MyNews24 is a user-generated section of The stories here come from users.

Rameez Hisher Flowers248
Comments: 11
Article views: 1064
Latest Badges:

View all Rameez Hisher Flowers248's badges.

It's not the Rand's problem

21 February 2014, 22:53

Find me an economist that saw the Reserve Bank’s interest rate hike coming. Of all the factors that made it unlikely; CPI and PPI on a declining trend, cost absorption by companies that limits exchange rate pass-through, and of course there’s the palpable downside risk to growth, and yet no one saw that coming.

Wow, talk about immense pressure from Turkey (who raised its benchmark interest rate by a monumental 5.5% to 10% in the midst of political turmoil, a corruption scandal and a widening current account deficit. Sound familiar?)

It should not be surprising that we find ourselves at the mercy of foreign investors. In 2010, large capital inflows and a strengthening rand was a problem for the economy. In fact, it was an economic headache for emerging markets. South Africa saw as much as R100 billion in foreign capital flown in as the Reserve Bank maintained a substantial yield differential between us and the rest of the world.

And the South African Government had done nothing remarkable to dramatically create an enabling environment for foreign investment. Much of those inflows were portfolio flows. And now, 2014 is here and we still have a substantial yield differential but yet foreigners are still taking their money and running. Exports aren’t doing as well as they weren’t when the Rand was strong. But one thing is different: we cannot now blame the Rand’s weakness on emerging market contagion alone.

Back then, in an attempt to weaken the Rand and slow the capital inflows, the Reserve Bank added to its reserves and lowered the repo rate to a 30-year low but the foreign capital kept on coming. This time around an interest rate hike should’ve been no surprise when the Reserve Bank attempted to stabilize (and strengthen) the currency.

But what makes us think that an interest rate hike would all of a sudden bring those foreign investors back. The justification for an interest rate hike because of suspected pressure from the Turkish central bank and emerging economies as a whole to hike interest rates that would avert a currency crisis and make investment more attractive is absolute bollocks.

What we have is more severe than substantial yield differentials. We are facing a structural problem, and as long as we don’t fix those problems we are going to continue to see these short term capital inflows and outflows. I mean, how much really was the 2010 capital flows in portfolio investment and what went to fixed investment. I don’t think the Rand at current levels is something that should be worried about if the Government is serious about getting its ducks in a row. Not only that it follows through on its commitment to the National Development Plan but also its dissaving problem and its addiction to conspicuous current consumption.

But, honestly, how can two-thirds of an economy’s GDP be made up of services? And when we have declining primary and secondary industries we’d be supportive of a weak Rand. Proponents of a weak Rand would say that it is absolutely essential for export performance, manufacturing output and job creation. Nonsense. Investors ration the same view in platinum; the Rand’s weakness and higher platinum prices’ boost to company earnings far outweighs the loss of income due to strikes.

Proponents would also say that we need a weak-Rand policy because there are so many unskilled and semi-skilled people out there who are unemployed, and how a weak Rand would help boost manufacturing output. Well, we have a weak Rand. Now what?

The truth is, an efficient and vast rail freight and electricity supply network would go a long way than a weaker Rand. And a higher interest rate would do a lot to reign in on our gluttonous appetite for fancy, branded imports.

The only ones who are to blame are ourselves: consumers and their insatiable demands for imports and companies’ lack of enthusiasm to innovate and build South Africa’s domestic productive capacity.

Unless we build this country, develop solid agricultural, mining and manufacturing sectors, and support small businesses and encourage innovation, our reliance on the rest of the world to pay for our standard of living is going to continue to cost the Rand dearly.

Disclaimer: All articles and letters published on MyNews24 have been independently written by members of News24's community. The views of users published on News24 are therefore their own and do not necessarily represent the views of News24. News24 editors also reserve the right to edit or delete any and all comments received. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Read more from our Users

Submitted by
Mohammed Parak
Zero Gravity

It's not everyday that a thought comes up, highlighting something you didn't know before. Read more...

0 comments 81 views
Submitted by
Could Glencore be wiped out?

Glencore is a stock that everyone’s talking about, but the mining giant has collapsed again. Read more...

0 comments 2532 views
Submitted by
The Scribe
In Defence of Dianne Kohler-Barna...

The media, especially social media is all agog about THAT Facebook share by Dianne Kohler-Barnard. Read more...

0 comments 2368 views
Submitted by
Michael Ernest Meder
Crime entitlement

Entitlement is a major underlying cause of crime.

0 comments 211 views
Submitted by
Mike Van Wyk
Should big banks offer more unsec...

Since the crisis of 2008, the major banks have gone back to providing their fundamental function, but have been slow to keep pace with the growing demand for loans by South Africans. Read more...

0 comments 916 views
Submitted by
Stishera Khumalo
Corruption - Enough is Enough

Corruption has gone too far now.

0 comments 2057 views


E-mail Alerts The latest headlines in your inbox

RSS feeds News delivered really simply.

Mobile News24 on your mobile or PDA

E-mail Newsletters You choose what you want

News24 on Android Get the latest from News24 on your Android device.

SMS Alerts Get breaking news stories via SMS.

Blogs Your opinion on you, me and everyone.

TV Get us in your home, on your television.

Interactive Advertising Bureau
© 2015 All rights reserved.
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.