As South Africa struggles to agree the details of a new economic policy document with job creation at its core, an appreciating rand is doing nothing to help. Dealing with the currency question is vital to the job creation strategy. South Africa has lost roughly one million jobs since the collapse of Lehman Brothers.
The New Growth Plan unveiled late last year aims to create five million jobs by 2020 and bring down the unemployment rate from the present 25% to 15%. But business, labour unions, civil society and the competing factions in the ruling ANC must all buy in to the methods of reaching these employment goals. Currency policy will be a key sticking point.
According to Nomura, the rand is overvalued to the tune of 25%, making it the world’s most overvalued currency. Only the Australian dollar has appreciated more over the past two years.
In reaction, the authorities have done not much. One view is that a stronger rand will at least cheapen imports for a much-needed infrastructure development programme, with better infrastructure eventually being an alternative facilitator of higher growth. Similarly, it could mean lower inflation.
Brazil’s method of tackling currency appreciation by taxing portfolio inflows is not as well suited to South Africa.