School of Economics reaches out Reply

Mr Mafujane, Prof Viviers and the principal Mr Molefe

In between finishing up the last few lectures of the semester and setting exam papers, staff of the School also reached out to help a local high school this week.

As part of moving offices we also have to sort out the old computer lab but instead of send those old XPs off to storage somewhere, we decided to make sure that they are up and running and to donate them to a local high school. With the help of the campus Marketing and Communication team we identified the Resolofetse High School in Ikageng.  Mrs Alida Schutte and Marlise Styger got to work and on Tuesday we were able to hand over the computers to the school principal Mr Molefe and the Science teacher Mr Mafujane. We are already thinking about more ways to get more learners interested in studying Economics!

From the School’s side we would like to thank everyone involved for their efforts to make this happen.

Our first Kindle single is out! Reply

A blog is one way to write about the latest research, but the rule for a good blog post is that it should be similar to a mini skirt: long enough to be proper, short enough to be interesting. Every now and then one wants to get the whole story out there. In academic circles that could be via a working paper, journal article or chapter in a book. An alternative process that staff of the School of Economics have recently been a part of is to publish your own Kindle e-book.

You can download it with one click at Amazon.com

Proff Riaan Rossouw and Waldo Krugell have a paper that gives an overview of the history of CGE modelling in South Africa. The work was part of Riaan’s Master’s dissertation and Waldo was the supervisor. The trouble is that the dissertation is not an effective way to disseminate results. Anyone who is interested have to request it via their university’s inter-library loan desk, get it days (or weeks) later and keep it for two weeks before snail mailing it back. We think that students, researchers and policymakers should be interested to know more about the issues and the CGE models used to examine them in South Africa, but journal editors do not care much for reviews. Economics journals want current analysis with new results for their readers. History journals want more about the people and the context, of for example the trade negotiations in which CGEM’s were used in the mid-1990’s, but in this case it was impossible to get from published accounts. Thus they decided to make the overview available through the e-book option.
Over the past few months Riaan took the lead, formatted the Kindle Single and engaged with Amazon’s publishing service. The end result is now available online and we are very happy. The work is out there and available for everyone to download and read. For a specific type of academic content the e-book is the future!

The strong-Rand, weak-Rand debate 1

Over the past few weeks there have been reports in the media about the strength of the Rand and calls for weakening the exchange rate (see Business Day on Currency instability). Nobel laureate and former World Bank chief economist Joseph Stiglitz is around as an advisor to Economic Development Minister Ebrahim Patel and amongst other things have said that:

“One thing South Africa can produce a lot of cheaply is rand. If people want to buy rand, then selling rand and buying dollars will have the effect of depreciating the currency. Printing presses don’t cost that much,”

In today’s Mail& Guardian Nic Dawes has an interesting article about Minister Patel playing the Stiglitz card.

“He is regularly the headline act as Patel seeks to create — through a series of carefully formulated debates and public events — a new policy consensus that fills up the credibility vacuum created by the financial crisis and global recession.

…This week it was a call for intervention to weaken the rand to protect local jobs and industry.”

Reserve Bank Governor Gill Marcus has ruled out intervension and the M&G article goes on to caution against setting up Prof Stiglitz as a an unofficial Minister of Finance.

To add some analysis to the above mentioned vacuum, this blog would first just like to remind readers that the rand-dollar exchange rate is quite volatile and it has not been a simple story of appreciation that requires weakening to protect local jobs and industry.

Rand cents per dollar exchange rate

When the talk is about protecting jobs and industry it cannot be about the firms that use imported inputs so it must be about exporters. We suppose that the argument is that a weaker rand would drive exports and create growth and jobs. There is an interesting academic article in this regard that is worth a read. In a 2006 article in the South African Journal of Economics Lawrence Edwards and Phil Alves examined the determinants of export supply over the period 1970 to 2002. (Read it here if you have Wiley access). The results provide strong evidence that South African industries are price-takers in the international market.

“Various implications arise from these results:

  • Firstly, export volumes are determined by the profitability of export supply. Factors that raise the output price received by exporter and reduce their cost of production will therefore enhance export performance.
  • Secondly, exchange rate depreciations on average positively affect export performance by raising the profitability of export supply, and not by increasing the cost competitiveness of South African products. Exporters raise their prices by the depreciation rate and do not, on average, lower the foreign currency price of their products in order to capture market share.
  • Thirdly, export growth is not constrained by inelastic foreign demand curves or the inability of South African producers to compete in the export market on the basis of price. This does not imply that world demand and foreign market access are unimportant. While world demand does not directly affect export performance via the demand relationship, it affects export supply via its impact on world prices. Similarly, preferential reductions in foreign tariffs and market access will improve export performance if they raise the price received by exporters. Improved market access without improved export prices (measured in domestic currency) is unlikely to lead to a significant response in export volumes.”

If we were to substantially weaken the rand, consumers will bear the costs of more expensive imports while exporters will pocket some profits. Strong-ZAR vs weak-ZAR is a moot debate and politicians should leave the market to set the exchange rate.

A first round of data on Zimbabwean firms Reply

Over the past 10 years the Zimbabwean economy has suffered political repression, expropriation of private property and mass emigration of the skilled workforce. Analysis of what has been an economy-wide disaster has been limited due to a dearth of data. Today the World Bank for first time released enterprise survey data from Zimbabwe. 599 firms were interviewed from May 2011 through March 2012. It paints an interesting picture of firms and the business environment.

World Bank Enterprise Surveys

  • The firms in the survey are established survivors with an average age of 33 years.
  • On average the firms have 53 permanent full-time workers and 10 part-time workers.
  • 46% of production workers are unskilled and 31% of firms offer formal training.
  • Female participation in ownership is markedly high at 56%, but only 23% of the permanent full-time workers are female.
  • Capacity utilization is only 45%.
  • 97.7% of sales are domestic sales and 63% of inputs have a domestic origin.
  • 11% of firms report exporting more than 1% of sales, but direct and indirect exports account for 2.3% of sales.
  • On average the firms hold 48 days’ inventory, compared to 24 in the rest of Sub-Saharan Africa.
  • The firms are clearly finance constrained – 84% of investments are financed internally and 63% view access to finance as a constraint to doing business.
  • 71% of the firms reported that they are competing against informal firms – compared to 65% in Sub-Saharan African and 56% in the world. Of these firms, 47% view this competition as a major constraint.
  • The firms report fewer power outages per month than those in other Sub-Saharan African countries, but a much greater share of firms report owning a generator.
  • A notably small share of firms (10%) identifies transportation as a constraint to doing business.
  • 41% of firms identify tax rates as a constraint.
  • Compared to other Sub-Saharan African countries, licensing seems to be less of a concern.
  • 32.6% of firms identify corruption as a constraint, compared to the average of 37% in Africa and 36% in the rest of the world.

It is possible to further slice and dice the data by sector, firm-size and location. I hope to follow up with some proper analysis soon.