Building economic capacity

Last night (6 May 2008), a high-level South African government delegation arrived in Doha, Qatar for bilateral talks with that country. The agreement that would be signed by President Thabo Mbeki and Sheikh Hamad bin Khalifa Al Thani, Emir of Qatar, would conclude negotiations between the two countries that started a long time ago, but reached a state of conclusions since about one year ago.

Pre-1940’s saw this tiny nation of less than 500,000 “real” citizens being extremely dependent on fishing, pearling and the mercy of the British. But after the discovery of oil, and the country’s indenpendence from Brittain, it has slowly grown as an international player. After the current Emir deposed his father and ascended the throne, the country experienced a continuing period of growth, economically, socially and politically.

Today, it has one of the best telecommunication systems in the world, health care and education from kindergarten to university is free, women (yes, Arab and Muslim women) are free to vote, drive and wear whatever they want to, and people are flocking there for jobs.

So, South Africa can learn a lot from this tiny nation, even though we do not have oil. For the leadership of Qatar has shown a willingness to transform the lives of their people for the better, making them the country with the second largest income–per–capita in the world.

But today, I wish to focus only on one aspect of the SA–Qatar talks. Last night, Minerals and Energy Minister, and member of the SA delegation, Buyelwa Sonjica, announced that it seems that the Qataris would agree to the South African request to buy oil from Qatar at a reduced price, in South African rands.

What does this mean?

Qatar is a member of the OPEC, a body formed between members of oil producing and exporting countries Algeria, Indonesia, Iran, Iraq, Kuwait, Libya, Nigeria, Qatar, Saudi Arabia, United Arab Emirates and Venezuela. To a large degree, OPEC controls the price of oil, for although this depends on traders and how they buy, OPEC is the body that decides whether to flood the market or decrease the output of oil; thus being in the position to decide how much oil would be available to the international community, and how much money member states would make in sales.

By entering into an oil purchase agreement with South Africa, Qatar is not defying OPEC standards, but it is in danger of being labelled as a renegade. For remember that South Africa has an extremely good relationship with Nigeria, for instance (also, although not as good as with Nigeria, South Africa also has diplomatic and bilateral agreements with most of the other OPEC members). If as a result of the negotiations, Qatar offers South Africa oil at a reduced price, it is certainly undermining an OPEC principle by underselling the rating of oil sales. Other individual OPEC members might follow suit…

Bad news for OPEC? Definitely good news for South African consumers, as this is bound to drive down the price of fuel at the pump.

The second issue is that we would buy the oil from them in rand value. South African importers have constantly complained that their income is too vulnerable to market fluctuations. They constantly want a strong rand, especially against the US dollar, which is still the international benchmark (curious, if one mentions that the British pound and the European euro are both stronger than the US dollar, but South Africans even do business with the Europeans in US dollars!).

At the same time, exporters would petition the authorities to ensure a weaker rand, which would favour them. And we cannot have two domestic standards in the local market, could we?

The answer is exactly what the South African negotiators had been busy with for the last year in Qatar. The US dollar became the international benchmark because it has proven to be reliable and consistent (sometimes consistent in its downward spirals!). The euro should really be the new benchmark, but it is still too young. Therefore, the time is ripe for the rand to become the benchmark for all our bussiness. The current problem is that we are too dependent on good or bad conditions in the USA or in USA–related arenas. Our businesses depends too heavily on the American standard being high or low.

So, your R50 could be worth about US$7 today, but only US$3 tommorrow. Or it might be US$11 even. But your R50 would remain R50.

So, doesn’t it make sense then to negotiate deals that include the option of buying or selling in rand? This would than put the onus on the other party to convert rands into whatever currency s/he requires, and vice versa. But you would know what you would get, or would have to pay.

And who knows, maybe one day the rand would become the new international currency benchmark!