The travails SA is experiencing are part
cyclical, part structural. The former are mostly a reflection of what is
happening globally and are well known.
The structural issues assailing SA are mostly internally derived and are either misunderstood or unacknowledged. In large part, they arise from the peculiar structure of the economy. This is characterised by a first-world veneer — consumer-led, service-oriented and debt-dependent — concealing within it a developing African economy struggling to find its economic feet.
The rand’s value is largely still geared to the very visible outer shell; indeed, most economic commentators estimate the "fair" value of the currency by focusing solely on this skin-deep cover. In my experience, few economists even acknowledge the existence — let alone the ordeals — of the remaining part of the economy.
The developing part of SA remains economically stranded, unable to connect financially to the outside world. This is, in large part, because the currency value that would allow it to work is far below the level it is forced to live with. The result? One third of the workforce remains lost in a labyrinth of unemployment, 18-million citizens get by only by receiving government grants, and the overall economy remains trapped in a low-growth rut.
The
rand is trying to get down to a more competitive level, one where the
second part of the economy might just begin to function — specifically
where wages paid in SA measured in dollars can compete with those of
earners with equivalent skills in countries such as Colombia, the
Philippines, Mexico or even the likes of Ethiopia. This tug-of-war
between the exchange rates that would "work" for each of the two
differing economies will not be easily resolved: in the good times, the
exchange rate is pulled towards the first-world component; in the hard
times, as now, it slips back towards the developing country component.
The structural issues assailing SA are mostly internally derived and are either misunderstood or unacknowledged. In large part, they arise from the peculiar structure of the economy. This is characterised by a first-world veneer — consumer-led, service-oriented and debt-dependent — concealing within it a developing African economy struggling to find its economic feet.
The rand’s value is largely still geared to the very visible outer shell; indeed, most economic commentators estimate the "fair" value of the currency by focusing solely on this skin-deep cover. In my experience, few economists even acknowledge the existence — let alone the ordeals — of the remaining part of the economy.
The developing part of SA remains economically stranded, unable to connect financially to the outside world. This is, in large part, because the currency value that would allow it to work is far below the level it is forced to live with. The result? One third of the workforce remains lost in a labyrinth of unemployment, 18-million citizens get by only by receiving government grants, and the overall economy remains trapped in a low-growth rut.
