Anyone who has been reading the Phoenix for any length of time will know that I am an avid currency follower. Exchange rates can tell you so much about the state of affairs of a country, and you can identify specific events just by what the exchange rates were on a particular month.
For example, the infamous 9/11 terrorist attacks in the United States of America was the catalyst for a slide in the Rand which culminated in the Rand touching 20 to the British Pound, and 13 to the US Dollar in December 2001. Fortunately, it all stabilised over the next six months, as everything slowly but surely returned to “normality”. I’ve put normality in quotation marks because in today’s world what is normal?
Lately, the Rand is once again under attack, not by world events, but by our local politicians. As I write this, and taking a basket of three currencies; the US Dollar, the British Pound, and the Euro, I have calculated that from 25 May 2015 to 8 June 2015 (a mere two weeks), the Rand has depreciated by 8,2%. A stunning decline, particularly if taken in the context that the Rand had been steadily declining in the weeks and months before 25 May (about 5% against the same basket in the first five months of 2015). This is by any definition precipitous, as a 14% decline over a six month period is pretty calamitous, and will have profound implications for our economy. And I have calculated that if this two week decline continues until the end of the year, the Rand will be trading at 38 to the Dollar, 42 to the Euro, and 58 to the Pound. Ridiculous of course, but then again who would have predicted in 2000 the rapid and amazing decline of the Zimbabwean Dollar, which reached such ludicrous levels, that eventually the Zimbabweans were forced to Dollarise their country. I predict that if the Rand does not bounce back, and soon, that the Reserve Bank target of three to six percent will become a wish list, and that motor vehicle prices will be particularly hard hit. Those beads of perspiration on the foreheads of the CEOs of motor manufacturers and importers in the middle of winter will not be as a result of a fever; it will be beads of panic.
And it is all so unnecessary. This country should be taking advantage of its God given advantages and a well-constructed National Development Plan (NDP), but it is being held back by an inept and corrupt government, and the world is starting to take notice. Russell Lamberti, of ETM Analytics, puts it succinctly, “The business community is finally waking up to the scale of looting, patronage, cronyism and outright socialism in government, and there is close to a total lack of trust and confidence in the political leadership and the bureaucratic process.” This quote comes from the Financial Mail’s cover story on 4 June 2015, and the gist of the story is about our economy’s structural decline, and the prospects for long-term economic stagnation.
The world is taking notice, and the Rand is taking the hit. If this continues for much longer, the terms fire sale and chicken run will soon take on a new significance.