cost of infrastructure developments whose main beneficiaries will be the underprivileged.
And a special word for Erwin’s successor as Trade & Industry Minister, Mandisi Mpahlwa, who suggests that an easy way to weaken the rand would be to relax our inflation targeting: try an introduction to economics 101 to discover why that would be self-defeating.