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South Africa’s ‘Overvalued’ Rand ‘Debilitating,’ Davies Says

South Africa’s “overvalued” rand and high level of labor-union strikes are hampering the manufacturing industry of the continent’s biggest economy, Trade and Industry Minister Rob Davies said.

The rand’s decline in recent weeks has been “significant,” yet “we still don’t have what we could call a competitive exchange rate,” Davies said in comments after a speech in Cape Town today. “The currency is overvalued. That has a debilitating effect on the productive sector of our economy.”

The rand has depreciated 4.2 percent since Aug. 5 against the dollar, the worst performer among its major and emerging-market peers in the period, as investors shunned riskier assets amid signs the global economy is slowing. The rand weakened for a second day against the dollar, trading 0.1 percent down at 7.2296 as of 3:44 p.m. in Johannesburg.

Strikes in industries ranging from mining to energy also hampered efforts to grow manufacturing, Davies said. His comments came after Finance Minister Pravin Gordhan said last week that South Africa should consider more flexible labor laws to boost job creation.

South Africa’s unemployment rate rose to 25.7 percent in the second quarter, from 25 percent in the previous three months, while manufacturing growth slowed to 0.9 percent in June, from a revised 1 percent the month before.

Labor Laws

“It would be desirable if we had a reduction in the level of strikes,” Davies said. “Some of the problems caused in the productive sector have been because of the number of days lost to strikes.”

The government would consider “appropriate, pragmatic and reasonable” changes to labor laws aimed at improving productivity, Davies said. Taking away workers’ rights would not reduce industrial action, he added.

“We don’t have a future in trying to compete with the lowest labor standards in the world,” Davies said. “We have to focus on particular productivity-raising areas.”

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