South Africa and the Global Economy

20 Jan 2011

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Responding to a question from Shannon de Rayhove of Creamer Media TV, about South Africa's integration into the global economy, Prof. Seeraj Mohamed (director of the Corporate Strategy and Industrial Development Research Programme in the School of Economic and Business Sciences at the University of the Witwatersrand) argues that there is a developing consensus between mainstream and less orthodox economists that the manner in which South Africa integrates into the global economy needs to be managed.

In his view, China is the best known example of a country that has integrated into the global economy on its own terms, while other BRIC countries that have also chosen not to follow orthodox economic thinking - by using a measure of state control and regulation on both trade and financial markets - are also on firmer economic ground than South Africa.

According to Mohamed, while China follows a very liberal approach to foreign direct investment, it maintains tight controls on short term capital flows via capital controls. The Chinese have managed to avoid macro economic instability because they control how money enters and leaves their country. 

Moreover, in the aftermath of the financial crisis and in response to the intensification of capital inflows in emerging economies, Brazil and most Asian economies instituted stronger capital controls.

Countries like Brazil, India and China have not been as severely affected by the crisis, managing to rebound faster, while South Africa still limps along not having recovered the job losses caused by the crisis -- and facing the prospect of further job losses in 2011. 

South Africa has tended to continue on a trajectory largely influenced by the neoliberalism of the Washington Consensus that promotes the liberalization of trade and financial markets.

According to Mohamed, "The uncontrolled flows of financial capital across borders does not support investment but creates macroeconomic instability and uncertainty, which discourages investments."

He argues there is a lot that South Africa can learn from its membership to the BRIC group of countries.

You can find this page online at http://sacsis.org.za/site/article/325.19.

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