Picture: ISTOCK
Picture: ISTOCK

It's a debate that has raged eternally in South Africa. What is better, an appreciating currency or a weak rand? Unions have long been uncomfortable with the central bank's mandate to keep inflation within a target band of 3%-6%, which they claim has kept interest rates high and in turn kept the rand relatively strong, discouraging investment. On the other side of the debate, there is caution about the impact of unwittingly releasing an inflationary dragon.

Investec strategist Michael Power, who spoke against inflation targeting in parliament before it was adopted as policy in 1999, said this week in the Financial Mail this fear really belonged to the middle to upper classes as they stood to lose the most in the short to medium term from a rapidly depreciating currency.

When measured in US dollars, Powers says, South Africans who are employed enjoy much higher standards of living than similarly qualified workers in other emerging market nations. Were South Africa to follow an industrial course calling for a weaker rand, which should boost export competitiveness, it would mean an immediate fall in those standards of living.

But in the longer term, he argues, there would be greater benefit for the country as a whole. Increased export competitiveness by virtue of South Africa being a low-cost producer would mean better job prospects, and in a country facing the biggest unemployment headache of all the major emerging market nations, it's a price worth paying.

Given the number of jobs lost across South African business sectors over the past few years as corporates focus on cost-cutting to boost flagging revenues, and a sluggish economy to boot, there's something tantalising about the thought of a weak rand as a panacea for our woes.

It's the dinner table conversations that global players and those dependent on exports such as the European Union, Japan and China have been conducting for some years. They are all in a "currency war" to which none of them would dare admit. To do so would really just spark something of a race to the bottom. The US and especially an administration that has promised jobs in its steel belt knows that if it's to ever get back its 4 million industrial jobs lost to Asia, a strong dollar simply can't be policy.

But developed world economies aren't likely to welcome a return of inflationary pressures, haunted as they are by the era of high prices in the late '70s.

This is especially so as a return to a strong industrial base doesn't offer as great a source of employment as in years past because of an unrelenting rise in mechanisation. There simply aren't as many job opportunities on the factory floor as there were before.

And in the case of South Africa, we'd find ourselves in a similar position if our rulers were to push for a weak rand as part of our industrial solution.

Would a weak rand really prove the solution to our unemployment situation in the long term? If we bought into that vision and accepted higher inflation, and eventually a higher interest-rate environment, it would come with a weak rand. Could the country's industrial base emerge to soak up our unskilled labour problem?

As long as our miners and industrial giants compete on a global platform, they will have to continue adopting the latest technologies, meaning they'll have to continue buying fixed equipment offshore, which would be all the more expensive if the country followed a weak rand policy. The efficiencies so gained would play themselves out in fewer job opportunities, especially for semi- or unskilled labour.

The platinum mines that Anglo American Platinum hasn't sold are testament to this development. A weak rand certainly helps on the earnings line, especially in a weak platinum price environment, but it won't lead to an increase in employee numbers. That's unless another shaft is sunk, which is some time off given the political uncertainty that muddies all things South African.

We need to think beyond the value of the rand in correcting South Africa's long-term structural faultlines. It's but a short-term measure.

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