QUERETARO, Mexico, Jan. 16 (UPI) -- South Africa's rand is down, way down, more than 50 percent down on a year ago. The government is blaming speculators, Zimbabwe's crisis next door and Argentina's across the ocean. It has set up an inquiry into speculators. Some private economists say fundamentals do not justify the rand's fall. But what fundamentals do we mean?
There are fundamentals and there are fundamentals. The growth rate, the inflation rate, the budget deficit, the current account, the level of debt: these are economic fundamentals, and South Africa's look alright, though not excellent. Growth, for example, needs to be much higher than the current 2-3 percent in a country with a vast, poor population. But it is on other fundamentals that South Africa does not do so well.
The right to live safely, without fear of attack and robbery, is fundamental. Perhaps, even for economists like your correspondent, it is the greatest fundamental of them all. South Africa, with one of the highest murder rates in the world, cannot offer it. The right to work is fundamental but formal employment in South Africa has been falling for a decade and millions are being driven into the informal sector. Health care is fundamental but South Africa's health care system is overwhelmed by HIV/AIDS. Education is fundamental but government schools are poor. Though the education budget is substantial, almost all of it is spent on wages. Buildings, books and facilities are lacking or neglected.
Safety, health care, education, quality of life: in all these things all South Africans are looking for improvement and hoping it will come. The poorest may have least hope. But it is the privileged minority, skilled and usually white, and with connections to Europe, that has the opportunity to leave. Perhaps we should say "Good riddance," comments Business Day, South Africa's leading business newspaper. Then again, perhaps we should not. There is a "brain drain" from South Africa, a slow exodus, and those who choose to leave should not be blamed; nor should it be thought that their departure does not matter.
South Africa needs its skilled population. It needs them to help build the country. But if they must live nervously, relying on private security to protect them, private health care, private schools for their children and meanwhile pay the top marginal rate of tax of more than 40 percent once they earn 200,000 rand -- about $17,000 -- perhaps they have little incentive to remain. If their educated children may be obliged, as some medical students have been, to take the worst paid and most dangerous government jobs for some time having graduated, they will vote with their feet.
Step back. South Africa is a country with huge challenges. It is in transition, from white rule and apartheid to a democracy run by the majority of the population. In the past South Africa's poverty and crime was confined -- not to a minority but to the majority. Many of the black townships were violent places but the white minority lived safely separated apart from them. That was what apartheid was about -- the ability for the privileged white community to live well, apart and in safety, with swimming pools and servants, serviced by the black population but not troubled by them. That was utterly unjust.
Now the confinement of the past has ended. Two countries have become one. The majority has freedom of movement. The privileged minority no longer lives apart -- and is therefore more vulnerable to the violence by which it was once untroubled. The injustices of the past must be undone. A new and better country must be built. It is not an easy task and the government may not yet have found the best way to do it.
Its reaction to the precipitous fall in the rand may be a good example of what is wrong. The government points to other countries. Neighboring Zimbabwe is falling apart under Robert Mugabe. The South African government can rightly claim that it is a world away from the tyranny of its neighbor. Yet, for white South Africans, Zimbabwe's decline is a concern. South Africa was led away from apartheid by the astonishingly generous and statesmanlike Nelson Mandela. But it may not always have leaders of such stature. If South Africa's wounds fester rather than heal, who can tell what will happen over time?
The government also blames speculators for the rand's fall. But who or what are speculators? Speculators are individuals, investors or companies who aim to make money rather than lose it. To hold the rand, not just in the past year, but over many years has proven a huge mistake. Is that all the fault of speculators? Surely those same speculators would have bought the rand when it had fallen if fundamentals suggested to them that it would recover. The rand's weakness has not occurred for nothing. It reflects the frailties of this country in transition.
Property rights are part of the problem, says ING Bank's economist in South Africa, Klaus Bauknecht. Bauknecht sees the government's consideration of penalties for so-called speculators itself as a threat to property rights. Among the "speculators" he points out are companies and individuals that choose to keep their money offshore. At present the government is considering greater restrictions on money movement; for example, it might introduce new rules to oblige export remittances to be converted into rand within a certain time frame. This is not the way ahead, Bauknecht argues. What is needed is greater freedom. If there are fewer restrictions, people will be less afraid to convert foreign exchange into rand.
This use of restrictions to counter the country's problems is not isolated. To help the black majority obtain better jobs the government is looking to affirmative action. That does not favor economic efficiency. It would be better to improve education and create job openings by generating higher economic growth. And the way to do that is to give foreign companies and the skilled population greater incentive to remain and invest in this beautiful and resource-filled nation.
That is not happening. "London property continues to be the favorite bolt hole for South Africans wanting to shift their R750 000 ($64,000) capital allowances offshore," writes one of South Africa's main business publications, the Financial Mail. Why are wealthy South Africans putting their money in the mature and expensive London property market rather than into their own developing country? The government must look for the answers to that in South Africa itself.
Not all is bad in government policy. Bauknecht applauds the fact that Thabo Mbeki, South Africa's president, is looking to eliminate corruption and increase efficiency in the public sector. That is vital.
But what the government and the country also needs is a fresh mentality, a realization that the way to undo the injustice of the past is not to replace skilled workers with unskilled ones or to order companies to buy rand, but by creating more skilled workers and giving foreign investors every reason to come to South Africa.
Instead money, just like people, is moving out of South Africa. The rand is voting against the country. Only South Africa can put that right.
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