Image: iStock
The rand fell on Wednesday as electricity outages in South Africa by state utility Eskom highlighted the challenges facing the country’s ailing economy.
At 16.05pm, the rand was 0.47 percent weaker at 14.96 per United States dollar, after earlier hitting a one-week low of 15.055.
But the weaker currency and strong palladium prices lifted the country’s main stock index to a three-and-a-half-week high.
Wednesday’s energy cuts – after a number of Eskom generating units broke down – put more pressure on the country’s struggling finances ahead of a review by Moody’s on November 1.
Moody’s is the last of the big three credit rating agencies to have an investment-grade rating for the key economy at the southern tip of Africa .
The longer the blackouts go on, “the worse it will be for the rand”, said Andre Botha, a currency dealer at TreasuryOne.
And the country’s gross domestic product is forecast to grow less than one percent this year, with the problems at Eskom one of the main contributing factors.
The power cuts on Wednesday highlight the challenges facing President Cyril Ramaphosa in rescuing the state power firm.
Eskom said it would cut 2,000 megawatts of power from 9am local time until 11pm on a rotational basis across the country – the first power cuts in around seven months.
The firm produces more than 90 percent of South Africa’s electricity, but has been hobbled by technical faults at its fleet of mainly coal-fired power stations.
Johannesburg residents, who have grown accustomed to frequent power outages over the past decade, expressed renewed frustration about the impact of the power cuts on their lives.
“It’s almost year-end, and this is when we make money,” said Bridgette Moyo, 29, a hairstylist. “We make money out of this business through electricity. If it’s not there, then we are going down.”
Eskom said close to a quarter of its roughly 45,000-megawatt capacity was offline on Wednesday because of unplanned breakdowns and faults including boiler tube leaks and a broken conveyer belt for coal.
The company’s executives had achieved some improvements in plant performance earlier in the year, but analysts said the company’s spare capacity had declined in recent weeks.
The cuts come at a critical time for energy policy, as cabinet ministers prepare to debate the country’s long-term electricity generation plan.
Publishing that plan is seen as crucial to unlock sorely needed investment in power generation.
The government is expected to name a new chief executive for Eskom after the previous CEO stepped down in July – and to publish a paper detailing further steps to reform the utility.
Debilitating power cuts in February and March pushed first-quarter economic growth into contraction and raised the likelihood of South Africa losing its investment-grade rating.
On the stock market, gold producer Sibanye-Stillwater on Wednesday led the Top 40 index higher as the precious metals miner benefited from booming palladium.
The metal, used in vehicle exhausts to reduce harmful emissions, rose 2.4 percent to 26,510 rand ($1,774.32) an ounce, after hitting a record high of 26,588 rand ($1,779.23) earlier.
This pushed Sibanye up 5.44 percent to 25.01 rand ($1.67).
The weaker currency sent other commodity stocks such as Harmony Gold up 2.99 percent to 44.49 rand ($2.98), and AngloGold Ashanti up 2.11 percent to 300.19 rand ($20.90).
A weaker rand is beneficial for commodity companies because their exports – sold in dollars – are more affordable to purchasers.
The Johannesburg All-Share index rose 0.93 percent to 56,090, while the Top 40 index gained 0.94 percent to close at 49,855 points.
“Today you’ve got everything going positive,” Cratos Capital equities trader Greg Davies said. “The gold index is up [2.18 percent] and the resources are a bit better because of the weaker rand.”
For more news your way, download The Citizen’s app for iOS and Android.
Download our app and read this and other great stories on the move. Available for Android and iOS.