c koep, m leibbrandt, h mcewan and i woolard, ‘ employment and inequality outcomes in south africa ’, southern africa labour and development research unit and school of economics : university of cape town, 2010. another part of the failing job creation machine is simply weaker real economic growth compared to the 2000s, when job creation was quite strong. this should not, however, lead us down the path of grasping at another seemingly ‘ easy ’ answer. higher inflation will not give us higher sustainable growth. instead, higher inflation undermines short - run growth by increasing interest rates on borrowing, affecting consumers ’ buying on credit and business owners who want to use credit to invest. higher interest costs reduce short - run cash flow, reducing all future consumption spending. while surprise inflation reduces the real value of the existing stock of debt owed, the trade - off is lower economic growth in subsequent years. the short - run benefit of a surprise lower interest rate is transformed by higher inflation into a long - run cost to growth. when inflation is higher than that of our trading partners, we suffer a continuous loss of competitiveness. high inflation overall also generally means higher inflation for poorer and less - skilled south africans than for the wealthy. this increases inequality further and worsens the already low standard of living for those households, making them costlier to employ. for a few years before the gfc in 2008, the relationship between growth and employment was better – if economic activity grew by 1 %, employment grew by around 0. 62 %. but since then, up to 2018, each percentage point improvement in growth only gives us 0. 37 % more jobs. our low employment problem overlaps entirely with our low growth problem. in this context, the best a central bank can do is stabilise unemployment at the rate consistent with price stability. if a central bank attempts to get unemployment below the nairu, the result will be larger quantities of inflation but only small and temporary quantities of jobs as the supply curve becomes more vertical. the same is true for economic growth. 11 assuming that most of our unemployment problem is structural, are we at least sure that the residual cyclical unemployment is being reduced by monetary policy? is a dual mandate better at addressing these cyclical drivers? at the sarb, we use an alternative measure of economic activity to the nairu for understanding where the economy is relative to its tipping point into more inflation or into deflation. this is the output gap, or the

##ramanian of the peterson institute of international economics, this latter share is expected to increase to as much as 45 per cent by about 2030. south africa is now part of the brics grouping, and although a relatively small partner, we are full members and are working to maximize the opportunities that present themselves. we are also aware that there are other countries that are also deserving of being members of this club, and a further indication of how a growing number of emerging markets are part of the shifting economic paradigm. our membership should also be seen in the context of the bis central bankers ’ speeches economy being a gateway to africa, which has been one of the outperforming regions in the past number of years, and which is expected to continue to grow at rates of around 5 per cent. as a region, africa is the most important destination of our manufactured exports, and china has now become south africa ’ s largest trading partner, although much of our exports to that country are commodities or commodity based. despite these developments, the experience of the past few years has shown that emerging markets cannot completely decouple from the advanced economies. but the continued weakness in south africa ’ s traditional trading partners in the eurozone and the uk underlines the need to seek new markets for manufactured exports. germany has long been one of south africa ’ s traditional trading partners, and remains the second largest destination by country for south africa ’ s manufactured exports, after the united states. in 2012, the value of these exports, mainly machinery and electrical equipment, amounted to r21, 8 bn and accounted for about 60 per cent of our total exports to germany. on the trade front, we still run a fairly large deficit with germany, with total exports of r37, 8 billion, and imports of r84, 0 billion. most of these imports are manufactured goods. in addition, germany is one of the most important sources of direct foreign direct investment, with around 620 german companies operating in the country, employing approximately 90, 000 people. german firms have invested r33. 7 billion in south africa since 2003. trade and investment flows are important not only for employment, but also from a balance of payments perspective. since the crisis, the weak recovery in the advanced economies constrained south africa ’ s export growth which impacted adversely on the trade account of the balance of payments, particularly at a time when the exchange rate was relatively strong in response to strong capital inflows to emerging market economies. the current