Trade, Industrial Policy and Exchange Rates in South Africa

The document summarizes a 'Critical Thinking Forum' that examined whether South Africa should intervene in its exchange rate to boost export competitiveness. A consensus emerged that manipulating the nominal exchange rate is not a 'silver bullet' and could be unsustainable due to limited foreign exchange reserves and the risk of increasing inflation. Instead, participants emphasized the need for microeconomic reforms to address structural bottlenecks in network services and lower domestic costs. The paper also explores the tension between trade liberalisation and protectionist industrial policies, such as those advocated by COSATU and the SACP, noting that previous liberalisation in the 1990s helped export diversification.

• Intervening to undervalue the exchange rate is viewed as an unsustainable 'silver bullet' that could create distortions and undermine long-term competitiveness unless underpinned by a comprehensive microeconomic reform agenda.
• The real effective exchange rate (REER) has steadily decreased due to South Africa's relatively high inflation rate; attempting to reduce the nominal exchange rate would likely further increase inflation, penalising both consumers and exporters.
• South Africa lacks sufficient foreign exchange reserves to sustain a policy of currency intervention or a fixed exchange rate, with reserves of approximately $40 billion being low relative to daily trade volumes that often exceed $10 billion.
• Long-term international competitiveness and job creation depend on microeconomic reforms to address structural weaknesses and bottlenecks in network services, specifically transport, finance, telecommunications, and energy.
• There is a policy conflict between the Department of Trade and Industry's Industrial Policy Action Plan (IPAP), which some argue leans toward protectionism to support labour-intensive sectors, and the National Treasury's preference for trade liberalisation to boost exports.
• Evidence from the 1990s suggests that tariff liberalisation in South Africa actually encouraged export diversification by reducing input costs and incentivising firms to seek international markets.

APA

Draper, P. (2010). Trade, Industrial Policy and Exchange Rates in South Africa. South African Institute of International Affairs. https://saiia.org.za/wp-content/uploads/2010/08/Occasional-Paper-66.pdf

Chicago

Draper, Peter. Trade, Industrial Policy and Exchange Rates in South Africa. South African Institute of International Affairs, 2010. https://saiia.org.za/wp-content/uploads/2010/08/Occasional-Paper-66.pdf.

Wikipedia

{{cite report |last1=Draper |first1=Peter |title=Trade, Industrial Policy and Exchange Rates in South Africa |publisher=South African Institute of International Affairs |date=August 2010 |url=https://saiia.org.za/wp-content/uploads/2010/08/Occasional-Paper-66.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{draper2010trade, author = {Draper, Peter}, title = {{Trade, Industrial Policy and Exchange Rates in South Africa}}, institution = {South African Institute of International Affairs}, year = {2010}, month = aug, url = {https://saiia.org.za/wp-content/uploads/2010/08/Occasional-Paper-66.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }