Jobs and the rand

Aug 30 2012 07:00
*Geoffrey Chapman

FEW topics evoke a more heated debate than South Africa's high unemployment levels.

Last week the debate witnessed some very interesting inclusions:

• Reserve Bank governor Gill Marcus warned that higher economic growth may not be sufficient to reduce the high levels of unemployment in the short term; and

• South Africa's "wine war" with the UK in which bulk exports are leading to job losses in South Africa.

These two points illustrate that exports do not always result in job creation and furthermore, that even if jobs result in economic growth, it too may not lead to job creation.

This then brings me back to my last column piece, in which I wrote about the rand's strength and the calls to have it devalued.

This spurred comments about the rand being overvalued, so I thought I would clarify what an overvalued currency is and what the overvalued rand means for South Africa.

An overvalued currency is one whose value on the exchange market is higher than is believed to be sustainable.

Therefore, the overvalued rand with its current (approximate) R8/$ rate is believed to be too high, and it is felt that at some point this will weaken to a sustainable rate of, say, R10/$.

The overvalued rand essentially means that South Africa's exports are overpriced and, therefore, not competitive on the international market. This is why groups have called for a weaker rand – to lower the price of our exports, rendering them more competitive.

This, in turn, should stimulate growth and job creation.

However, even if the rand weakens and our exports become more competitive, the resulting growth may not be sufficient to create jobs. If you do not believe me and see this as a preposterous notion, I trust you will believe the Reserve Bank governor.

South Africa’s unemployment situation is unique. A 2005 paper reported that even sustained economic growth offers limited benefits to the poor when a country starts in a position of massive unemployment-based poverty.

Consequently, it seems that economic growth will not only be insufficient to create jobs in the short run, but it will also not benefit the poor over the long haul.

As an economist, I believe that education is one of the integral components to grow an economy and create jobs but due to South Africa's supply of labour exceeding the demand, the better educated are increasingly finding themselves among the unemployed.

It appears as though labour demand simply cannot absorb an increasing number of educated labour force participants.

So where has (is) South Africa gone (going) wrong? Why can even the educated not be absorbed by the economy? How can we create jobs and help the poor?

Hopefully, these questions and many more will be addressed at the upcoming Strategies to overcome poverty and inequality: Towards Carnegie III conference, to be held at the University of Cape Town from September 3-7.

 - Fin24

* Geoffrey Chapman is a guest columnist and trade policy expert at the SABS.


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geoffrey chapman  |  trade  |  sa economy



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