Rise in support for Zuma batters the rand, and more is expected
The rand on Wednesday, 10 April, got knocked off the strongest levels it had reached yet this year after a Bloomberg report about a new poll showing a surge in support for Jacob Zuma’s umkhonto Wesizwe (MK) party – largely at the expense of the ANC.
By late afternoon it had fallen to R18.79 to the US dollar from R18.44 earlier. The losses were initially triggered by the poll and then gained momentum after data showed that US inflation picked up pace in March, raising the prospect that US interest rates will remain high for longer.
But the big blow to sentiment was the rising political fortunes of Zuma, whose almost two terms in office were devastating for the economy and the rand. The Electoral Court earlier this week cleared the way for Zuma to be a parliamentary candidate for MK, dramatically raising the stakes in the election.
The poll, conducted by the Social Research Foundation, showed the
ANC with only 37% support, whereas MK got 13%. This knocked the rand off its 2024 perch and sent it into a tailspin.
One thing markets and investors intensely dislike is uncertainty, and the news about Zuma and his party this week has wrapped SA’S political outlook in a cloud of unpredictability.
The prospects of MK – with its threats of violence and embrace of a radical economic transformation agenda, whatever that might be – becoming part of a governing coalition is clearly unnerving. Zuma was widely seen as the “looter-inchief” during the State Capture and Gupta years, and has since been linked to disastrous events such as the July 2021 riots.
This all underscores just how sensitive the markets and investors are about the 29 May elections – and just how ruinous Zuma is to market sentiment.
It matters because the rand’s exchange rate has huge implications for inflation and the cost of imports, which hits the poor the hardest and, in turn, for interest rates.
Zuma is suddenly a factor investors and markets have to consider when deploying their capital. The rand looks set for a turbulent ride over the next few months.