A confluence of factors - the strong rand, high interest rates and weak global demand - drove first-quarter economic growth sharply weaker to its lowest level since 1998, it was revealed this week.

Although the slowdown was widely expected by the markets, its extent took many players by surprise and could have precipitated the rand's inexorable slide back to more "reasonable" levels.

Where this level might be is anyone's guess, but the last few months have shown that it has to be somewhere quite a lot weaker than the R7-and-change to the greenback seen during the currency's latest bull run.

The rand's volatility - first going weaker in late 2001 and then powering stronger last year - has shown that South African firms and the government need to, at least in the short term, construct strategies that can absorb the effects of massive currency swings.

It has also brought home at least one uncomfortable fact: that all the self congratulation last year, when the economy outperformed First World and many emerging market peer economies, may have been premature.

In fact, if growth fails to come in much higher than 2 percent this year, as economists are increasingly starting to suspect, South Africa's performance will only be marginally higher than the developed world's and substantially lower than many peer emerging markets.

Apart from the fact that this does not help to make the country a more attractive investment destination, it is not nearly enough to deliver the number of jobs needed to start ameliorating the severe socio-economic problems in many communities.

Of particular concern is that the sectors that were hardest hit in the first quarter - agriculture, mining and manufacturing, which all recorded negative growth rates - are those that employ great numbers of people and were at the heart of the export boom that was behind last year's relatively robust performance.

After the release of the data, economists warned that unless the global economy rebounded before year-end, interest rates fell by a sufficient quantum and quickly, and the rand weakened back into a range where exporters were once again competitive, economic growth would struggle to even hit 2 percent this year.

The government's forecast, which will probably be lowered quite significantly in October when finance minister Trevor Manuel presents his medium-term budget policy statement, is that the economy will grow 3.3 percent this year, rising to 4 percent by 2005.

The consensus private sector view, formed before the latest growth data were released and also likely to be revised sharply downwards, was that growth would be 2.6 percent this year and 3.3 percent by 2005.

With the economy sputtering to its lowest growth level since 1998, it has become clear that something has to change before growth picks up to more respectable levels.

The government's hands are to a large extent tied. It has no control over the rand, world economy or interest rates, the latter of which are the exclusive preserve of the Reserve Bank.

It can't set up businesses and probably cannot increase public spending by much more than it has said it will.

Embarking on public works programmes is a good idea as long as the infrastructure built in the process is needed. But it does not make sense to use taxpayers' money in digging holes just to fill them up again or to build roads in the middle of nowhere.

If there is money to spare, rather just give it to people either through tax breaks or increased social grants.

The state cannot and doesn't want to control what the rand trades at on international markets.

Even if there was no philosophical difficulty with a group of technocrats saying: "We think that the rand is worth 'X' and we will keep it there", South Africa is plainly not in a position to influence the markets. It just doesn't have the cash.

But although the government and the central bank have no choice but to leave the rand's level to what were once famously described by Manuel as "amorphous" market forces, there is some hope on the horizon that some of the volatility that has plagued South Africa's currency markets could diminish.

The answer lies in two things: getting rid of the forward book and deepening economic integration with the rest of the world.

The forward book, which represents the government's contingent liabilities in the forward currency market, has after five years of consistent effort finally been brought down to a level where it is covered by net reserves.

But if it is to be eliminated in total, the Reserve Bank will have to absorb a further $5 billion either from the market or from privatisation and debt inflows.

Once the forward book is gone, the bank will be able to go about its business of building up reserves to a more acceptable level.

This will help because higher reserves tend to comfort investors.

And at the end of the day, investor comfort is the crucial ingredient of a healthy economy.