Consumers will suffer as Rand falls to record low

Consumers will suffer as the Rand fell to a new low on Friday, reaching a record low of R19.48 before easing later in the day. This is a new low after the currency fell to R10.35 in April 2020 just after the start of the pandemic. By the time of going to print, the Rand was sitting at R19.35.

The new low spells will add to the country’s worsening economic outlook due to the prolonged power crisis that will probably get worse during winter when demand increases.

Independent economist, prof. Bonke Dumisa, says there are two angles to the Rand’s significant weakening this week, especially on Thursday and Friday.

“The first aspect is the purely economic uncertainty issue, where the worsening rolling blackouts has made many currency speculators dump the Rand on grounds that the heightened load shedding this coming winter season will significantly destroy the South African economy.”

He says many analysts regard this as an own goal, because most South Africans are not convinced the government is doing enough in addressing this serious issue.

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US wants SA to be a satellite state

The second angle is the US’ opportunistic political sabre-rattling where the US claims that South Africa sold weapons to Russia.

“This is scornfully viewed by many moderate South Africans who feel that the US is deliberately sabotaging the South African economy and the Rand, as a way of punishing South Africa for refusing to be America’s puppet on the issue of the Russian invasion of Ukraine.”

Dumisa says this reminds many people who otherwise have no sympathies for Russia of the many times the US created false pretexts for attacking states such as the falsehood of Iraq’s nuclear weapons of mass destruction.

“It is this political uncertainty angle which worries me. South Africa is a very small developing country and many South Africans do not care about Russia per se, despite the fact that it supported us during the anti-apartheid struggle days. Many South Africans are strongly peeved and annoyed by the US wanting to treat South Africa as one of its satellite states.”

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Worry about what will happen with US trade

Prof. Jannie Rossouw, visiting professor at the Wits Business School, says the latest debacle about the weapons allegedly sold to Russia again shows that government has no coherent policy.

“The ambassador must now bring his proof that it actually happened and if there is proof, it is likely that sanctions will follow. However, I am not as worried about the sanctions as I am about the fact that it could damage our trade with the US under the African Growth and Opportunity Act (AGOA).”

Since its enactment in 2000, the AGOA has been at the core of U.S. economic policy and commercial engagement with Africa.

It provides eligible sub-Saharan African countries with duty-free access to the US market for over 1 800 products, in addition to the more than 5 000 products eligible for duty-free access under the Generalized System of Preferences program.

To meet AGOA’s rigorous eligibility requirements, countries must establish or make continual progress toward establishing a market-based economy, the rule of law, political pluralism and the right to due process.

Countries must also eliminate barriers to US trade and investment, enact policies to reduce poverty, combat corruption and protect human rights.

It also worries Rossouw that a weaker Rand will mean more expensive imports, that will include the price of fuel that will accelerate the cycle of price increases and push up inflation.

“And if inflation increases, the repo rate will continue to increase and consumers will have to pay more for goods and higher interest rates.”

He says it is bad news for South Africa as it also demonstrates that there is no leadership in government, while it also seems that the opposition has lost the plot without any leadership there either.