ICYMI: The minimum wage for a textile worker in Dhaka, Bangladesh, is 8,000 taka – or R1,400 a month. This covers 4.4 million workers in 4,620 factories and does not include overtime. South Africa’s minimum wage – based on an eight-hour day, 22 days a ...
Part Two: South Africa’s behaviour in practice since 1994
Joining the world trade system opened up the previously closed economy of South Africa to a very different regime in terms of relative prices. Many industries did not survive the more global competitive environment they suddenly found themselves operating in. In the wake of this disruption, the rand’s value broadly declined over the balance of the decade. On election day in 1994, it stood at R3.59 to the US dollar; by the end of 2000, it traded at R7.57.
So why, despite trying to play by the best practice playbook of Western macroeconomics has South Africa been so singularly unsuccessful at generating jobs since 1994 – unemployment has since doubled to over 40% – or produce the higher economic growth that would typically accompany such job creation – GDP growth has only averaged 2.
The three economic atmospheres on board this Sino-Indo-Russian craft were not only “compartmentalised” from each other, they were far removed from that atmospheric pressure prevailing “outside” in the then still less-than-truly “global” economy. The “air locks” that kept these differing atmospheres separate were, in large part, capital controls reinforced by exchange rate management.
Indeed, from 1994-2014, the renminbi was on a slow strengthening trend even against the dollar. Since 2008, the renminbi has fluctuated between 6.84 and 6.06: today, it trades at 6.47 to the dollar. What China has been progressively doing since 1994 is more equilibrating the rest of the world’s atmospheric pressure to its own, rather than vice versa.
Yet, since early 1995, both structures have been forced to live within the confines of a single rand exchange rate. That rate has suited and by and large still suits the more developed component of the South African economy.
So what then is the gap between Bangladeshi and South African wages? The minimum wage for a textile worker in Dhaka is taka 8,000 – or R1,400 a month. This covers 4.4 million workers in 4,620 factories and does not include overtime. South Africa’s minimum wage – based on an eight-hour day, 22 days a month – is R3,520. It is a wide disconnect, and unsustainable as the production world of low- to mid-value manufactures becomes ever more Asia-centric.
Vietnam has more recently followed a similar practice: the dong has risen only some 10% against the dollar in the past decade, even as Vietnam’s GDP has risen 100%, three times faster than the US’s GDP.
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