Trade, Industrial Policies and the Exchange Rate: Proceedings of the Critical Thinking Forum

The proceedings of the Critical Thinking Forum examine the debate over whether South Africa should manage its exchange rate to boost industrial competitiveness or maintain a flexible system. Key discussions highlight that nominal currency devaluation may be unsustainable due to limited foreign exchange reserves and could exacerbate inflation. Experts argue that long-term competitiveness depends more on microeconomic reforms, reducing domestic costs, and increasing national savings than on currency manipulation. The forum also addresses the tension between trade liberalization and protectionist industrial policies, such as the National Industrial Policy Framework (NIPF), with some participants warning that raising tariffs could harm the poor and discourage export diversification.

• Arguments in favor of currency intervention suggest that a strong rand leads to "Dutch disease" effects, where domestic producers cannot compete globally and are overwhelmed by cheap imports, potentially causing "deindustrialization".
• Opponents of intervention argue that South Africa lacks sufficient foreign exchange reserves to sustainably weaken the currency, noting that the South African Reserve Bank's reserves of approximately $40 billion are low compared to daily trade volumes that often exceed $10 billion.
• Lesetja Kganyago of the National Treasury asserts that the exchange rate is not the primary cause of poor export performance, pointing to the fact that the economy is more competitive now than in 1991 and emphasizing that productivity and interest rates are equally or more important.
• Professor Robert Lawrence argues that the long-term key to a weaker real exchange rate is mobilizing more domestic savings through fiscal and monetary policies, specifically by reducing budget deficits or increasing surpluses.
• There is a conflict regarding the National Industrial Policy Framework (NIPF); proponents like COSATU argue for protectionist measures to build local industrial capacity, while critics argue that tariff liberalization historically helped achieve export diversification and that tariffs act as a regressive tax on the poor.
• Rudolf Gouws contends that the strength of the rand is driven by powerful global forces—such as investor risk appetite and commodity prices—which make a policy to weaken the currency ineffective.
• The forum concluded that focusing on nominal exchange rates is less effective than addressing the Real Effective Exchange Rate (REER), which is influenced by South Africa's relatively high inflation rate.

APA

South African Institute of International Affairs (2010). Trade, Industrial Policies and the Exchange Rate: Proceedings of the Critical Thinking Forum. https://saiia.org.za/wp-content/uploads/2010/03/Promoting-Dialogue-on-Trade-Reform-in-South-Africa.pdf

Chicago

South African Institute of International Affairs. Trade, Industrial Policies and the Exchange Rate: Proceedings of the Critical Thinking Forum. 2010. https://saiia.org.za/wp-content/uploads/2010/03/Promoting-Dialogue-on-Trade-Reform-in-South-Africa.pdf.

Wikipedia

{{cite report |author=South African Institute of International Affairs |title=Trade, Industrial Policies and the Exchange Rate: Proceedings of the Critical Thinking Forum |date=23 March 2010 |url=https://saiia.org.za/wp-content/uploads/2010/03/Promoting-Dialogue-on-Trade-Reform-in-South-Africa.pdf |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{southafricaninstituteofinternationalaffairs2010trade, author = {{South African Institute of International Affairs}}, title = {{Trade, Industrial Policies and the Exchange Rate: Proceedings of the Critical Thinking Forum}}, institution = {South African Institute of International Affairs}, year = {2010}, month = mar, url = {https://saiia.org.za/wp-content/uploads/2010/03/Promoting-Dialogue-on-Trade-Reform-in-South-Africa.pdf}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }