Rand turbulence leaves Cyril between a rock and a hard place

The rand is always at the centre of the storm when it comes to jitters over emerging markets because of its liquidity. So when the wind blows against this grouping of nations, the rand, through no fault of its own, weakens. Depending on the length of the sell-off, an inflationary dragon is awakened. Given that our petrol prices are already at record levels, I think we can take it for granted that at the very least the beast is rather irritated. It was some four years ago now that global investors began their closer inspections of the major emerging-market nations, looking at the fundamentals of the more than 20 nations that fall into this basket. Before then, and in the aftermath of the last global recession, the higher yields that we offered and the much better growth prospects — given that Europe was going through its own debt crisis — meant it was pretty smooth sailing for the most part. Our retailers, such as Mr Price and Woolworths, were universally loved and represented the great promise of an emerging black middle class.

Our bad, and then worsening politics didn’t really matter one little bit. Calls to nationalise the mines were largely ignored, dismissed as “populist” policies that would never see the light of day.

Today, with the West, especially the US — despite Donald Trump — seen as the growth centres, investors with an appetite for emergingmarket exposure are seeking out gems and not the entire basket. What the political changes in December in the ANC have bought us is some reprieve from more severe judgement by such investors.

Morgan Stanley, which forecasts the rand appreciating 15% by the end of the year to R11.40 against the greenback, sees a structural economic recovery on the back of Cyril Ramaphosa becoming president in February this year. The lender doubts that even this week’s weaker-than-expected growth figures will derail that progress.

I’m just imagining what would have happened if that first-quarter

GDP data was delivered to an investment audience with the same old political actors still in charge of both the Union Buildings and Luthuli

House. What would Morgan Stanley and other investment bankers be saying about our prospects?

Given their penchant for overreaction, where would the rand be today? Over the past month, I’ll be first to admit, the rand has been a pretty bad performer and joined the likes of Argentina and also Turkey, whose political stage is dominated by a president hellbent on taking over his central banker’s job. But since the political changes at Nasrec on December 18, the currency is only 2.7% weaker. Over that period, the Brazilian real is 14% weaker against the US dollar, leading to widespread protests in that country. The Turkish lira is some 17% weaker and the Mexican peso has lost more than 7% in value against the greenback. This should bring into focus just how important the changing of the guard was, even for the most ardent supporter of former president Jacob Zuma, whose administration was a lesson in poor management of state.

So we have the reprieve, ratings agencies included, but the challenge is what to do with it? Some political analysts argue that Ramaphosa should take this time before the next general election to do the easier stuff, plug the leaks in state-owned enterprises and work at building business confidence, leaving the heavy lifting of structural reforms until after the polls. The argument being that such reforms come with pain that will serve only to destabilise the already shaky ground he is on in Luthuli House.

Politically, there’s merit to that argument. But given just how central the rand is to emerging-market bets — which could remain negative for some time yet — I don’t think he has the luxury of time. Given the scrutiny the rand is under, the politics of the day must deliver policy certainty in much-contested spaces such as mining and the land redistribution question.

These are issues that can’t be left to linger in an air of uncertainty until we go to the polls. Politically, it may be an inopportune time to act — I hear that — but what choice does he have?

There are issues that can’t be left in uncertainty until the polls