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       PRESS RELEASE

Government needs to devalue rand to push exports and job creation potential

5 July 2010

Exporters are supporting a likely government move to devalue a strong rand that has hammered export growth.

“We track opinions in the import/export industry through a course we run on importing and exporting and there is a very strong view that the rand needs to be devalued to relieve constraints on exports, which in turn are hitting an already weakened manufacturing sector – which is a primary employer,” Liza van Wyk, CEO of major business training organisations AstroTech and BizTech said.

“The whole world is struggling for economic advantage when it comes to exports because of very high job losses globally, we cannot afford to lag with a currency that is high against those of our major trading partners. “
Last week South African Trade Minister Rob Davies said there was a “very widely held view” that the country needs a more competitive and stable currency, he said a decline in the value of the euro was hurting exports – the European Union is South Africa’s third most important trading region. The rand has gained 12 percent against the euro this year after advancing 24 percent last year.

The central bank said a stronger rand currency also weighed on exports. The rand's exchange value firmed by 3.9 percent in the first quarter against a basket of 15 currencies of South Africa's most important trading partners.

Imports improved slightly as a faster pace of economic growth in the first quarter raised demand.

And although factory output surged at its fastest pace in two years in March, rising 6,3% year on year, South Africa recorded a R2bn deficit trade deficit in April.

Even China, the world’s export giant reformed its currency earlier this month to allow better prospects for exporters. The country is relaxing exchange control rules to allow for foreign countries to export more to China and to relax growing resistance to Chinese imports. The move was also taken to help China reduce its dependence on export-driven growth in favour of stronger domestic consumption. The move by China saw an immediate strong response in the shares of all companies operating in China.

“We need similar steps here,” van Wyk said, “there has been a sharp contraction in domestic demand with consumers struggling with unemployment or short working weeks, tighter restrictions on loans from banks and a generally gloomy investor climate.”

“What China did for some years was to keep its currency low to foster exports and that led the economy to grow rapidly. We need deliberate measures like that, plus a more pragmatic approach to employment from unions – if they stop demanding such high increases employment will grow and we can keep exports competitively priced given a double gift to the economy, which will benefit all.”

China’s step is in response to foreign pressure and local calls from business who have for years been seeking greater currency flexibility from China as a way of rebalancing global growth by curbing the upward pressure on their own currencies. Many Western policy makers believe that the renminbi exchange rate was artificially low, giving Chinese exporters an unfair competitive advantage over other global manufacturers.

President Barack Obama, in a statement, called China’s decision “a constructive step that can help safeguard the recovery.” The European Central Bank and the president of the Eurogroup of finance ministers from euro-zone countries said China’s move should help to maintain the positive momentum for exporters, which is a vital element for promoting European growth at a time of severe fiscal consolidation.

SA Reserve Bank chief economist and advisor to the governor Monde Mnyande said the current account is expected to deteriorate further to around 4.9 percent of GDP for 2010, compared to a 4.0 percent shortfall in 2009.

The economic recovery quickened to 4.6 percent in the first quarter, after the biggest economy in Africa exited its first recession since 1992 in the third quarter.

Mnyande said "adverse effects related to job losses and high electricity prices could still constrain spending by households." Private sector investment which makes up two-thirds of total investment is still falling although the rate of contraction had eased at -0.7 percent compared with 2.3 percent annualised last year.

The Reserve Bank reduced interest rates by a cumulative 550 basis points, starting in December 2008, and inflation is at a four-year low.

Mnyande said "adverse effects related to job losses and high electricity prices could still constrain spending by households". Van Wyk commented: “we have a troubling situation now where many manufacturers are complaining that the costs of inputs, including electricity are making manufacture unprofitable; buyers are resisting steep increases in completed products.”

She said, “South African companies have performed exceptionally well since democratisation in selling services abroad and in setting up franchise operations or subsidiaries in nations across the world, but what we need is a stronger manufacturing sector here. We need to create jobs in this country as a matter of urgency; calls are increasing on the Reserve Bank and government to adjust the currency to allow cheaper exports.”

* AstroTech is a major South African training organisation based in Johannesburg. It targets executives and managers in the public and private sector for training in management, labour relations and labour law, information technology, project management and human resources. Each year more than 4 000 people take part in more than 60 courses across the country with many more receiving specialist in-house training.


FOR INTERVIEWS CONTACT:

LIZA VAN WYK, CEO ASTRO TECH 011 582 3200 cell: 082 466 8975 or liza@astrotech.co.za www.astrotech.co.za

Issued by Charlene Smith Communications mediaonline@global.co.za 011-646 7637 or 082 495 8716 www.charlenesmith.net