Promoting Dialogue on Trade Reform in South Africa: Trade, Industrial Policies and the Exchange Rate (March, 2010)

In South Africa (SA), the economic recession coupled with the strengthening currency has prompted analysts and politicians to debate whether the authorities should leave the rand to be determined by market forces or intervene to manage it.  Those in favour of intervention argue that without a lower currency, efforts to boost South African manufacturing industry would not work as domestic producers cannot competitively export and/or are overwhelmed by cheap imports.  Furthermore, the currency appreciation is viewed in some quarters as the primary cause of job losses so far.   It is also suggested that the current mandate of the central bank will have to be reviewed to include management of the currency when necessary.

Those who are against intervention argue that the country does not have adequate foreign exchange reserves to sustainably weaken the currency. The rand’s recovery is viewed as accompanying the normalisation in global investor appetite for emerging markets assets such as equities, currencies and commodities.  The stronger currency is seen as a boon and that policy makers should welcome it rather than try to combat it. These analysts argue that seeking “competitive devaluations” is the easy way out for companies that fail to engage in the necessary productivity and diversification efforts - in essence, devaluations delay structural reforms.  Furthermore, it is asserted that the appreciation reduces the risk premium on local financial assets and, in turn, the cost of financing the economy. Finally, the stronger rand is seen as yielding two other benefits for SA: it helps lower the rate of inflation, and reduces the cost of imported components of the infrastructure investment programme – thus easing pressure on public finances.

These are the matters, inter alia, that the government’s task team investigating currency management is weighing. Consequently, the forum assessed the efficacy of managed floating versus flexible exchange rate systems, the scope for SA to pursue one or other of these systems, and the associated impacts on trade and industrial policies. Click here to access the conference report.

Programme

08h30-09h00                      Registration/Tea & Coffee 

09h00-09h10                      Welcome and introduction

                                           Peter Draper, Programme Head, SAIIA

                                           Nic Dawes, Editor, Mail and Guardian [op ed] 

09h10-10h30                      Session 1: Inaugural Address  

                                           Lesetja Kganyago, Director General, National Treasury
                                           [speech]

10h30-11h0                        Tea/Coffee Break

11h00- 13h00                     Session 2: Exchange Rate Policies, Current Account
                                           Deficits and Protectionism

Chair:                                Mr Peter Draper, SAIIA

Presenter:                          Dr. Robert Lawrence, Professor of International Trade and
                                           Investment, Harvard Kennedy School [presentation] 

Discussants:                      Prof. Andreas Freytag, Friedrich-Schiller-University, Jena

                                          Ms. Nikki Cattaneo, Senior Lecturer, Rhodes University

13h00-14h00                      Lunch

14h00-15h30                      Session 3: Exchange Rate Policy and the South African
                                           Reserve Bank

Chair:                                Mr. Mike Spicer, CEO, Business Leadership South Africa

Presenter:                          Mr. Rudolf Gouws, Economist, Rand Merchant Bank

Discussants:                      Mr Johan Delport- South African Reserve Bank

15h30-16h00                      Tea

16h00-18h00                      Session 4: Trade, Industrial Policies and Exchange Rate
                                           Policy

Chair:                                Dr. Mills Soko, Senior Lecturer, UCT GSB

Presenter:                         Dr. Lawrence Edwards, Senior Lecturer, UCT School of 
                                          Economics [presentation]

Discussants:                      Ms. Catherine Grant, Trade Policy Director, Business Unity
                                          South Africa

                                          Mr. Tengo Tengela, NUMSA

18h00                                Summary and Closure

                                          SAIIA/Mail and Guardian

18h15                                 Reception cocktail
 

The Development through Trade Programme gratefully acknowledges the British High Commission and the Australian Agency for International Development, which have generously supported this project