Labour, capital need a rebalancing act

Image courtesy Chance Agrella/

Fixing the dysfunctional labour market is central to overcoming the problems in the South African economy. That was one of the messages from Prof Brian Kantor at last week’s Economic Outlook conference in Stellenbosch hosted by the Gordon Institute for Business Science.

Kantor, an economist and strategist at Investec, argued growing competition for power among labour unions has created an increasingly unhealthy environment in which to operate. “The bargain was that business will give the unions power, and in return they would get labour peace and productivity,” Kantor argued.

“But that bargain has broken down.”

He stated that a market in which supply and demand talk more than they currently do is essential.

“That doesn’t mean that firms have to pay low wages,” he said. “Businesses are prepared to pay decent wages because that gives them the opportunity to be selective. But what they really want is continuous production.

South Africa – the average emerging market Kantor discussed South Africa’s position as an emerging market, given the focus on recent capital outflows from these economies and the decline in their currencies.

“From an investment perspective, South Africa is part of the emerging market universe and is very affected by perceptions of emerging markets and risk tolerance,” he said.

This counts for the currency as well. As Kantor explains, the rand very rarely moves alone. The local currency is part of a basket of emerging market currencies that tend to behave in similar ways.

“The rand is traded quite heavily on the global market, around $20bn a day,” Prof Kantor said. “That is deep market, and the rand often acts as a proxy for other emerging market currencies.”

Some analysts have argued that the country needs to move away from its dependence on foreign capital. But Kantor doesn’t see it that way.

“What we want is to become more attractive to global investors, because there is no question that we need them to sustain even modest rates of growth in South Africa.”

He recalled the boom years in South Africa’s economy between 2002 and 2006 when GDP growth hit the magical 6% that is always set as the standard needed for creating jobs. Foreign capital was a crucial ingredient in supporting this surge.

“The remarkable growth in South Africa early this century was on the back of a boom in bank credit. Could we afford it? Yes, we funded it with foreign capital. And to me that’s the important lesson.

“The aim should not be low current account deficits. The aim should be fast growth to attract foreign capital because our own savings are too low to fund that purpose.”

He argued that driving growth in the economy is far more important than trying to protect the currency or targeting inflation. And for this reason, he believes that the recent interest rate hike was a mistake.

“Successful businesses attract capital. Stagnant businesses have to give up capital. If you want capital, you must grow the economy. Slow down the economy and you undermine the case for investment.

“And by raising interest rates you slow down growth and undermine the case for investment. We’ve made those mistakes before and I only hope we don’t make that mistake again. There is no justification for further increases in short-term interest rates in South Africa.”

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