SOUTH AFRICA’S CURRENCY RISES FROM THE ASHES OF JACOB ZUMA’S PRESIDENCY
▶ The rand has had a particularly wild ride the past few days as the president
South Africa’s currency strengthened to just below 11.9 to the dollar as momentum to unseat the country’s president Jacob Zuma quickened.
Mr Zuma’s increased dabbling in populist policies to appease a restive population unhappy with record unemployment and near zero economic growth hurt the currency over the past couple of years.
The rand reached a 10-year low in January 2016, hitting 16.8 to the dollar, in contrast to the 10-year high of 6.6 to the dollar in May 2011.
The 2016 peak was in response to Mr Zuma firing his highly respected finance minister Nhlanhla Nene and replacing him with an unknown political ally in December the year before.
Last month the IMF revised South Africa’s economic growth forecast downward for 2018 and 2019.
It projects the economy to grow by 0.9 per cent over the next two years – down from an October projection of 1.1 per cent for 2018 and 1.6 per cent for 2019.
As Mr Zuma’s presidency crumbles and the African National Congress moves against him, business confidence is surging and the rand has found its feet.
“After waiting for so long for such a major event, we still think that a formal resignation/removal will trigger some sharp gains, even if only temporarily,” said the Rand Merchant Bank analyst John Cairns in a note.
Some analysts also point to the rand’s status as a favourite among currency traders; it is usually among the top 10 traded in the world.
“The rand trade is relatively deep and liquid but much, much smaller than the other major currencies,” said Dirk de Vos, who runs a Cape Town advisory firm. “So, a small change in sentiment can make a big change for the currency.”
The rand has had a particularly wild ride the past few days, touching back to 12 to the dollar as it became evident that Mr Zuma was not going to be easily dislodged. Then, yesterday morning, police detained several of his close associates in an anti-corruption sweep.
News of the raid also bolstered the rand. A scheduled press conference where Mr Zuma was supposed to announce his resignation did not take place. Shortly afterwards the ANC caucus announced it would no longer discuss an exit with Mr Zuma and was moving ahead with a no-confidence vote called by the opposition Economic Freedom Fighters.
“It is very clear that for us as the leadership of the ANC we can no longer wait beyond today,” Paul Mashatile, the ANC treasurer, said at a briefing in Cape Town. “We can no longer keep South Africa waiting.”
Instead, the ANC parliamentary caucus had been instructed to work with the EFF to see
a motion of no confidence succeed today.
This would also see the Cabinet dissolved, and the Parliamentary Speaker would hold the presidency for the next 30 days, Mr Mashatile said.
Parliament would then elect a new president, with the ANC’s president, businessman Cyril Ramaphosa, expected to take office.
Mr Ramaphosa, the current Deputy President, is generally viewed as business friendly and especially sympathetic to the mining industry, a central plank of South Africa’s economy. His election to the ANC presidency helped boost business confidence to its highest level in two years, the South African Chamber of Commerce and Industry (Sacci) reported last week, according to South Africa’s Business Day newspaper.
Sacci’s business confidence index increased by 3.3 index points in January to 99.7 following on the improved business mood in December, which increased to 96.4 from 95.1 in November. It increased by two index points compared to the same period the year before.
“There is the expectation that new leadership will lead to more pragmatic and predictable business and economic policy options.
“Although the present business confidence carries a great deal of positive sentiment, the investment environment will benefit most from this sentiment to enhance sustainable economic growth and employment prospects,” Sacci said.