A call by the Congress of South African Trade Unions (Cosatu) that steps be taken to weaken the rand has met with mixed reaction from economists.
The call, coupled with a softer euro, saw the rand break above R6,60 per dollar for the first time in more than seven months on Thursday afternoon.
Despite Cosatu’s utterings, the latest survey of employment and earnings by Statistics South Africa, as quoted in the South African Reserve Bank Quarterly Bulletin, shows that employment in the formal non-agricultural sectors of the economy increased consistently during the five quarters to September last year.
Employment numbers were up 215 000 over this period, with 58 000 jobs created in the third quarter of 2004 alone.
Employment gains were strongest in the construction, trade, catering and accommodation services sectors as well as in the manufacturing sector. However, jobs were lost in electricity generation and non-gold mining, as well as transport, storage and communication.
Cosatu spokesperson Paul Notyawa said the union federation wants the government to take steps to weaken the rand to between R9 and R10 per dollar.
“The value of the rand is a political stance — it has nothing to do with pure economics,” he asserted.
According to Notyawa, the government had strengthened the rand when business had called for it do so. Now it could heed labour’s calls to weaken the currency.
“In the clothing and textile industry, we have lost something like 150 000 jobs between 1994 and now. We have lost 40 000 since last year.
“As we speak, Harmony is debating retrenching 12 000 workers. All of this is blamed on the value of the rand.”
Notyawa claimed that while jobs have been created in sectors such as construction, these are piecemeal. Cosatu, he said, is interested in sustainable, secure jobs.
Cosatu are ‘a bit arrogant’
Dawie Roodt, chief economist at the Efficient Group, said implicit in Cosatu’s call for a weaker rand is a value judgement that the currency is too strong.
“If you say it is too strong, you are also taking sides with certain sectors of the economy. The side that you are not on is the side of consumers,” he asserted.
Roodt added that by saying the rand is too strong, Cosatu is claiming to know what the correct level is.
“What Cosatu is saying it that they know better than the market. I think they are a bit arrogant saying that,” he commented.
Various ways of weakening the rand included passing a law, cutting interest rates and interfering in the forex market, Roodt said.
“A fourth possibility is to keep on talking nonsense and change sentiment to such extent no one will want to invest in the country.”
He said that by asking for lower interest rates, one is asking for higher inflation.
“If you decide to go the other way and try to influence forex markets, you are effectively saying you want to increase the tax burden because buying dollars and selling rands is an expensive exercise, the cost of which will hit the pocket of the taxpayer.”
Roodt said that by definition, Cosatu is therefore calling for higher inflation and higher taxes.
Cosatu’s claim that the stronger rand is causing job losses is factually incorrect, he argued.
“We have had job losses in manufacturing, agriculture and the mining sector, and I have a lot of sympathy. But the Foschinis, Woolworths and Absas have been creating jobs. On a net basis, more jobs have been created than lost.”
Roodt said Cosatu’s power base is mainly in manufacturing and mining, and that the call is made not for benefit of South Africa, but for the union federation’s pocket.
‘We need a competitive currency’
Brait economist Colen Garrow, however, agreed that there is a need to weaken the rand. He noted that Cosatu’s planned strike in support of the call is scheduled for June 27 — two days before the African National Congress’s national general council meeting, where its council discussion document will be tabled.
Cosatu’s call is not new, he said, and adds weight to Reserve Bank, government and corporate calls for a weaker currency.
Garrow said that while this is difficult to quantify, there has been a tremendous commodity boom over the past couple of years, but the rand’s strength has been undermining the economy.
“The Chinese currency has been pegged to the dollar. Since 2002, the rand has gained 90%, while the yuan has been undervalued. It’s not surprising the manufacturing side of the economy is bleeding.”
Garrow added that there is a need to determine what a competitive level for the rand would be.
“What we need more than a competitive currency is a competitive economy,” he said.
A number of ways to enhance competitiveness has been included in the ANC discussion document, including interest rates and labour laws, and it is therefore no surprise that Cosatu is putting in a strong showing in favour of a weaker currency.
Garrow said that while a rand between R7,50 and R8 could be more competitive, a level closer to R9,50 — as favoured by Cosatu — might be overdoing things.
“Undeniably, we do need a weaker rand to buffer the economy. The economy is export-dependent and we have lost comparative advantage with other countries such as India, China, Russia and Brazil. We need to regain this competitiveness. A weaker currency will help us get there,” he asserted.
Concluded Roodt: “When it comes to the value of the rand, I believe what the market is telling me. I’m not so arrogant as to say the market is wrong.
“The debate shouldn’t be whether we need a strong or a weak currency. The debate should be how to get stability. [Currency volatility] is very disruptive. It is very hard to plan when the rand is all over the place.” — I-Net Bridge