The latest slide in the rand is not pretty. It seems the initial trigger was last week’s terrible GDP data, which may or may not be a precursor to a more prolonged slowdown, something we can ill afford.
When these episodes of rand weakness happen they tend to elicit a popular but misguided reaction – that it’s something that should worry only the wealthy, those who tend to travel and consume more imported goods.
But this ignores the inflationary effect more broadly and the likely resulting spike in the price of essentials such as maize.
They also present a headache for policy makers, from the South African Reserve Bank to the presidency, though they are unlikely to be seen offering running commentary on a daily basis.
A glimpse at what happened in Turkey, where the central bank had to increase its main interest rate by 125 basis points to a staggering 17.75%, shows the real-life consequences of currency volatility.
It seems a lifetime ago that the Reserve Bank was cutting interest rates and describing the rand as overvalued. It was little more than two months ago. And things may get a bit bumpier still. While we’ve been basking in so-called Ramaphoria since the tail-end of 2017, when Cyril Ramaphosa took control of the ANC and then became president in 2018, the statistics that really matter have been rather grim.
Irrespective of what measure you look at, unemployment is at the sort of crisis level which, as Financial Mail deputy editor Sikonathi Mantshantsha points out, has been known to fuel revolutions elsewhere.
It is in this context that a weaker rand has broader implications than the middle class’s travels abroad. If entrenched, it’s almost guaranteed to result in even more punishing increases in the price of fuel, with a knock-on effect on other staples. An increasing cost of living combined with a lack of job-generating growth is not a happy combination for any country. Who would be president?
Yet, while I’m not sure how much comfort we should be taking from this, we are far from being unique in having reasons to be pessimistic.
In the UK, Brexit becomes more farcical by the day, and the prospect of the country crashing out of the EU without a replacement deal is increasing. The prime minister seems to be in power only because nobody else wants to take ownership (and blame) when the true costs of Brexit become apparent to all.
Nationalism and xenophobia are on the march from Poland to Italy, with the latter once again flirting with exiting the euro. Its recent elections produced a government of left-and right-wing populists, who may well be reckless enough to try it. Even Greece, at the height of its debt crisis, when it seemed to have nothing to lose, still decided that the cost of leaving the euro would be too high and eventually agreed to the EU’s austerity demands.
While there were some outlandish theories about how jettisoning the euro would usher in a new era of policy independence and a rush of tourists that would magically fix the country’s problems (they obviously hadn’t been keeping an eye on Argentina), most people understood that converting their savings into a new and most likely valueless currency would be catastrophic. It beggars belief that the eurozone’s third biggest economy is now governed by politicians who would even consider this as an option.
Spain injected some positive headlines through the inauguration of a female-majority cabinet, but it is a minority government that may not last, and is haunted by massive economic challenges. In short, the world doesn’t seem to be a happy place at the moment.
An interesting story in the Financial Times recently detailed how some hedge funds that were battered after their bets on financial market collapsed are now generating positive returns again.
This may indicate that their bearish views are gaining currency and the market dislocation we are seeing may not be a once-off.
In this context it will be no surprise to see the rand and the South African economy being hit. Nor does it seem an environment in which one can count on Ramaphosa’s plan to "hunt down" $100-billion of foreign direct investment.
It is time for a home-made plan, the quicker the better.
Lukanyo Mnyanda is editor of the Business Day..