Poor Governance threatens to push Rand over the Edge

The string of news affecting the South African economy is unfortunately not coming to an end. Incompetent Government members, unpopular and xenophobic legislation, nepotism and politics that fail to inspire create a sphere of doubt and instability.

Yesterday the USD-ZAR exchange rate started breaking out of its familiar corridor of the previous months forcing the Rand value down to 10.67 at the close after trading within an open-close range of 10.58 – 10.65 previously. The Rand – not surprisingly – fails to make any progress towards stabilisation in conditions where risk appetite is mostly upbeat. Part of the reason for its move yesterday was the weaker than expected local manufacturing outlook but more significantly an extension of the poor sentiment that has arisen from large twin deficits and NUMSA’s strike. Long forgotten the late end of the crippling strikes in the Platinum Belt!

It remains concerning that the South African government is willing to do so little when the action has been born out of the structural inadequacy of current labour policy and legislation as well as ill-managed labour practices across the board. The risk of the current strike persisting towards an unfavourable compromise from business, is a threat for productive sector data in the third quarter of the current fiscal year. Furthermore, the strike action has the potential to continue damaging investor sentiment not just from a short-term cash-flow perspective but also from a capital investment perspective, as many businesses will be forced to consider operations in economies with more stable labour conditions.

Africa is on the fast lane and the truck “Nigeria” has already overtaken “South Africa”, which is currently on flat tyres and with a driver without proper experience but with a drivers license that has been bought on the back of a politically illiterate electorate!

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