September 1999 - Article - An indicator of South Africa's external competitiveness
S.S. Walters and B.C. de Beer
Last Modified Date:
2020-10-01, 09:31 PM
Quarterly Bulletins > Articles and Notes
A country’s international competitiveness is an important determinant of the expansion of exports and the containment of imports, and therefore of the promotion of economic growth. The concept of international competitiveness, however, is multidimensional and cannot easily be captured adequately in a single indicator at a macroeconomic level. Nevertheless, real effective exchange rates (REERs), i.e. nominal effective exchange rates adjusted for price differentials between a country and its trading partners, if properly constructed, can give a fair indication of relative price competitiveness in international trade, and are widely used for this purpose. Changes in South Africa’s international trading relationships after 1994, large-scale trade liberalisation and innovations in international financial markets, together with the establishment of the European Economic and Monetary Union in January 1999, have necessitated adjustments to the compilation of the country’s nominal and real effective exchange rate indices. This study focuses mainly on the construction of a reliable and timely indicator of South Africa’s external competitiveness, without dwelling on the causes or consequences of changes in competitiveness.