Cape Town - South Africa needs a weaker currency and lower interest rates to boost growth, Economic Development Minister Ebrahim Patel said on Tuesday, outlining proposals for a "New Economic Growth Path".
"The document recognises the challenges of an uncompetitive currency and sets out clear steps for government to address the impact of the rand on the economy and jobs," he told parliament.
"This includes a somewhat looser monetary policy with lower interest rates, greater building of foreign reserves and a sovereign wealth fund to manage foreign reserves more accurately."
South Africa is also looking at ways to address the negative impact of short-term capital inflows, said the document released by Patel.
The rand weakened after Patel's comments, falling more than 1% to R7.07/$.
The currency, which has gained more than 26% since the start of 2009, had already been under pressure after weaker-than-expected gross domestic product figures earlier in the day.
Stats SA data showed the economy grew by a lower-than-expected 2.6% in the third quarter of 2010, highlighting the fragility of its recovery and leaving the door open for another interest rate cut.
The data comes less than a week after the central bank painted a gloomy picture of the economy, saying the outlook remained subdued.
South Africa suffered its first recession in 17 years last year with the loss of more than a million jobs, forcing the government to take a long hard look at ways to boost economic performance that lags most other emerging markets.
Patel has been pushing the idea of a new growth model for months, but his address to parliament is the first time he has started to address specifics.
"It lays out strategies to enable South Africa to grow in a more equitable and inclusive manner in the future, fulfilling the promise of our democracy," he said.
Challenge of implementation
Patel said implementation would be the key challenge and that the government would only achieve the jobs targets if it performs better and if the private sector grows in labour-absorbing parts of the economy.
The government plans to increase focus on several key sectors of the economy in efforts to create five million jobs over the next ten years.
Infrastructure development has been identified as important for job creation.
The growth path document identifies investments in five key physical and social infrastructure areas including energy, transport and housing among others.
The new growth path document also calls for re-industrialisation in the economy based on improving manufacturing production.
Inflation is another area which the document tackles, calling for government to widen the range of tools it uses to address inflation.
"This will involve a stronger role for competition policy and strategic investigations into conduct leading to high and volatile prices for intermediate inputs," Patel said.
To ensure that looser monetary policy does not cause high inflation and to support a sustainable macroeconomic framework, there should be slower growth in public expenditure, the document said.
On Black Economic Empowerment, Patel told the committee that the document calls for a major rethink of the framework as it benefits "a small number of individuals".