It's time to peg the Rand low like China

One of the last remaining shoe factories in Cape Town.


Just the other day I was musing with friends why South Africa has not decided to peg its currency at a lower rate, so our manufacturing and services could blossom.

I have of late taken a keen interest in shoe manufacturing, as my girlfriend is a shoe maker. We have investigated manufacturing a range in Cape Town's dwindling shoe factories.

Besides the now growing skills and equipment shortage there is one startling fact that illustrates the South African problem. The average Indian factory worker gets paid about $24's per month. Compare that to a South African factory worker that gets $100 per month or higher.

In yesterday's business day Michael Power argues strongly for just the remedy we were talking about. Pegging the Rand low for the sake of being competitive.

My essential view — which I have doggedly maintained for more than a decade — is that the rand remains structurally overvalued. The main reason I give is that the rand’s current trading range is trapped in the straitjacket of what works for SA’s first economy. But, at this elevated rate, the overvalued rand prevents the second economy from having even the remotest of chances of working, literally and metaphorically.

Let’s start with the basics. SA is living way beyond its means; we have a current account deficit of 7,8% of gross domestic product (GDP). To balance our national books, we need inflows of foreign capital of about R3bn a week, or R600m a working day. Those economists who say it is “natural for a successful developing country to run external deficits and so import capital” need to read pretty much any post-1980 book on real-world economics. Even at the risk of generalising, no, it is not natural to run a deficit if you want to be successful. The emerging economies that have grown most — essentially the east Asian Tigers and now the waking dragon that is China — have been the ones that have put export-led growth first by adopting a hyper-competitive currency; this puts current account surpluses at the centre of their development strategy.

I feel sorry for those economists who simply cannot accept that the “developing countries run deficits” piece of conventional economic wisdom is precisely wrong. Sure, occasionally when global liquidity is abundant you can run deficits and get away with it. But, to paraphrase Warren Buffett, when the tide goes out, then you see who has been swimming naked. And boy, did that tide go out! And sure enough, now everyone can see that SA dispensed with its (no doubt Chinese-made) swimming trunks years ago.

It is time to catch a wake-up, SA. Is this roller coaster we are riding going to be the way we continue to run our economy for ever and a day? Is our economic development plan to become little more than a case of surfing the ebb and flow of the credit cycle, while all the time being subject to the capricious kindness of strangers and their capital?

Will we ever remain little more than a slave to America’s unhealthy rhythms? Must we wait for the planets to align in our favour again, enjoy the party that follows, only to rue the hangover that follows thereafter? And worst of all, by far worst of all, are we in the first economy going to continue to avoid addressing the plight of those trapped in the second economy, unemployable in today’s global economy given today’s rand’s exchange rate? And do we practise this last denial by turning a blind eye to the economically disenfranchised, buying off our consciences with the equivalent of an annual 3% of GDP transfer by way of social grants for 12,7-million people? (If you answer “yes” to the latter, shame on you.)

So now it is my turn to play a game with you, dear reader. Think carefully before you answer this question. I offer you the following choice. Do we build SA’s economy by sticking with the “First Economy First” approach and go with a strong rand? Or do we do what east Asia did and adopt a “Second Economy First” approach, using a more competitive and so much weaker rand? You know which option I would go for.

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Virtual brands will soon be 'real'

Red Heels @ Strata
Originally uploaded by m|a|r|q|u|e|z.

Second life, the best know online 'world' allows its users to design and build houses and almost anything else besides, including clothes and shoes. And because all users keep copyright, and because its easy to copy items in a digital world, a brisk trade in digital items are taking place.

Apparently this also makes second life 'manufacturing' and retailing into a low margin high volume business. Unless of course one can establish a brand. Some established brands like Puma are already retailing trainers in Second Life.

But Mhambi reckons its only a matter of time that a brand which originates in Second Life goes 'real' and finds it's was into a shop near you.

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Sexy shoes, rugby and way too much work

It's the sexy shoes' fault. That, the Super 14 Rugby triumph of South Africa and much too much work.

You can be forgiven if you thought Mhambi took the freeway, never to return. It was the 6th of May the last time I posted. Ages ago. My defence?

Your honour firstly Mhambi's lovely girlfriend has just finished her first shoe and handbag collection. Mhambi gave his moral, emotional, video and web site building support.


Some of the shoe leather featuring Pienaar prints being cut.

And was it worth it. The collection - called But how do we play this? - was designed in collaboration with South African artist Peet Pienaar and is ground breaking. Not only is it does it look contemporary, sexy, sophisticated, but the collection was made from sustainable materials. And if we get the funding to mass produce it, it will be produced in South Africa.


Laura in a shoe factory in Cape Town.

South Africa is not the cheapest place to produce shoes, but its one of the cheaper places where there is a minimum wage and minimum working conditions for workers. We hope to use this as a way of marketing the shoes. These shoes are sexy AND ethical: They will increase your pulling power and then when you finally fall asleep you can do so with a clear conscience.

My second defence is the rugby! I have been spending all my spare time on Keo :) Thirdly I have been working too much. But that's not really a good excuse is it. I will post more about the rugby, why too much work is scientifically proven to be a bad thing and the sexy shoes - soon.

Perhaps you can get to see them here on Mhambi first ;) At Mhambi style and substance always go hand in hand.

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Talk the talk, walk the walk

Mhambi is a soutpiel (Afr: salt cock). I live in England and meddle in South African affairs. One leg in England another in SA with my member dangling somewhere off the Ivory Coast in the Atlantic.

Shoes
Originally uploaded by Wildebeast1.

But Mhambi wants to semigrate. Semigrate is a term coined by Roof Bezuidenhout if I'm not mistaken. It's a term for whitey South Africans migrating from the North of the country to Cape Town. Cape Town being soo dreadfully European that moving there is like moving halfway to Europe.

But Mhambi wants to do a different kind of semigration. Move from one hundred percent Europe to the Africa-Europe that is Cape Town. Mhambi is very lucky to have a lovely Spanish chica who likes the idea. Laura is a shoe designer of note.

This month she is in Cape Town to manufacture a set of prototypes. We hope that if that goes well, she can manufacture her whole range of shoes in South Africa.

She is collaborating with the brilliant South African artist / designer Peet Pienaar. Peet is also doing the designs for the world cup football.

The factory where she wants her shoes manufactured has just this January completed its last order of shoes for Puma. Previously it produced for Nike and many other well known brands. Now most of the business has left for China. Only one floor in the factory still produces shoes, the rest is storage.

Other South African footwear factories have closed down alltogther, or have become importers of shoes. It's sad really. The shoes Laura, my girlfriend, wants to produce need some sophisticated equipment that this factory used to have, but not anymore. She may have to go to Durban, another South African city to complete the shoes.

It's considerably more expensive to produce shoes in South Africa than China, but she hopes to make the fact that SA has stringent labour legislation and better payed workers, part of her unique selling point.

So far everything is going well. It looks like the shoes will be made. Everybody is very excited. There is just one real problem. Laura's orientation is very bad. Cape Town's highways notoriously random.

She is scared to drive to the factory, which is close to Elsies river on the Cape Flats. One or two wrong turns and your in gangland. Workers at the factory have advised her to leave early. They told her that its not a good place for a woman to be driving alone. She is very nervous, and so am I.

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