There is no reason to be getting hysterical about the fall of the rand against major currencies...
When I moved to Italy in 1992 to start work at the Centre for Advanced Studies, Research and Development in Sardinia, I thought I was getting an excellent deal.
My new salary was a substantial improvement over what I had been earning in the United States. and although I was being paid in Italian lire, this was no cause for concern since Italy was part of the European Monetary System.
This meant the currency was pegged to the French franc and the mighty Deutschmark. The lire was trading at about 1 000 to the US dollar.
Except the unthinkable happened. Two months after I moved countries, Italy jumped ship from the European Monetary system. The value of the lire plunged from 1 000/US$ to 1 600/US$. Overnight I took a 40% cut in salary.
Or did I?
Personally, I was adversely affected because I had debts to pay in the US -- like a $3 000 shipping bill for moving six years of accumulated junk, and the balances on my credit cards.
How was the average Italian affected? Volkswagens and Peugeots suddenly became more expensive because those had to be imported. Italians stopped buying them and switched to locally produced Alfa Romeos and Fiats instead.
But that was not all. Suddenly Fiat sales began to take off through Europe because Fiat's pricing was based on lire costs and profit margins. The lower lire made them more competitive.
Similarly, Italian wines, cheeses, pasta and concrete socks became cheaper througout the world.
The lesson for me was that a 40% fall in the value of the currency was actually good for the country, reducing foreign currency expenditure and increasing inflow of capital.
How much is the rand really worth?
One of Durban's hyperstores sell several brands of canned tomatoes in tomatoe juice. South African brands Koo and All Gold sell for more than R3. Italian brand Farmgirl sell for less than R2.
If one stops to think about this, this does not make sense. Italy has higher labour costs and higher lands costs and should therefore be producing more expensive tomatoes than we do.
Now let's look at the ubiquitous Uno. That car, with five doors, central locking and electric windows sells for 12 million lire in Italy (about R25 000).
In this country, the same car, minus two doors, minus electric windows, minus central locking sells for close to R40 000.(By the way, I've got nothing Unos even though Grog Knowler drives one).
The bottom line is that if we expect to sell cars manufactured in South Africa to the European market (and BMW's recent substantial investment in South Africa is geared towards that), our currency has to be devalued.
Either that or believe that there is a conspiracy among car manufacturers in this country to keep prices artifically high.
Taking this further, if the GNU is serious about scrapping exchange control, then it makes a lot more sense to wait for the rand to fall even further before doing so. There are a number of people who might want to join the chicken run and take their money out of the country as soon as controls are lifted.
A weaker rand will reduce the amount of hard currency that leaves the country, while encouraging inflow of currency from increased competitiveness of our exports and from foreign tourists.
The cost of investments in this country becomes cheaper for foreign companies. Translation: more jobs.
We will see price hikes. A fuel price hike will be inflationary, but our fuel prices are currently much cheaper than most of Europe, another sign of an over-valued rand.
Servicing of foreign debt incurred by years of apartheid mismanagement will also cost money, but this can and should be renegotiated along more favourable lines.
After all, the world monetary community would rather have countries who are able to pay in the long term than write off bad debts.