Recently, Reserve Bank Governor Tito Mboweni changed everything but interest rates.
He shifted the Reserve Bank’s focus and the future of the South African economy when he said: “It is important South Africa has a competitive and stable exchange rate, which is beneficial to the local economy …” A central banker expanding his mandate beyond price stability to include competitiveness is remarkable.
Mboweni’s policy shift should be applauded. It should also be viewed in the context of Nic Dawes’s recent Mail & Guardian article (“Mbeki looks East”, February 11) about President Thabo Mbeki’s shifting away from the Washington Consensus-style of economic policy toward a Beijing-styled approach. I have long advocated moving to the Chinese approach.
Inflation statistics may look good but a low savings rate, low foreign direct investment and South Africa’s currency volatility bolster high real rates of interest, which impede the business investment neces- sary to sustain high growth and create jobs.
The Chinese model is focused on achieving growth through attracting foreign direct investment, world-class technologies and methodologies by offering attractively priced labour and a rapidly growing market of Chinese consumers.
Conversely, South Africa’s approach has been to focus on stability in the hope that this will make South Africa attractive to foreign investors. Long-term investors have stayed away as they see South Africa offering neither stability nor high growth.
Last year’s strong economic performance was largely driven by external factors: relatively high interest rates and high commodity prices mainly owing to Chinese demand.
South Africa’s economy right now the polar opposite of the Chinese model of attracting long-term foreign direct investment by emphasising productivity and competitiveness. The yuan is stable and undervalued, whereas the rand is overvalued and among the world’s most volatile currencies.
South Africa is riding a hot money and wealth effect that it does not control anymore than it controls the direction of the wind.
There are examples of South African companies becoming more productive but as in any other country this frequently means layoffs and the companies going out of business.
If the wind changes direction and the rand weakens, these lost jobs and shuttered companies will not miraculously reappear.
This past holiday season it had become much more appealing for South Africans to travel overseas and much less appealing for foreigners to come here. South Africa’s competitiveness in most sectors has been similarly eroded.
Stability and growth need not be mutually exclusive. They can be complimentary. Stability, however, has been overemphasised for far too long in South Africa.
Real stability can only be achieved when, as in China, growth leads to seeing the unemployed as an asset and policies lead to their being transformed into robust consumers.
South Africa’s macro-economic policies can only be judged a success when sustainable growth exceeds 5% annually and unemployment is steadily declining.
Mboweni brings this day closer by focusing on competitiveness.
Shaun Hagedorn is a business strategy adviser