HOW MUCH MORE RAND WEAK­NESS DO WE NEED?

Finweek English Edition - - Companies & markets -

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.

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