Treasury and SARB downplay role of exchange rate on industry

Briefing Parliament’s Trade and Industry committee in Cape Town yesterday, Treasury’s deputy director general of economic policy, Chris Loewald, and deputy chief economist of the SARB, Johan van den Heever, stated that the level of the exchange rate was just one of a number of factors affecting economic growth and job creation. Van den Heever noted that while SA’s manufacturing sector’s contribution to overall GDP had diminished over the years, this could not be solely blamed on the exchange rate, stating that the integration of SA into the global economy and the removal of import barriers had also helped contribute to this decline.

Furthermore, van den Heever stated that “Real GDP growth in manufacturing seems more sensitive to local and international income and expenditure than the exchange rate”, while also continuing to reiterate both the Bank’s and Treasury’s stance on FX policy that there is no “ideal” level for the rand and that it would be “dangerous” to target a specific level. We maintain our view that given the comments made by Treasury and SARB officials, there is unlikely to be any significant changes to FX policy in the medium term.

Source: ABSA Bank

Will Johannesburg be the gateway to Africa?

When discussing the mandates of the Reserve Bank and the Treasury, interested parties should consider South Africa's and, in particular, Johannesburg's role in the African context.

Note that SA’s role as the gateway for foreign investment into Africa is not guaranteed, and even though it has an excellent platform it must not become complacent about its gateway status, global management consultancy Monitor Group, in a report Africa from the Bottom Up, has warned.

Chairman, Mark Fuller, said good gateways tended to have a systemic quality, with highly competitive cities. The opportunity was there for Johannesburg to be the gateway into Africa.
Gateway cities also had to do a lot of networking if they wanted to succeed. The Monitor study argues that cities are critical to economic development — and that the growth of Africa’s cities is one reason why the continent may finally be at a turning point.

Monitor argues that it is not countries, but cities, that compete globally, and economic policy makers must note that. But the subcontinent is not spending nearly enough to build the infrastructure needed to establish its cities firmly, and this undermines sustainable long-term growth.
Middle-income countries, such as SA, should be spending about 10% of GDP, while low-income countries should be spending as much as 20%. The report says public-private partnerships are “one of the most important models for governments struggling to close the infrastructure funding gap and improve productivity and services”. And it emphasises that foreign direct investment is crucial to finance infrastructure and develop competitive cities.

Fuller said Africa offered much better returns on foreign investment than did India or China, and that private sector flows to the region had surged in recent years. The region’s two largest economies, SA and Nigeria, together received more than half the investments studied. However, the report said what was striking was the fact that the quantity of foreign investment flowing into SA was so scanty given the country’s standing as sub-Saharan Africa’s most mature economy.

Perhaps economic policy makers such as the National Planning Commission, the Treasury and the Reserve Bank could develop a new national strategy for the financial system to enhance SA's and Johannesburg's competitiveness and economic growth through financial sector policy reforms which would expand the banking sector to the unbanked, increase employment, and reform monetary policy.