Is a Rand devaluation warranted?
Recent pronouncements by labour (Confederation of South African Trade Unions - COSATU) and some parts of business for the adjustment of the R/$ exchange rate to a rate of 9 or 10.5 have to be taken with caution. Though their arguments are somewhat warranted i.e. that the rand is overvalued (currently trading at around 7.5), stipulating a particular rate for which the rate should be pegged is not the solution.
South Africa's economic structure is currently heavily skewed with the tertiary (services) sector accounting for more than 55% of contributions to the GDP - with financial services ruling the roost. An attractive interest rate regime makes South Africa an attractive destination of portfolio investments. The large inflows and outflows of such funds account for a significant impact on the country's exchange rate.
Calls by labour to devalue the currency are mainly aimed at wanting to stimulate the export industry i.e. making South African exports less expensive. The hope is for an increase in the employment levels in the country. Currently the official unemployment figure is sitting slightly above 25%.
It should however be noted that due to the earlier mentioned structural imbalances, absorption of labour in South Africa is currently difficult. There is a large pool of un-skilled/semi-skilled labour which can not be matched with the economy's set up. South Africa is therefore mainly characterized by structural unemployment.
Calls for the devaluation of the currency would need intervention by the South African Reserve Bank (SARB) in the financial markets, which would mark a departure from existing policies. As it stands, the calls by labour and some parts of the business community are anticipated to remain just that...calls with no one answering.