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

This report documents the proceedings of a Critical Thinking Forum hosted by the South African Institute of International Affairs (SAIIA) on March 23, 2010. The forum brought together economists, government officials, and industry representatives to debate the relationship between South Africa's exchange rate, trade policy, and industrial strategy, specifically addressing whether the government should intervene to weaken the rand to boost export competitiveness.

• There is a significant debate regarding currency intervention in South Africa. Proponents argue that a strong currency causes "Dutch disease" and "deindustrialization", harming labour-intensive industries. Opponents argue that South Africa lacks sufficient foreign exchange reserves to sustain such interventions and that devaluations merely delay necessary structural reforms and productivity improvements.
• Lesetja Kganyago, Director General of the National Treasury, asserted that the exchange rate is not the primary cause of poor export performance. He argued that macroeconomic stability since 1994 has seen the real exchange rate depreciate, making the economy more competitive than in 1991. He emphasized that the keys to export growth are lower domestic inflation, productivity growth through regulatory reform, and increased domestic savings.
• Economists at the forum highlighted the importance of the Real Effective Exchange Rate (REER) over the nominal rate. Professor Robert Lawrence noted that the real exchange rate is influenced by spending patterns and protectionism rather than just nominal adjustments. He suggested that increasing national savings, particularly through public fiscal discipline (smaller deficits or larger surpluses), is a more sustainable way to influence the real exchange rate than direct intervention.
• The forum discussed the risks and limitations of various currency management options. Rudolf Gouws argued that global forces (investor risk appetite and commodity prices) are too powerful for a weakening policy to work. He listed several options—including abolishing exchange controls, purchasing forex, or creating a sovereign wealth fund—but noted that fixing the exchange rate would require losing monetary policy sovereignty and reintroducing exchange controls.
• There is a conflict between different government and political entities regarding trade policy. The Department of Trade and Industry (DTI), influenced by COSATU and the SACP, emphasizes protecting chosen sectors (such as automotive, chemicals, and textiles) through tariffs to build local capacity. Conversely, the National Treasury supports trade liberalization to encourage specialization and efficiency.
• Professor Lawrence Edwards criticized the Industrial Policy Action Plan (IPAP), suggesting it represents a policy reversal toward protectionism. He argued that tariff liberalization in the 1990s actually helped export diversification by reducing input costs and pushing firms to seek external markets. He further noted that import tariffs act as a regressive tax that disproportionately affects the poor.
• The forum reached a general consensus that focusing on nominal exchange rates is misleading and that the priority should be improving domestic competitiveness, particularly by removing bottlenecks in network services (transport, finance, telecommunications, and energy).

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} }