DIRCO’s annual report highlights the negative effects of the rand's depreciation
13 November 2015
The Department of International Relations and Cooperation (DIRCO) recently presented its Annual Report to Parliament. In the report, we highlighted the increasing role that South Africa plays internationally, with a global footprint of 126 diplomatic missions in 109 countries.
The Department is responsible for the formulation, application and implementation of South Africa’s foreign policy, which is derived from our domestic priorities. Our diplomatic missions abroad are responsible for advancing and defending South Africa’s foreign policy objectives and national interests. The missions engage with foreign governments, multilateral institutions, business communities, civil-society organizations and other stakeholders.
Given the current economic climate, the department could not escape the effects of the depreciation of the Rand against the major foreign currencies. Our operations abroad have been negatively affected.
In the Annual Report, we informed Parliament of the effects of the continuous depreciation of the Rand against major currencies. For the years 2007/8, the Rand/US Dollar exchange rate averaged at US $1 = R7.50. For the years 2014/15, the exchange rate stands at US $1 = R12.50, representing a 66.7% depreciation of the Rand.
In the report, the Department revealed the cost of maintaining the missions for the year 2014/15 as standing at R3.2 billion. The amount represents a nominal increase, which takes into account the depreciation of the Rand against the currencies that missions transact in. However, in real terms, the Department’s budget has decreased due to the negative foreign exchange fluctuation and inflation adjustment in the respective foreign countries.
With regard to the compensation of diplomatic staff, the current determination came into effect from 01 January 2008, taking the exchange rate into account. It's important to note that approximately 50% of the DIRCO work force is posted abroad.
The department has since embarked on a process to review its Head Office Organizational Structure, which was then approved by the Minister on 30 March 2015. This has resulted in certain branches being merged, money saved and operations streamlined. The next phase is to revisit the establishment across all our missions. This exercise is prioritized for the current MTEF period and will involve National Treasury and the DPSA. We are determined to continue finding areas where we can trim the structure, save money and do more with less.
The Department is engaging the National Treasury in the development of a property acquisition strategy, which would, amongst other things, guide the government in its decisions to either lease or buy properties abroad to house South African diplomatic missions. The review is currently underway. The international trend appears to be leaning towards buying as opposed to leasing or renting.
One analyst recently questioned whether South Africa’s foreign missions demonstrated value for money. The analyst accurately observed that post-apartheid South Africa had broadened its presence in the world by opening new diplomatic missions from 34 diplomatic missions in 1994 to 126 currently.
The result? The image of our country abroad is that of a stable and maturing democracy, supported by strong institutions of political and economic governance with a well-capitalised banking system and abundant natural resources. This positive outlook of South Africa’s image is in no small measure a result of the hard work of our diplomats. In the work they do, they continue to centralise economic diplomacy in their programmes.
In tandem with our growing footprint in the world, South Africa’s international trade has escalated to high proportions, thereby contributing towards job creation and poverty eradication. South Africa is the second largest and most dynamic economy on the continent, accounting for 24% of Africa’s gross domestic product (GDP) in terms of purchasing power parity. Ours is also the second-largest developing country investor on the continent. In 2013, 29% of our exports were destined for Africa. In 2012, 12% of our dividends came from Africa.
It is also significant to recognise that despite global Foreign Direct Investment (FDI) falling by 16% in 2014, South Africa was able to attract over R140 billion in the 2013/14 financial year. This is almost double the amount of FDI in 2012. Again FDI inflow to South Africa was registered at $3.31 billion from January 2015 to July 2015 with 5 037 jobs created.
In addition, and contrary to international trends, gross domestic fixed investment into South Africa has been growing steadily since the global financial crisis.
Multinationals continue to find South Africa an attractive investment destination. To underscore the point, some of the multinationals from the most developed economies in the world who currently have operations in South Africa include: 700 from the USA; 600 from the UK; 600 from Germany; 280 from Japan; 185 from France and 120 from India. Recently VW committed an additional R4.5 billion to its investment into the South Africa market. Our diplomats working with colleagues from the economic cluster departments do the hard work behind the scenes.
Since 1996, South Africa’s GDP has almost tripled to $400 billion and foreign exchange reserves have increased creating a growing and sizable African middle class.
South Africa continues to experience exponential grown in international tourism and this is enabled by the role played by our missions around the world, which not only facilitate visas but are also involved through various initiatives in marketing and promoting the country.
South Africa is playing an increasing role in world economic and political affairs. We have twice served in the United Nations (UN) Security Council, and we are currently on the UN’s Economic and Social Council and Human Rights Council.
In all of these international bodies, our diplomats play a central role. They are responsible for lobbying and promoting South Africa’s national interests. Democratic South Africa is the product of our own people’s struggles supported by international solidarity. A significant accomplishment of post-apartheid South Africa has been to move our country from its pariah status to its current standing as a valued and respected player in world affairs.
Based on these milestones and responsibilities, the role that South Africa’s foreign missions play in the promotion of our national interest is clear.
“South Africa faces an ever-changing world – a world in which hard choices will have to be made. Whatever direction these take, they will need to be embedded in the country’s geographical setting, in its proud history of resistance and struggle, and in its desire to create a better life for all its citizens. These are responsibilities for which all in government in South Africa, who are charged with managing international relations, cannot escape.” – National Development Plan 2030.
Statement issued by Clayson Monyela, Department of International Relations and Cooperation, 13 November 2015
