Fin24

Davies: Rand swings worrying

2011-11-13 15:28

Dubai - Volatility in South Africa’s exchange rate due to the eurozone debt crisis is hurting the country’s competitiveness and may limit economic growth in the coming year, its trade and industry minister told Reuters on Sunday.

Rob Davies, visiting Dubai at the head of a trade mission, said the rand was still overvalued despite its slide against the dollar in August and September.

The currency plunged to a two-year low of R8.49 in late September from around R6.8 at the start of August, and has since rebounded to R7.89.

“We saw the rand becoming more competitive, moving from around R7 to around R8 to the dollar, which was a move and better than it was before, but still not at the level that places us in a competitive exchange rate,” he said.

Davies declined to specify what exchange rate would be appropriate for the rand, but said that beyond its absolute level, its wide swings were hurting business sentiment.

“Volatility has absolutely nothing to do with anything that goes on inside the South African economy, it is entirely driven by whether there is optimism or pessimism whether the European Union is going to solve its problems.

“The volatility has impacted - manufacturers are not able to make long-term decisions because who knows what is going to be the situation. That has created a situation of uncertainty and a problem,” Davies said.

The shaky outlook for exports to Europe will weigh on South Africa’s economic growth next year.

“We are rather cautious about our growth forecast for the year that lies ahead. Instead of nearly 4%, we are looking at something just around 3% for this coming year,” Davies said.

In a policy statement late last month, South Africa’s National Treasury cut its 2011 economic growth forecast to 3.1%, rising to 3.4% next year.

G20

Davies acknowledged there was little South Africa could do about its exchange rate, noting the central bank was constrained by its need to manage inflation. Last week the central bank said the inflation outlook has deteriorated, reducing market hopes for another interest rate cut.

The Group of 20 major nations, of which South Africa is a member, is looking at ways to reduce exchange rate volatility and erratic capital flows but a solution has not yet emerged, Davies noted.

G20 countries have been discussing possible ways to fund a financial rescue of the eurozone; for example, fast-growing emerging economies such as China and Brazil might contribute money through the International Monetary Fund to the eurozone’s bailout fund.

Davies said South Africa would not be in a position to contribute significant amounts of money to such a scheme, and that his government was instead trying to ensure that the international debate over saving the eurozone did not drown out discussion of measures to aid the developing world.

“We are part of the G20, and the G20 is looking at a collective set of policies and programmes to address the European crisis,” Davies said.

“But we’re also very concerned to make sure that the G20 discussion around development and infrastructure doesn’t get swamped entirely by the EU crisis.” 

Comments
  • jim.binnie - 2011-11-13 16:58

    Minister - stop smoke screening and blaming the Rand for your troubles. The ZAR will always be priced at where the "Rest of the World" values it and you can do nothing about that!! The real problem is the poor productivity of the SA labour force which is heavily linked to the "power" that the Unions (read Cosatu) have over policy decisions in our country. Sort out labour productivity ( = UNIT LABOUR COST PER PRODUCT DELIVERED)and you will earn my respect.

      rogerT123 - 2011-11-13 18:13

      spot on.

  • Met - 2011-11-13 17:16

    If he is concerned now what on earth is he going to say when the inevitible happens, and the Rand collapses? Its coming- guarenteed.

  • Peter Mansfield - 2011-11-13 19:47

    It is not the value of the currency, but the lack of productivity. that makes us uncompetitive. Wish the Cabinet would focus on this rather than thrashing around looking for one excuse after another. The road to economic success is paved with quality education, training and hard work, not with outdated ideologies and excuses.

  • 100000238641660 - 2011-11-13 21:21

    we have to focus on production for own consumption other than looking to export at excessive amounts for a quick buck. a strong rand will benefit the economy much more than a weak rand. everybody in the industries uses fuel and if fuel costs are high because of the rand weakness then the end result is high costs which means few people will manage to buy the goods produced. europe is in a crisis at the moment and we can not depend on exports to help the economy. strong rand , produce for local consumption.

  • Ryan - 2011-11-13 21:42

    Hey Mr Davies, even I can tell you what the value of the rand is going to be 10 years from now. its called Purchasing Power Parity (PPP), whereby the rand over the long term depreciates every year against the US dollar, for example, by the differential between SA and US inflation rates. our inflation rate is about 7 % a year and the US about 2 % a year, so thats a depreciation of the rand of about 5 % a year. so the rand should be about R 12 to the dollar in 10 years time. obviously the rand's value fluctuates, sometimes wildly, around this trendline (for a myriad of other factors). its for these very reasons that the rand has gone from parity to the dollar 30 years ago, to where it is today. and yet you still complain about the rand being too strong. just like you and the ANC, and other lazy companies, will complain about the rand being too strong 10 years from now, at a significantly weaker level than today.

      Met - 2011-11-14 06:22

      Ryan- That calculation applies only to a normal stable country. When you add to the mix everything SA "has to offer", we can be pleased if the Rand is 20 to the dollar in 10 yrs. The only thing that keeps the Rand relatively strong is an international sentiment towards "emerging markets" where they can still get 9% on VERY s/t investment. Just one hickup, and that money is gone overnight. And the "value" of the rand? worthless paper!

  • yellerKat - 2011-11-13 23:32

    Who are these whingeing bozos? Must be total losers because the rand is stronger against the failed states of the G7 than it's ever been. In real terms of course.

      Ryan - 2011-11-14 00:00

      what are you smoking ??? the rand has been weakening substantially against them for the past 30 years. it is MUCH weaker than back then. and in the last few months it has weakened substantially too.

      Nasdaq7 - 2011-11-14 09:41

      R1 = $1.5 in 1973

      Nasdaq7 - 2011-11-14 10:02

      South Africa could have been an industrialized country if it wasn't for the ANC.

  • Nasdaq7 - 2011-11-14 07:01

    Davies can't stop moaning. Get on with the job of creating jobs or just get out and let a pro - free market capitalist minister take over. Communism failed.

  • jono321 - 2011-11-14 10:41

    Rob Davies you need to go back to school!!!! The consumer accounts for 60% GDP and the consumer is now battling due to a weaker rand you will see very low retail figuers end of fourth quarter. Look at labuor laws and cost of labour if you want to create jobs stop blaming the rand for the governments inability to create jobs.

  • 100000238641660 - 2011-11-14 12:08

    mr davies wants the economy to grow and yet he is chasing away companies that want to invest. he is one of the ministers against walmart. stop the double talk and do some work for a change and things will change and you wont need to worry about rand volatility.

  • Grump - 2011-11-14 12:59

    interesting interview on CNN last night .... Stste of Michigan in USA offered to buid a NEW factory AND eliminate ALL taxes for the next 20 years for a company that was considering moving offshore, to try and save local jobs in a town of 8,000 ..... even with those concessions, and because of labour costs, the factory STILL moved.... Get your labour laws in order and get back to a competitive labour environment and you MAY be able to swing the tide.....

  • Andor - 2011-11-16 17:58

    We used to be a strong exporting country Now its beginning to show like all the other african countries where they even import toilet paper A weaker Rand would be welcome for our agricultural exports and Gold mines. Its a shame because there are too many personal hidden agendas with the exchange, buying crude etc.Some in the government does not care a bit about the country's economy but only goes for what they can gain themselves. This is unfortunately how this whole continent works.

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