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Speaking at a South Africa Investor Conference hosted by Rand Merchant Bank and Bloomberg in London on Monday, Gordhan highlighted the negative effects of tapering, a term used by US Federal Reserve Chairman Ben Bernanke to describe Washington’s gradual cancellation of its bond-buying scheme to boost the local economy – also known as quantitative easing.
“In a world of such turbulence in the financial sector delivered with uncertainties that emerged from the talk of tapering and possible action around tapering, particularly on emerging markets, the manner in which decisions are taken in countries with reserve currency status and how those decisions impact upon others and how others respond to those decisions are all issues that require a different state of global governance than we have at this point in time.”
Gordhan said that any new modified financial system – such as the BRICS Development Bank – would need to function “not as an alternative, but [as] a supplement to the IMF,” to maintain additional buffers to the instability the global economy is currently experiencing.
BRICS members China and Brazil as early as last year warned of the effects that an end to quantitative easing would have.
Global markets, especially those in emerging economies, were critical of Bernanke’s suggestions last May that Washington would end quantitative easing in mid-2014.
South Africa is considered one of the emerging economies that is most vulnerable to a withdrawal of US monetary stimulus. By mid-August, its rand currency had fallen 13 per cent against the US dollar as a result of panicked markets that a withdrawal of US monetary stimulus would spark foreign capital flight from South Africa.
The finance minister, however, said that the country has enough in the pipeline to ensure that growth stays above the two per cent mark this year, adding that “South Africa is a haven of relative stability”.
On September 19, the Fed voted to continue its bond-buying stimulus plan, thereby easing pressure on emerging markets.
BRICS: Unique partnership
Gordhan highlighted the role BRICS members have played in the South African economy, and vice versa, adding that the bloc was a “unique partnership and institution” that will evolve over the years.
“China has been quite crucial in many areas and India in different respects, there are many Indian companies that are quite significantly invested in both South Africa and Africa more generally.
“Trade and investment among the BRICS countries is a very positive thing,” he told The BRICS Post in an exclusive interview.
“There are a couple of very concrete things we are working on. The BRICS business council, the development bank, the CRA [Contingency Reserve Arrangement] and the investment and trade opportunities that flow from the business sectors that are beginning to understand each other,” Gordhan said.
The finance minister added that “we are at the very early stages of an exciting project.”
Gordhan also said that work was still underway on the BRICS development bank and that more details will be finalised by the 2014 BRICS Summit in Brazil.
“We have passed the first important stage of clearing almost half the issues and getting agreement on them and now we are [at] the second stage and hopefully by March next year we will have a story to tell.”
Meanwhile, the finance minister tried to ease investor worries surrounding the country’s mining sector, which witnessed a number of wage strikes last month.
“By and large we have a more stable environment now than a year ago. Most of the wage settlements have been reached in almost all of the sectors.
“There are one or two areas of dispute about the extent of retrenchment in one or two companies that is still attracting a bit of attention and tensions between a particular union and a particular employer but otherwise we are over the hump and productivity should be getting back to normal,” said Gordhan.
“For some time to come mining will remain at the heart of the South African economy.”
Matthew Sanderson for The BRICS Post in London