South African exports will get a boost from a weaker rand after the Reserve Bank unexpectedly cut its prime lending rate last week but economists say the move holds no long-term guarantee to save jobs.
The rand has been powering ahead for the past three months, breaking the six-rand-to-the-dollar threshold in July as the mining and textile sectors complained that the strong currency was hurting their business.
But Reserve Bank governor Tito Mboweni last Thursday appeared to bow to their appeals when he slashed the rate by 50 basis points to 7,50%, just a day after confronting protesting workers who massed in Pretoria to demand that the rand be let loose.
”It is good news for exports,” said economist Azar Jammine.
”But what scares me is that it took place so suddenly. This is not conducive to building confidence. It has just made things very uncertain,” added Jammine, chief economist at the Johannesburg-based Econometrix, a financial analysis firm.
The rand plunged to a two-month low after the rate cut. It weakened by more than 25 cents from around R6,20 to the dollar to R6,47 on Friday and was trading at R6,50 around lunchtime on Monday.
”The perception is the bank bowed to pressure, that it is deliberately trying to weaken the rand,” Jammine said.
”But in the long run, there’s not going to be all that much change on the job front. The inclinations might be to create fewer jobs because of the uncertainty.”
In a country where the unofficial unemployment rate hovers around 40%, job losses are the last thing South Africa can afford.
President Thabo Mbeki has made jobs the centerpiece of his socio-economic policy in his second term of office following the massive victory of his African National Congress Party in national elections in April.
”This is good for exports in the short term but not in the long term because it does not force competitiveness on the economy,” said John Loos, an economist at Standard Bank, one of the four largest banks in the country.
The weakening of the rand was not dramatic enough to have a real impact on job creation, he added.
”I think if the rand went to 7,50 or eight against the dollar, then you might save a few gold mines and save a lot of jobs. But I don’t think the level where it is now makes much of a difference,” said Loos.
But the Congress of South African Trade Unions (Cosatu) was more optimistic.
”We hope that this will bring some relief to the industries which are suffering from the overvalued rand and save some of the jobs which were under threat as a result,” said Cosatu spokesperson Patrick Craven.
Economic growth in South Africa slowed to 1,9% last year, from 3,6% in 2002.
According to the Bureau for Economic Research at the prestigious University of Stellenbosch, the slowdown was mainly due to the ”negative impact of the strengthening rand exchange rate on the goods producing sectors of the economy”.
In a memorandum handed to Mboweni last week, the National Union of Mineworkers blamed the strong rand for the loss of 10 000 jobs in the mining sector over the past year.
The financial newspaper Business Day welcomed the move by the Reserve Bank governor in a comment on the front page.
”By narrowing the differential between our interest rates and the much lower rates pertaining in our major partners, Mboweni is doing the right thing for the economy and the right thing for the rand…
”We seek a competitive currency that does the job for both importers and exporters. To get to that level, Mboweni only has the interest rate differential… to play with,” the newspaper said. – Sapa-AFP