one of our brics partners with a strong growth outlook. although african economies have been experiencing relatively strong growth, some downside revision has been seen in response to commodity - price developments. apart from commodity prices, another global factor impacting on south africa is the prospect of monetary policy tightening by the us federal reserve, which has had a significant impact on capital flows to emerging markets. the recovery in the us has prompted expectations of a tightening of monetary policy, and this process effectively began with the phasing out of quantitative easing during 2013. the focus then became the timing and extent of policy interest - rate increases, but successive growth disappointments, very low inflation and uncertain labour - market developments delayed the expected commencement. the everchanging views on the timing of the so - called ‘ lift - off ’ have contributed to the uncertainty and volatility in emerging - market exchange rates, with every data point overly scrutinised. for example, the weak us retail data, released last week following worse - than - expected payrolls bis central bankers ’ speeches data, resulted in a sharp weakening of the dollar as expectations of an interest - rate increase were moved out. that the fed will tighten is inevitable. the question is one of timing. but the associated uncertainty has affected the financial conditions in many emerging markets, particularly those with current - account deficits. furthermore, the start of interest - rate normalisation will not do away with uncertainty completely, as the focus will then move to the next meeting. while the fed has signalled its intent to follow a very moderate path of interest - rate increases, the socalled ‘ dots ’, which represent the expectations of fomc members of future interest - rate moves, have changed significantly from meeting to meeting, reflecting uncertainty even among policymakers. emerging markets have therefore been facing a double negative in terms of capital flows : capital which had previously been chasing relatively higher yields and higher growth in emerging markets is now reversing, with the prospect of interest - rate increases in the us. in addition, the lower growth associated with the slowdown in china and declining terms of trade have also contributed to a reversal of capital flows towards the advanced economies. but at the same time, concern about the slowing global economy and its possible spillbacks to advanced economies has also weighed on the fed ’ s decision making. do these developments point to an impending crisis in emerging markets? some commentators point to parallels with the asian crisis in 1998 / 99. the outlook is

lesetja kganyago : the global economy and south africa ’ s challenges address by mr lesetja kganyago, governor of the south african reserve bank, at the conference of the industrial development corporation ( idc ), sandton, 19 october 2015. * * * good morning and thank you for the opportunity to address you at this important milestone in the history of the industrial development corporation. south africa ’ s industrial development was initially shaped by mining, but linkages to the rest of the economy spurred the growth of the manufacturing sector. today, industrial development is still seen as central for economic growth and employment creation in the country. however, south africa ’ s manufacturing sector is currently facing significant short - term as well as longerterm challenges. fifteen years ago, the sector accounted for about 18 per cent of gdp, but today its share is 12, 5 per cent, with the finance, real estate and business services sector now the single largest sector at almost 20 per cent. since the global financial crisis in particular, south africa ’ s global competitiveness has been deteriorating, as reflected in the country ’ s declining share of world trade. longer - term constraints to industrial development include the pace of global technological change, the changing nature of global value chains, the lack of appropriate skills, logistics and infrastructural deficiencies as well as rising input costs, to name but a few. these issues will be discussed in some depth by the panels during the course of the day. my address this morning will attempt to set the scene by focusing on the current global and domestic contexts as well as the challenges that these pose to future industrial development. no discussion about competitiveness is complete without reference to the exchange rate, which is often too easily seen as either the cause of or the potential panacea for south africa ’ s competitiveness woes. given its volatile behaviour, the exchange rate is an important focus of monetary policy, and i will make some comments on this issue as well. the global economic outlook allow me to begin with the outlook for the global economy that has not fully recovered from the global financial crisis. while emerging - market economies recovered relatively quickly from the crisis, recovery in the advanced economies has been hesitant at best. in the past four years or so, we have seen a familiar pattern : one of optimism at the beginning of the year that the global economy will improve, only for these hopes to be disappointed quite early on in the year. more recently, however