Is the West using the rand to punish South Africa for its foreign policy?

Initially strengthening after the Budget 2024 speech, the rand has dropped to its weakest level since the second week of September. On 15 February, the rand still traded at R18.87 against the US dollar, but fell to R19.15 against the dollar on Friday and opened on Monday at R19.30 against the dollar.

A week later, the rand is still at R19.23 and analysts point to the impact of the Budget 2024 speech on investor sentiment as the main culprit. Following the better than expected Budget, the rand initially strengthened to R18.76 against the US dollar.

Economists from the Nedbank Group Economic Unit say the local unit has been under pressure since the Budget statement, suggesting that National Treasury’s drawdown of R150 billion from the reserves contingency account could have soured sentiment towards the rand.

Prof Bonke Dumisa, an independent economic analyst, is much more blunt about the fall of the rand, saying there is something very manipulative, very arbitrary and neo-colonial going on in the “global markets”.

He says people who really know him will wonder if this is really him using bombastic words like neo-colonialism as he tries to make sense of why the rand, which was trading at around R12/US$ in 2016 is now consolidating itself at around R19.30/US$ eight years later in late February 2024.

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The rand and political and economic certainty

“Our textbook answers to this are that currencies move in accordance with the political certainty as well as the economic certainty of the country. I am definitely not the radical type who spends all his time blaming everything “on the West”, but rather pragmatic, realistic and objective.

“In both economics and marketing, there is a concept of pricer-taker. The price-taker simply accepts the price set by the “global markets”. The assumption here is that the “global markets” are very objective, based purely on the forces of supply and demand, as somehow displayed by the international crude oil markets.”

Dumisa says his experience over the past eight years closely following and writing about these movements of the rand are that hedging and deliberate manipulation definitely dictates that the rand moves only one way and that is down, with the only question just the speed at which it falls.

“I am definitely not a political demagogue who searches for colonialism or neo-colonialism under every bed; one thing I know is that colonialism was premised on colonial masters getting goods and services for free and/or at the cheapest possible price from the colonies and not the other way around.”

He says although South Africa is not a colony anymore, the way our currencies are manipulated downwards follows exactly the same trends as the colonial objective which is getting our goods and products for as cheap as possible and not based on fair value.

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South Africa is a price-taker – Dumisa

“South Africa is just a price-taker. In February 2022 Russia invaded Ukraine and that had many direct and indirect international market implications. The West wanted South Africa to automatically join the anti-Russian brigade, but South Africa said that it refuses to take sides and maintained a “neutral” position on this.”

Dumisa says the West was never happy with this South African position of neutrality and points out that on 12 May last year the US ambassador to South Africa made a weird allegation that South Africa was selling arms to Russia.

“The fallout from that was that the rand immediately plunged from around R18.50 against the US dollar around 11 May to above R19.65 in less than three days by 14 May. Fortunately, the rand was resilient and strengthened back to the levels around R18.50 to the US dollar.

“But there have been persistent pressures to weaken it above the R19 to the US dollar psychological barrier. We are now back above the R19/US$ levels and it now looks as if the rand is there to stay, while it also looks set to solidify above R24/UK£ against the UK pound sterling and now also set to climb above R21/€ against the European Union’s euro.”

Dumisa says everyone will say “these are just normal global markets jitters”, but we know what is happening.