M.Comm. / In considering the challenges and pitfalls of South Africa's global integration, the circumstances preceding the liberalisation attempt of the 1980's were considered. The De Kock approach to liberalising the economy was unsuccessful owing to the real side of the economy not being in a position to support the liberalisation of the dynamic financial sector. The role of sequencing appears to have been ignored. The lack of government stabilisation was a primary factor contributing to the failure of this liberalisation attempt. Foreign investors, who had been attracted by the well-developed financial sector, lost confidence when exposed to the accompanying backward real sector. Contrary to authorities' initial aim, this premature liberalisation attempt was fatally disrupted by trade and financial sanctions imposed against South Africa. This placed South Africa's ability to meet its international debt commitments in jeopardy. Foreigners refused to roll over debt, and this resulted in a debt standstill in September 1985. To save the crumbling economy, a surplus on current account of balance of payments had to be imposed as a policy measure in order to pay back foreign debt. Although this may have seemed sensible to the authorities at the time, the negative effect that such a policy of price adjustments would have on investment, and therefore growth, was ignored. On examining the correlation between investment and the current account post 1985, it is clear that the current account was in surplus as investment declined. This strongly suggests that investment was the adjustment variable which induced the current account surplus. This paper suggests that such a situation could have been avoided had more attention been given to the sequence in which the economy was opened up. A Smithian approach is proposed. Regression analysis is employed in order to develop an investment function. This model clearly shows that a depreciating exchange rate impacts negatively on investment. Thus the maintenance of a current account surplus was not in the interests of investment growth, and hence economic growth. Rather than relying on balance of payments adjustments, South Africa should possibly have allowed a greater role for organised sequencing. The first step in the Smithian series is the liberalisation of the real sector. Recent World Trade Organisation negotiations have contributed to progress in this regard. The real sector is making good progress in integrating with the world economy. However, it is possibly being hindered by the reluctance of the government to liberalise the foreign exchange market. Stabilisation, the second step in the series is being hindered by the aforementioned reluctance in terms of the foreign exchange market, and by fiscal policies which are lagging behind the progress of monetary policy. The primary problem in terms of fiscal policy is that the authorities have yet to recognise the complementarity of price as well as income adjustments. Financial markets are liberalising fast. The primary concern here is that these markets are opening up in favour of foreigners, rather than in favour of residents. Such lopsidedness may hinder the effectiveness of a liberalisation attempt. Therefore, if South Africa is to open up its economy in the well structured Smithian manner, we need to: speed up foreign exchange market liberalisation; recognise the complementary role of price and income adjustments in attaining a tighter fiscal stance; attempt to open up the financial sector in favour of residents as well as non-residents.
| Identifer | oai:union.ndltd.org:netd.ac.za/oai:union.ndltd.org:uj/uj:9377 |
| Date | 15 August 2012 |
| Creators | Clur, Belinda Louise Barker |
| Source Sets | South African National ETD Portal |
| Detected Language | English |
| Type | Thesis |
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