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Rand Monetary Union: Labour implications

RECENTLY, I was in Namibia. Those familiar with Namibia will affirm that when you need to purchase some wares or goodies the South African rand (ZAR) is readily accepted.

However, for change you get Namibian dollars and/or cents. Something that costs 1 Namibian dollar (N$) can be bought for 1 ZAR. If you happen to have a few N$ remaining and per chance attempt to use N$ to buy in South Africa (SA), people would just stare at you as if you had smoked something.
The foregoing vignette sums up the workings of the Rand Monetary Union (RMU) albeit in simplistic terms. Namibia, Lesotho and Swaziland (Naleswa) are part of a special arrangement with SA called the RMU. Under the RMU, each of the Naleswa countries has its own national currency. Naleswa’s currencies are pegged at an exchange rate of 1:1 with the ZAR. Technically, this does not hold when one desires to buy the rands. The banks will charge a commission, rendering parity academic. The rand can be used within the Naleswa countries alongside the national currencies. However, Naleswa national currencies cannot be used as legal tender in SA.
One might query the relevance of HR’s pre-occupation with issues that are purely economic in nature and seemingly distant for that matter. Evolving thinking suggests that HR professionals are business people first and HR professionals second. As such HR needs to look through strategy. This entails peeling a few more layers to get a handle on the current and evolving business context, Sadc geopolitics included. As Maxwell puts it, leaders see before it happens; and when it happens they see bigger and better than others.
Should Zimbabwe settle on joining the RMU and become part of an economic foursome I will call Zinaleswa, what labour scenarios are likely to pan out?
Foreign currency dynamics involving the rand provide a suite of economic outcomes that assist in deciphering the probable impact of Zimbabwe joining the RMU.
SA policy on the rand exchange rate is hotly debated. The rand is known to be very unstable, yaw-yawing by as much as 20% in a single year. What is worrying is that SA economists cannot put a finger on why the rand gyrates so wildly.
Dancing in the neighbourhood of ZAR: US$=7, the rand is considered uncomfortably strong. Loud calls by the influential Congress of South African Trade Unions (Cosatu) to weaken the rand hand a poser for policy makers. Cosatu sees a rate of ZAR: US$=10 ideal. Cosatu, latching onto the Dutch disease argument insist that maintaining a rand strong will result in job losses. The Dutch disease is an economic phenomenon whereby a strengthening currency causes exports to become less competitive. In 1959, the discovery of oil in the Netherlands caused the country’s currency to appreciate (foreign investors pouring money into Netherlands) resulting in Netherlands’ then export-oriented manufacturing industry declining.
How does this apply to the SA economy? It should be borne in mind that under the RMU foreign currency decisions by SA have a contagion effect. The SA economy is largely driven by mining. A significant number of workers are employed in the mines. Major minerals such as platinum, gold and diamonds are exported. A strong rand makes exports pricey, thereby slashing export revenues for the mining sector. With reduced revenues mining is handed the perfect excuse to retrench workers citing viability problems. 
Tourism likewise is similarly affected.  Had Zimbabwe been part of the RMU, how would we be reacting to Cosatu’s agitation for devaluing the rand? Interestingly, Zimbabwe would in all likelihood sympathise with Cosatu’s call. Zimbabwe like SA depends heavily on mining. Tourism in Zimbabwe’s halcyon days was  a key foreign currency generator. Making it cheaper for overseas tourists to visit Zimbabwe courtesy of a weakened rand is likely to be more than welcome.
By preserving jobs in mining and tourism on the back of a battered rand, by extension the Zim dollar, Zimbabwe labour under the prospective Zinaleswa may buy into Cosatu’s agenda.
If Cosatu’s push for rand weakening finds no takers, then Zimbabwe would find itself without levers to weaken its currency as that decision would be the preserve of Pretoria. In fact, some leading SA economists are opposed to a pummel-the-rand policy arguing that the structural weaknesses inherent in the SA economy are the fountain of SA’s poor export competitiveness. Relatively high labour costs and expensive power are cited as culprits. 
Not everyone would benefit from a walloped rand.
Industries that are heavily dependent on imports would have to contend with rising import costs. We import most of our vehicles and a bashed rand can translate into a clobbered motor industry, thanks to soaring import costs. These costs will simply be off-loaded to the consumer. Unlike SA which makes a variety of models and brands of cars locally, a hammered rand might  boost car export sales, leaving local car prices largely unchanged.
As a country we import fuel and when the rand is intentionally clobbered the price of petrol and other fuels sky-rockets. This will feed into the prices of basic commodities. An open secret within SA economic circles is that for every ten rand cents of depreciation against the US dollar, 5 rand cents is added to the price of basic fuel. Equally, matters will not be helped by a possible spike in wheat import costs.  A well accessible fact is that we do not produce enough wheat to meet local demand. Maybe the argument would be that it is far better to bewail rising transport fares and bread prices than having no job at all. Well, as for exorbitant cars, who cares? — the well-heeled can afford such wheels, leftists might argue.
Should the SA Reserve Bank choose to intervene by lowering interest rates, calculated to tame foreign investors’ appetite for the rand, then the rand might weaken. Such an intervention is a double-edged sword:  lower interest rates can stoke inflation by stimulating credit expansion.  If under the RMU Zimbabwe would  still be importing food from SA, then our food prices will spike.
In all honesty, the rising cost of living, feeding off imported inflation is likely to sour industrial relations as workers clamour for cost of living adjustments.  
With a strong rand, organised labour agitates. Labour’s wishes granted, and inflation stoked, pay rise becomes labour’s new byword. This will be an omnipresent reality HR must budget for under the RMU.
The RMU can benefit Zimbabwe if Zimbabwe and SA’s foreign currency policies coincide. However, ANC policy choices (or is it Zim’s policy choices?) may cause divergence from time to time.

Share your views on this matter at brettchulu@consultant.com.

 

Brett Chulu

 

 

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