While the recent depreciation of the rand is lamentable some see in its tracks a shock therapy for South Africa to wake up and fix fundamental constraints facing its manufacturing sector and other structural economic challenges.
“While the weak Rand may present certain advantages for exporters, the reality is that local manufacturers still lack the capacity to take full advantage of this opportunity,” said Lance Rabbie, Financial Director at Blue Strata, an integrated end-to-end import and working capital specialist.
Rabbie noted that South Africa’s manufacturing capacity has been eroded for some years and it will take time to build up.
A part of this argument can be linked to the highly critical speech delivered by the Reserve Bank governor Gill Marcus last week.
Marcus said South Africa had to deal with structural constraints to address economic growth. “…monetary policy cannot deal with structural constraints. All too often it seems easier to place expectations on monetary policy to respond and thereby avoid the more difficult task of dealing with these constraints”.
Marcus said the South African economy was facing challenges of crisis proportions. The crisis “requires a coordinated and coherent range of policy responses, which are largely beyond the scope of monetary and macroprudential policies alone to deal with”.
“Much more important than the precise elements of a strategy is for government to be decisive, act coherently and exhibit strong and focused leadership from the top”.
“There is clear recognition that South Africa faces significant challenges; what is required is decisive leadership from all role players that consistently demonstrates a coordinated plan of action to address them. This will go a long way to restoring confidence, credibility and trust”.
Rabbie’s take is not far from this. Whilst there have been some who suggest that the weakening rand will benefit South African exporters, Rabie says these benefits are not significant enough to make a major impact on the economy. The weak Rand, said Rabie, presented inflationary pressure to the country by raising the price of imports.
“Local manufacturers are still finding it difficult to take advantage of the weakening Rand, due to continued fuel price increases, industrial action in different sectors, high input costs such as electricity and a lack of skills, which are all having a negative impact on the country’s ability to drive industrial growth” said Rabie.
As South Africa’s current account deficit continues to widen, Rabbie said, it is crucial for the government to identify and support key growth sectors in order to stimulate the expansion of local production. For example, the automotive industry, which contributes between six and seven percent to the country’s Gross Domestic Product (GDP).
Rabbie highlighted the significance of placing a greater emphasis on skills development and creating jobs within these targeted industries. “The challenge, however, is that some products are simply not being made, or are not able to be made, in South Africa. Globalisation and the cheaper production of certain products is a reality and we need to incorporate this into our industrial objectives.”
“If we want to stimulate economic growth in South Africa, it is critical that Government strikes the correct balance between imports and exports, by considering both the needs of local retailers who rely on cheaper imports as well as local manufacturers that need to drive exports of products and raw materials.”