UPDATE: South Africa Minister: Still Wants A 'Competitive' Currency
March 28 2011 - 6:32PM
Dow Jones News
South Africa's minister of economic development, Ebrahim Patel,
said in an interview Monday that efforts by some nations to control
their currencies is pushing others to do the same and his country
is seeking to "influence" global talks on currencies via
international forums.
Patel said that his own country's policy is to push for a
"competitive" exchange rate, while implementing other broader
measures to make its economy more efficient. His comments and those
of other policymakers imply that South Africa will continue to
build its reserves to prevent too much of an appreciation in its
currency.
But unlike some emerging nations such as Brazil, South Africa
isn't putting capital controls in place. It also faces competition
from China, which tightly controls its own currency, the yuan. That
gives South Africa more of an interest in ensuring that other
emerging nations intervene less forcefully in their own
currencies.
"We are talking in the G-20 and other forums [about
currencies]," he said. "If some countries actively seek to secure
competitive advantage through currency policies, then, long-term it
compels all countries to do the same."
There is a need to promote a broad global consensus to manage
the challenges of global disagreements on currencies, he said,
adding that South Africa will seek to "influence" rather than
"condemn."
Patel's comments highlight the increasingly vocal role that
emerging nations are playing in managing currency pressures. The
rand--one of the more heavily traded emerging-market
currencies--has gained strength over the last six weeks or so. Some
worry that a stronger rand puts pressure on the country's mining
and manufacturing exports.
South Africa is trying to "ensure we have a competitive currency
and the authorities will keep an eye on market developments
regularly and make the necessary adjustments--either increase or
decrease the rate of purchases depending on the impact it has," he
said. He didn't specify where he expects the country's foreign
exchange reserves to be.
But Patel also said that the foreign exchange rate is just one
"element in the toolbox" to ensure its economy is competitive,
noting that to solely rely on the exchange rate is not
sustainable.
The recent strength of the rand is driven partly by investors
looking at a "carry trade" and by a movement of short-term capital
into bonds and stocks, he said. But the country also wants to drive
long-term foreign direct investment, he said. "For us, the
challenge is to improve the quality of the investment."
Patel, who is on a visit to the U.S., said the purpose of the
trip is to encourage more long-term investment and to signal that
the country is open to companies coming into South Africa and
setting up operations in areas like manufacturing, mining and
agriculture.
The South African Competition Tribunal recently decided to delay
the hearing for retail giant Wal-Mart Stores Inc.'s (WMT) proposed
$2.4 billion offer to buy a controlling stake in African retailer
Massmart Holdings Ltd. (MSM.JO). Patel didn't comment directly on
that process, but he said that some of the discussions with
Wal-Mart will be the likely impact of its operations on
employment.
South Africa's economy has been expanding, but the pace of
growth has lagged that of emerging-market rivals such as India and
China. South Africa is rich in minerals and metals, and stands to
benefit from rising commodity costs. Last week, the central bank
left its key interest rate unchanged at 5.5%, but inflationary
pressures are rising in the country.
Patel acknowledged that his country faces internal cost
pressures, but said it is trying to fight those pressures partly by
making an effort to push back on monopolies.
-By Anjali Cordeiro and Erin McCarthy; Dow Jones Newswires;
212-416-2200; anjali.cordeiro@dowjones.com