Vol.2 No.3, 07 January 2002
The Rand Crisis Needs an Innovative Response for a Bright New Year
by Johan van Zyl
Professor van Zyl, the author of this issue of SANE Views, apart from being a member of the SANE board, was formerly a professor in the Department of Economics at the University of Pretoria and subsequently CEO of the Federated Chamber of Industries of SA. Currently he is an honorary professor in the School of Public Administration and Management at the University of Pretoria.
Professor van Zyl wrote this article early in December last year. It was not sent out because it evoked debate between members of the SANE board about the issue of requesting a loan from the IMF. Johan has pointed out that the World Bank would indeed be better. Also, the boot is now on the other foot. While many countries face the problem of having to pay back loans to the IMF after their currencies have seriously devalued against the dollar, in our case this devaluation has already occurred and we are likely to strengthen against the dollar if our general socio-economic situation recovers. This will require a radical and politically brave shift to balance export orientation with inward development and protection from global monetary speculation.
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With best wishes for a SANE New Year for all of us
AART ROUKENS DE LANGE
Editor, SANE Views
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by Johan van Zyl
The speculators who dominate today's forex markets world-wide are clearly unimpressed by South Africa's official line of 'the fundamentals of the economy are sound'. What then are the further weaknesses that they perceive and are acting upon with such devastating effect?
Neglected in the local debate is the overall socio-economic situation in our country. Such a viewpoint is much broader than the so-called macroeconomic fundamentals alone. We [and the speculators] know only too well that this scenario remains a dismal one characterised and indeed haunted by high rates of unemployment, poverty and crime.
Consequently, there is always the risk and even the likelihood that economic [GDP] growth prospects and expected financial returns will be significantly upset by social disturbances and unrest of one kind or another. Actually, all emergent markets suffer from this damaging perception of high-risk socio-economic conditions.
Foreign direct investment, which is so anxiously sought by government to plug the lack of domestic savings, provides a key illustration. At present the downward slide of the Rand is attributed to thin local forex markets and especially to little foreign currency coming in regularly to counterbalance the actions of the speculators. Export earnings apart, why is it that overseas direct investors are so shy ? After all, our economic fundamentals are among the best in the world!
Something important seems to be missing.
At bottom, the key problem lies in the basic perception and understanding of South African society as a whole. We are not only a modern business-driven formal sector economy. In hard fact, we have a sharply dualistic socio-economic system that also includes a large marginalised or peripheral sector [mainly the townships] that are deeply characterised by weak economic links to the formal core economy. A strong dependency culture prevails there, practically much isolated from many positive globalisation spinoffs.
Is it this serious structural weakness and its adverse consequences especially on the social front that the speculators see and assess more clearly than our own policy makers?
Much international experience has shown that foreign direct investment is attracted not only by profitable but also by stable domestic conditions. Hence sound and consistent progress over the whole South African socio-economic front will be needed to create a positive climate for a substantial and continued inflow of direct private investment.
At present we simply do not qualify. Is it any surprise that in practice we have been so disappointingly unsuccessful in attracting this kind of investment?
The above sobering thoughts on some key aspects of where South Africa really stand in today's cutthroat globalised world, has significant if uncomfortable broader implications:
A focus on greater localisation to counter-balance today's globalisation thrust would involve specific regeneration and development programmes at local levels especially in the townships and much of the rural areas. This will directly involve the majority of the South African [poor] population. If only in terms of local politics it must surely be a winner!
The internal financing of such a powerful initiative need not be a stumbling block. The new 'people-centred development' approach [which perhaps ironically lies at the heart of the RDP !] enjoys strong international interest and support. It proposes innovative, practical programmes on the ground which generate on-going local funding acting to lift the majority of local people.
One example. A 'Basic Investment Grant' or 'Work Rights' programme could mobilise local groups and communities around their own investment projects, from which they also earn wages and service fees. They gain the means to take charge of their lives, to build local synergies, to partner state and business while at the same time laying the foundations for a strongly expanding domestic economy. Vast savings from reduced crime and the ability to pay for all service fees can finance such a 'local people given productive assets' investment programme.
Yet a substantial initial injection of funds will be necessary. The weak Rand presents a golden opportunity for doing so. We can turn apparent disaster in our favour and start building real confidence in our future. What is needed is a substantial IMF or World Bank dollar loan of say some $10 billion. Such a loan can work twice viz. to bolster the currency but more significantly to obtain Rands [at a considerable discount] to kick-start the wide-ranging locally-focused programmes needed to build up our broad socio-economic system. This is the way to add 'localisation' effectively to 'globalisation'.
The alternative is 'sitting it out' and continuing to suffer. But if we do nothing, it is all likely to happen again.
The rand crisis is not a matter for the Reserve Bank. The Cabinet should urgently reconsider our current policy stance and tell the world that we are now taking our future into our own hands by looking firstly at our own internal development problems. For all ordinary South African families as well as the business world this would be a most heartening message. It is sure to raise spirits, build confidence and present South Africa as a 'leading' country bravely facing and tackling its economic and social issues.
It is time for Mr. Mbeki to lead from the front and get visibly behind the people.
Johan van Zyl,
Pretoria.
December 2001
© South African New Economics Network 2007. Page generated at 10:18; 03 August 2007