The rand has been on a downtrend for a while now; it was
overvalued for a start but political uncertainty has really triggered quite an
aggressive depreciation in recent months. Uprisings have sprung up across the country,
with the death toll reaching fifty. Mineworkers are particularly prominent
within the uprisings, with demands for wage increases the key driver of
national anger.
President Zuma is under huge amounts of pressure and will
struggle to be re-elected; latest approval rating suggests only 32% support the
man in charge. Zuma has given himself a 5.5% pay increase recently – so it’s no
surprise that he is under the cosh.
Naturally, this has limited the productivity of the country’s
key economic growth contributors, such as its iron ore, platinum, trucking, wine
and fruit industries. This is having a material impact on South African growth,
GDP expectations have been repeatedly downgraded by the South African Reserve
Bank. The outlook is pretty bleak too, with inflation high, unemployment likely
to rise and global demand for South African exports likely to decline
(particularly from the eurozone).
Unsurprisingly, investor confidence has taken a major hit; the
use of armoured vehicles, rubber bullets and tear gas is not conducive to
rampant commerce. With investors making for the exit, the rand has plumbed
fresh multi-year lows across the exchange rates and with no real sign of the social
and political unrest easing up, the rand is likely to remain on its downtrend
for at least the next six months to a year.
Richard Driver
Currency Analyst
Caxton FX
