Zuma will send rand to R17 to the dollar: analyst
Landesbank Baden-Wuerttemberg analyst Matthias Krieger says that president Jacob Zuma’s penchant for adopting populist policies will invariable destroy investor confidence in South Africa – sending the rand toward R17 to the dollar.
According to a survey conducted by Bloomberg, Krieger was the best rand forecaster for the past four quarters, having tracked the currencies fluctuations closest over the past year.
He expects the currency to drop 17% by the close of 2016, and remains “pretty pessimistic” about the political cost of South Africa, he said.
While South Africa’s economy has been hit by a number of internal and external factors in the past few months – including a slowing global economy and drought conditions brought on by El Niño – Zuma has also had a profound effect on the markets.
In December 2015 he unexpectedly fired finance minister Nhlanhla Nene, sending the South African markets crashing. The currency has also had its ups and downs with every court appearance by the president – rising on rulings against him, and falling when said rulings have been challenged.
According to Krieger, however, it’s the Zuma government’s long-term policy of taking the populist road that will ultimately do the most harm.
This view has been shared by ratings agencies, too.
While ratings firms have given South Africa a reprieve from a cut to junk status, the safe vote has come with a stern warning over the state of politics in the country.
Read: You had one job, South Africa, and you blew it
More specifically, Fitch warned the South African government to avoid populist “quick fixes” ahead of the 2016 municipal elections that would put the country’s economy at risk.
Fitch Managing Director Ed Parker was quoted by Reuters saying that the government may be tempted to “react to the discontent about insufficient improvement to living standards by pushing costly social programmes” ahead of the elections.
“Authorities may feel, if they have a poor showing, that there is a need for quick fixes like the introduction of a high minimum wage that would appear to help the poor but may also discourage investment,” he said
South Africa is due for another credit rating review in December, with most analysts expecting a cut from at least one of the firms (S&P Global) – however not everyone has a negative outlook.
By 09h00 on Monday, the rand was trading at R14.61 to the dollar, slightly weaker from its performance last week. As the British pound continues to face the fallout from the Brexit, the currency has weakened against the rand, reaching some of the lowest levels in a year, trading at R18.90.
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