Letter: Shrinking rand a wake-up call

IOL pic jan7 rand notes REUTERS

The plummeting rand indicates the true state of the South African economy, says Martin Humphrey.

At the time of writing this the rand has depreciated against the US dollar by 45 percent in the previous two years. This above all else indicates the true state of the South African economy.

This is not, as has happened in the past, a result of a bunch of Forex traders getting together and manipulating what is in effect a closed economy with the most traded currency in the world, but rather echoes the real fundamentals of a failing economy.

There are still economists who point out that a weakening rand will help our manufacturing industries to appear more competitive on the export market but there are two core weaknesses with this argument.

Firstly, the window of opportunity that this offers rapidly closes as the cost of inputs in virtually all manufacturing sectors are based predominately upon global prices even if the raw material is locally sourced and secondly it denies the truth that South Africa is not and will most probably never be a manufacturing nation in the way that the likes of China, Germany or Korea are.

Last year in China there were nine million applicants sitting the university entrance exams for seven million places and the pass mark was considerably higher than 30%.

The emphasis at these universities is on the sciences with the humanities coming a distant second. This is just for one year alone!

Without going into what the actual fundamentals that have been the cause of this depreciation of the rand are (we’ll leave that for another letter) the real effect of this drop in value is invariably hardest felt by the poor. Single figure wage increases simple means that your average citizen is rapidly losing ground with the rest of the world.

Virtually every consumer item available in South Africa is imported. Your TV set, washing machine, cellphone, motor car and computer are all subject to world prices.

Yes, there is always a slight gap between the rand dropping and the cost of imported goods rising and it is this that provides the statisticians the opportunity to keep their heads in the sand when it comes to the rate of real inflation for the average income person.

Fortunately, the worldwide economic crisis and the rapid rate of obsolescence have helped keep the price of some of the above goods within reach, even if it means that we are always one step behind the latest technology.

This has now bottomed out and the real effect of this huge drop in value of the currency is going to start being felt as if we had just walked on to a rake.

The escalating rate of the depreciation shows no sign of abating and at this moment South Africa does not look like any haven, let alone a safe one, for potential investors. The goodwill generated by the remarkable peaceful evolution to real democracy has long ago evaporated and the world now sees South Africa for what it is. A Zuma benefit society.

The likelihood of any real recovery under this government is, quite frankly, zero. If they knew what buttons to push they still wouldn’t push them because that would mean they would have to clean up their act and start the real process of honestly doing what is best for the country as opposed to best for themselves.

The only hope is that the results of the next election provide enough ammunition to enough people within the structure of the ANC to stand up and acknowledge what has happened to this glorious country and kick that joke of a president into touch – or preferably jail where he belongs!

Martin Humphry

Craighall Park, Joburg

* The views expressed here are not necessarily those of Independent Newspapers.

The Star


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