The rand isn’t doing what it’s supposed to

 ·9 Jan 2024

The rand is not experiencing its usual strong start to the year as domestic issues are scaring off investors.

The rand ended last Friday, 5 January at R18.66/$ after experiencing volatility after releasing the minutes from the Federal Open Market Committee’s (FOMC’s) December meeting caused some risk. The rand has not seen much change since, sitting at R18.22/$ today, 9 January.

“The domestic currency, which typically experiences a stronger period around the turn of the year due to lower global financial risk-aversion, has not seen much strengthening, as domestic concerns continue to weigh on it,” Investec Chief Economist Annabel Bishop said.

South Africa’s new integrated resource plan (IRP) was published for public comment last week and has received widespread criticism.

The IRP advocates for prolonged use of coal and nuclear usage while stating that renewable energy technologies do not provide a secure energy supply. This comes despite former Eskom CEO Andre de Ruyter stating that there are 66,000 MW worth of renewable energy projects in the pipeline.

There have also been calls for greater private-sector participation, but the plan only sees a pipeline of projects from the “business community” with a total generation capacity of 10,400 MW, excluding projects with no specified location or commercial operation date.

Congestion at the Cape Town and Durban ports also continues to impede growth, with concerns over the energy and freight outlook adding to the lacklustre nature of the rand.

There are also concerns over this year’s elections, with the growth in political noise in the run-up to the elections and the uncertainty over the probable coalition government adding to the weak nature of the rand.

There has also been a dramatic increase in the distrust of leadership over the last 20 years, with the Institute for Justice and Reconciliation Barometer for 2023 highlighting a decline in confidence in most major public institutions.

The proliferation of new political parties ahead of the elections has impacted predictability, with several having the potential to bolster the ANC in a coalition government after the election.

The ANC will release its January 8th statement this week ahead of its election manifesto, which will likely look at corruption, load shedding, crime and service delivery.

However, it’s not just domestic issues having an effect, as global growth is expected to be weaker than last year, which has negatively affected financial market sentiment.  

Read: Interest rate relief for South Africa is coming

Show comments
Subscribe to our daily newsletter