South African Economy

1894 Words Apr 30th, 2013 8 Pages
From the days of Apartheid, to the times of today, South Africa has relied on foreign capital inflow for the purpose of sustaining high levels of growth through investment in the various sectors of the country. This great reliance on foreign investment has made South Africa vulnerable to fluctuations in the exchange rate and other global conditions.
This essay will discuss the extent to which South Africa is reliant on foreign capital, reasons why this is so and the nature of these inflows. Exchange rate issues will also be discussed, with detail of how South Africa combated these issues in the various years that they arouse. Finally, methods on how South Africa can reduce its vulnerability to such fluctuations will be made apparent.
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This meant a flight to safer havens such as United States commodities occurred.
* Foreign Exchange Market intervention
* In 1998 and 1996 as well, the South African Reserve Bank had heavily intervened in the foreign exchange market. These ventures resulted in net losses of $10 billion (8% GDP) and $14 billion (10% GDP) respectively. The capital for these ventures was acquired in the forward market, thus compromising SARB’s Net Open Forward position.
* Mboweni Bump
* 1998 saw the end term for the Governor of the Reserve Bank. The potential that Tito Mboweni might have left the position created doubt for South Africa and the Rand. (Saayman, 2007:1)
To try and counter this currency depreciation, the Reserve Bank believed that this depreciation was a temporary reaction to rumours of divisions within the government so they sold off massive amount of its foreign reserves (Diamond, Manning, Vasquez and Whitaker, 2003: 2). The Asia crisis, coupled by SA’s own currency issues led the exchange rate crisis. “The authorities reacted by intervention in reserves and then through raising of interest rates to stimulate growth. The policies implemented in 1998 did not solve the crisis but merely slowed down the process and created a false image. Yes the country did benefit through an increase in investment due to higher interest rates
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