A weaker rand of no help to manufacturers

A weaker rand will not help SA's manufacturing industry; in fact, it may hurt output, according to an independent study of 30 years of the country's exchange rate and manufacturing production.

Looking at the relationship between rand weakness and industry growth over response times of three, six and 12 months, Adrian Saville, chief investment officer of Cannon Asset Managers and a visiting professor at the Gordon Institute of Business Science (Gibs), found no relationship between currency moves and output over the shorter response periods, and a negative relationship over a response period of 12 months.

"Over the past 30 years, a strengthening of the rand corresponds with growth in the manufacturing sector, whereas the manufacturing sector declines if the rand weakens. This is the exact opposite of what textbook economics and conventional arguments would have us expect," Saville wrote in his report.

Exchange rate intervention?

President Jacob Zuma has said precious little to clarify the government's opinion, or plan of action, on the rand, other than to say that the issue was under discussion.

His statement this week* will also do little to stem the groundswell of pressure on the government to intervene in the rand, which is generally accepted to be overvalued.

So what can be done? The Organisation for Economic Co-operation and Development has made some valuable - but not novel - suggestions, including the accumulation of foreign exchange reserves and the removal of the vestiges of exchange controls.