By Robin Hayes, Associate Editor
BRUCE Whitfield, compare of The Money Show on Cape Talk radio, pointedly informed listeners the day before SONA, that when Cyril Ramaphosa took office in 2018, the Rand Dollar exchange rate was R12,50 to the dollar.
Today it’s over R19. That’s a depreciation of +/- 60%. The Euro fared a little better, R15 then, over R20 now, still 25% decline. Rand / Pound – then, average R17,6, today +/- R23,6 = minus 35%.
So our imports are costing between 25-60% more now in Rand terms, depending where they come from, and that excludes increases due to world commodity prices, effects of the wars in Ukraine and Gaza and huge increases in freight rates.
But the rot started before Ramaphosa took office and don’t forget, he was number two for four years…
I contend that the catastrophic decline in the Rand against ALL major currencies is the primary cause of inflation as most machinery, white goods, cars, services, etc. are imported. The elephant in the room is fuel where imported oil represents +/-60% of the price at the pump. The average price of petrol in 2018 was about R16,50/ litre – today, around R23, again a depressing 40% increase, 2/3 of which can be attributed to the decline in the dollar exchange rate.
Setting aside for the moment the electricity conundrum – high price and non-availability, collapse of Transnet’s rail network and port operations, endemic corruption and the failure of all SOE’s except one (I know, you can’t!), Chat GPT lists several factors that influence South Africa’s exchange rate against major currencies, including:
- Economic Indicators: Economic indicators such as GDP growth, inflation rates, unemployment rates, and balance of trade figures play a significant role. Strong economic performance typically leads to a stronger currency, while weak economic indicators can lead to depreciation.
- Interest Rates: Central bank interest rates, particularly the South African Reserve Bank’s monetary policy decisions, influence the attractiveness of the South African rand (ZAR) to foreign investors. Higher interest rates tend to attract foreign capital inflows, strengthening the currency.
- Political Stability: Political stability and governance affect investor confidence and perceptions of risk. Political instability, corruption, and uncertainty can lead to capital flight and currency depreciation.
- Global Economic Conditions: Global economic trends and events, such as changes in commodity prices (especially gold and platinum, which are major South African exports), shifts in global demand, and geopolitical tensions, can impact the exchange rate.
- Foreign Investment Flows: Foreign direct investment (FDI), portfolio investment, and speculative flows influence the demand and supply of the rand in international markets. Positive investment sentiment can strengthen the currency, while negative sentiment can weaken it.
- Market Sentiment and Speculation: Market sentiment and speculative trading can lead to short-term fluctuations in the exchange rate, as traders react to news, rumors, and market developments.
- Trade Balance: South Africa’s trade balance, particularly its exports and imports, affects the demand for its currency. A trade surplus may strengthen the rand, while a trade deficit may weaken it.
- Government Policies: Fiscal and monetary policies, including taxation, government spending, and currency intervention by the central bank, can influence the exchange rate.
- External Debt Levels: High levels of external debt can raise concerns about a country’s ability to service its debt obligations, leading to currency depreciation.
- Market Intervention: Sometimes, the South African Reserve Bank may intervene in the foreign exchange market to stabilize the currency or address extreme volatility.
These factors interact in complex ways, and the exchange rate is subject to fluctuations as a result of changes in any or all of these factors. Additionally, the relative importance of each factor may vary over time.
But the bottom line really boils down to confidence.
This government’s gross mismanagement of all the fundamentals in the pursuit of incompetent cadre and crony deployment and the pursuit of ideologies that have failed miserably in all the states that have embraced them, has to equate to the definition of not only gross stupidity, but as Einstein’s often quoted definition states, insanity.
Little wonder then that the currency is where it is. Suffer on.
Eish.
