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