Rand crumbles as load shedding pressures mount

South Africa’s rand weakened past R18 per dollar for the first time since May 2020, as President Cyril Ramaphosa warned that rolling blackouts aren’t going away any time soon.

The currency weakened as much as 0.9% to R18.1165 against the greenback by 11h44 in Johannesburg.

Only South Korea’s won had registered greater losses in developing-nation currencies. This month, the rand is down 6.7%, behind the won and Chile’s peso.

South Africa’s rand is trading at its weakest level since May 2020.

The news couldn’t have come at a worse time. Investors globally are already fretting over higher interest rates to fight inflation even as that threatens to send the world’s economy into recession. The rand is vulnerable to sentiment as it’s used as a proxy in emerging markets due to its liquidity.

When judged against peers, like Mexico, it is possible to see the impact issues such as power cuts are having on the currency, said Warrick Butler, the Johannesburg-based head of foreign exchange trading at Standard Bank Group Ltd., in a note to clients.

The next level to watch would be R18.17, which would open the way for R18.35.

South Africa has been hit by rolling blackouts since 2008 and has had record power outages this year due to the unreliability of state-owned utility Eskom Holding SOC Ltd.’s ageing and poorly maintained plants. The current round of blackouts started on 6 September.

Eskom announced on Sunday (25 September) that load shedding will continue this week at stage 3 during the day (00h00 to 16h00) – escalating to stage 4 during the evening (16h00 to 00h00).

This is expected to continue until at least Thursday, with further updates coming during the week.

According to the Bureau for Economic Research (BER), this is coming on the tail end of the worst week of load shedding in Eskom’s history.

“The week before last was already the worst on record for the Energy Availability Factor (EAF). This is likely to have worsened further last week,” the BER said.

EAF for the week ending 16 September saw availability as low as 53.16%. Last week started with stage 6 load shedding, which was only lowered to stage 4 by the weekend, the BER said.

Energy availability for 2022 is estimated to be 51%.

The BER noted that the near-constant load shedding is likely to wreak havoc on the economy and could push the country into a technical recession, and is putting pressure on other major economic indicators, including interest rates, and the rand.

While both of these indicators are overwhelmingly being pushed weaker by international moves – like the US Fed’s aggressive hiking strategy and the stronger dollar – both come under pressure from short-term economic losses and GDP growth concerns.

Read: Ramaphosa calls for patience as South Africans vent anger over load shedding