SA to develop policies of its own

Posted On Wednesday, 02 January 2002 03:01 Published by eProp Commercial Property News
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Slavishly obeying Washington-consensus free-market policies is not the best way 

 

Thabo Mbeki

 

 

 

 

 

 

 

 

The speculators who dominate today's foreign exchange markets worldwide are clearly unimpressed by SA's official line of 'the fundamentals of the economy are sound'. What then are the further weaknesses that they perceive and are acting upon with such devastating effect?

Neglected in the local debate is the overall socioeconomic situation in our country. Such a viewpoint is much broader than macroeconomic fundamentals alone. We (and the speculators) know only too well that this scenario remains a dismal one, characterised, and indeed haunted by, high rates of unemployment, poverty and crime.

So there is always the risk, and even the likelihood, that economic (gross domestic product) growth prospects and expected financial returns will be upset significantly by social disturbances and unrest of one kind or another. Actually, all emergent markets suffer from this damaging perception of high-risk socioeconomic conditions.

Foreign direct investment, so anxiously sought by government to plug the lack of domestic savings, provides a key illustration.

At present the downward slide of the rand is attributed to thin local foreign exchange markets, and more especially to too little foreign currency coming in regularly to counterbalance speculators' moves.

Export earnings apart, why is it that overseas direct investors are so shy? After all, our economic fundamentals are among the best in the world. Something important seems to be missing.

The key problem lies in the basic perception and understanding of SA society.

We are not only a modern business-driven formal sector economy. We have a sharply dualistic socioeconomic system that also includes a large marginalised or peripheral sector (mainly the townships) that are deeply characterised by weak economic links to the formal core economy. A strong dependency culture prevails there, practically much isolated from many positive globalisation spin-offs.

Is it this serious structural weakness and its adverse consequences, especially on the social front, that speculators see and assess more clearly than our policy makers?

Against this background, the current suggestion of increasing local interest rates addresses symptoms and not the underlying problems of the rand.

Higher interest rates might indeed diminish the short-term profit-making opportunities of speculators, but hardly addresses their underlying motivations. The central banks of all major developed countries have, in recent months, reduced interest rates to combat a threatening worldwide recession.

Is SA immune to such dangers? Surely such a step would increase local unemployment and social instability even more, and perhaps perversely put more pressure on the rand ?

Much international experience has shown that foreign direct investment is attracted mostly by profitable, but also stable, domestic conditions. Sound and consistent progress over the whole SA socioeconomic front will be needed to create a positive climate for a substantial and continued inflow of direct private investment.

At present we simply do not qualify. Is it any surprise that, in practice, we have been so disappointingly unsuccessful in attracting this kind of investment ?

These sobering thoughts on key aspects of where SA stands in today's cutthroat globalised world have significant, if uncomfortable, broader implications.

We simply are not a player in the big league. Moreover, slavishly obeying the 'must-have' set of freemarket globalisation policies prescribed today by the so-called Washington consensus is not the best way to get there.

A good illustration is the need to address seriously our deep-seated structural poverty and unemployment problems. The best way of doing so is to adopt a dynamic new policy approach of striking a balance between globalisation and localisation. The current Washington consensus rules would make this very difficult.

A focus on greater localisation to counterbalance today's globalisation thrust would involve specific regeneration and development programmes at local levels, especially in the townships and much of the rural areas.

This would directly involve the majority of the population. If only in terms of local politics it must surely be a winner.

The internal financing of such a powerful initiative need not be a stumbling block. The new 'peoplecentred development' approach which lies, perhaps ironically, at the heart of the reconstruction and development programme enjoys strong international interest and support. It proposes innovative and practical programmes on the ground that generate continuing local funding acting to lift the majority of local people.

One example. A basic investment grant or work-rights programme could mobilise local groups and communities around their own investment projects, from which they also earn wages and service fees. They gain the means to take charge of their lives, to build local synergies, to partner state and business while at the same time laying the foundations for a strongly expanding domestic economy.

Vast savings from reduced crime and the ability to pay for all service fees can finance such a 'local people-given-productive-assets' investment programme.

Yet a substantial initial injection of funds will be necessary.

The weak rand presents a golden opportunity for doing so. We can turn apparent disaster in our favour and start building real confidence in our future.

What is needed is a substantial International Monetary Fund or World Bank dollar loan of say 10bn. Such a loan can work twice: to bolster the currency and, more significantly, obtain rands at a considerable discount to kick-start the wide-ranging locally focused programmes needed to build up our broad socioeconomic system. This is the way to add localisation effectively to globalisation.

The alternative is sitting it out and continuing to suffer, but if we do nothing it is all likely to happen again and again.

The rand crisis is not a matter for the Reserve Bank.

The cabinet should reconsider our policy stance urgently, and tell the world that we are now taking our future into our own hands by looking firstly at our own internal development problems.

For all ordinary SA families as well as the business world, this would be a most heartening message. It is sure to raise spirits, build confidence and present SA as a leading country bravely facing and tackling its economic and social issues.

It is time for President Thabo Mbeki to lead from the front, and get visibly behind the people.

Van Zyl is an honorary professor in the School of Public Management and Administration at the University of Pretoria. He is also a board member of the SA New Economics network.

Last modified on Thursday, 17 April 2014 15:29

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