The South African currency, the Rand, affectionately dubbed “Randela” by the locals has lost its shine and has come under continuous pressure in the last months. The loss of more than 30% of its value towards the currency of its major trading partners has put importers and distributors under serious calculatory strain, while a variety of exporters are still smiling.
Those smiles are short-lived. Although the revenue for certain exported products has increased significantly on the back of a weak Rand, said exchange rate deterioration contributes major to the consumer inflation; a fact that badly echoes through the halls of the South African Reserve Bank and has led already to a 50 basis point increase of the Repo Rate.
While analysts see this development only as a start for a deadly spiral that will possibly lead to further interest rates hikes of up to 250 basis points over the next 12 to 48 months, the consumers brace themselves as costs for mortgage bonds, credit cards and hire purchase agreements will increase faster than their income.
This development comes ill-timed (isn’t it always?) when South Africa’s economic performance is on a sharp decline and instead of the ANC’s promised five million jobs just a meagre 500 000 new jobs became reality. The president’s lip-service in promising now six million jobs during its anticipated new term of five years after the elections in may does not help at all to regain lost confidence by business owners and investors, locally as well as abroad. Hence the necessary Foreign Direct Investments – with exception in the renewable energy sector – are dwindling and the economic growth is falling far behind upcoming African rivals Nigeria and Uganda.
The weakness oft he Rand is not a temporary phenomenon, it is the result of an inept leadership in the country that allows Unions of various sectors to maim the manufacturing and production sectors, from mining to automobile. Unrealistic minimum wages and wage increases, wild strikes and violent protests paint a glum picture of the former powerhouse on the African continent.
Quo Vadis South Africa? Quo Vadis Randela?
Unless the strike culture will be controlled and the Unions as well as their demands shrink back to healthy levels, the low production quotes will further lead to a falling GDP and from there put the country’s finance and fiscal budgets under huge pressure to commit to grant and infrastructure programmes that would set South Africa back ion course. The annual budget speech is around the corner and positive impulses are needed from Pravin Gordhan, a Herculean task nobody envies him having to master.
Confidence – locally and internationally – have to be restored before any expectation of a firmer Rand can become reality. South Africa’s industry and the consumer will have to wait…not for Samuel Beckett’s Godot…but either for a change in leadership after the elections or for a a serious wake-up call and an involved governance that may lead the nation back on a path of increased revenues and sustainable prosperity!