ild > The Perils of Wage Indexation
Indeed so. But there's nothing anyone can do about it because the government is committed to "enriching" the blacks come hell or high water. Further, this must be accompanied by every social advantage --- subsidized housing, water, electricity, schools, hospitals etc. In the circumstances, there is just no way SA will see a "free market" approach to labor where the worker is once again regarded as a commodity to be hired and fired depending on the exigencies of the business.
What now appears to be the case, which is even worse that the nominal "enrichment" of the SA blacks which occurred previously, is that this enrichment has to be performed with "real" money, and not depreciated paper resulting from the devaluation of the rand pari passu with the rate of inflation of the currency and which, at least, gave business an opportunity to advance its exports. Now, with the strong rand, business cannot cope with losing both to its uncompetitive position in the markets and to its overpaid, relatively unproductive, labor and will, in my opinion, have to fail with the resultant consequences.
In the circumstances, what I find hard to believe is the air of euphoria surrounding the appreciation of the rand, as if, in some magical way, this is going to enrich the nation whereas, in actual fact, what will occur is exactly the opposite.
bday.co.za
>>>The high domestic interest rate is cited as one of the key reasons for the rand's rapid appreciation in the past year. Foreign investors can earn high-yield returns from investments in SA's money market, with the central bank's key lending rate at 13,5%, compared with 1,25% in the US and 2,5% in Europe.
High SA interest rates seen as vital factor in lifting currency, but its strength does export sector no favours
Seifsa's head of economic and commercial services says a monthly business condition survey in the industry showed a drop in the index to 74 last month from 154 in February.
"This is a very serious situation. We expect it will continue if there is no reversal in the rand or lower interest rates," says McDonald.
Downstream companies of the steel producers which includes manufacturers of cars, automotive parts, televisions and other durable goods are having a particularly difficult time, with some smaller companies having to pull out of the export market as their competitiveness deteriorates.<<<
As you see, one has to actually dig the truth out from the rest of the hype and political clap-trap in the article and, as you also see, the truth is far from pleasant --- business confidence has fallen to less than half in two months! (I'm sure there's a mistake somewhere) That's why I implied yesterday that the situation with the SA reserve bank governor is similar to that of Nero fiddling while Rome burns, in fact, giving himself accolades.
Here are some other opinions about the strong rand from the same article:
>>>Economists have also started to downgrade their forecasts for growth because of the stronger rand.
Most believe that government's projection of 3,3% economic growth this year was far too optimistic given sluggish growth in the global economy and the appreciation of the rand.
"A strong rand may be good for inflation (???), but it does not bode well for SA's export-driven economy. The impact of the rand's 40% surge last year, and a further 16% gain against the greenback this year, is adversely impacting manufacturing growth, a key component of gross domestic product. With the anti-inflationary grip the central bank has on interest rates, it is unlikely government will reach its 3,3% GDP (gross domestic product) target this year," says Brait economist Colen Garrow.
Absa's senior market strategist, Matthys Strauss, has downgraded economic growth to 2% this year, from an earlier forecast of 2,4%, if the currency settles at about R8,50 to the dollar by the end of the year.
"Over the past few years, export industries have driven economic growth and also played an important role in job creation. This year, the contribution of exports to growth will probably be lower, and may even be a drag on growth and employment," says Strauss.
Econometrix economist Azar Jammine estimates roughly that for every 10% appreciation in the rand, growth in manufacturing would fall by about 1%.
"The economy has started to show signs of weakening. If the Reserve Bank waits too long to cut interest rates, there is a real risk that the momentum to growth may be lost," says Jammine.<<<
The nitty-gritty is that SA will be lucky to achieve a 2% growth next year which, in a developing economy, is totally unacceptable. This is clear from the picture on the JSE.
bday.co.za
>>>Losses meant that the JSE closed down around 5% for the week, 4% for the month, while its losses for the year now total 20%.
"Our losses deepened in late trade and we closed at the worst level for days," a dealer said.
"The main concern is the currency which went to a new long-term low of 7.20. Resources stocks, in particular, came under severe pressure."
He added that the JSE was not getting much support from offshore, where both European and US markets were in negative territory.<<< |
