Rand breaks under R18 to the dollar as markets welcome new cabinet

The rand strengthened in early trade on Monday (1 July) as markets opened to a new cabinet in president Ramaphosa’s Government of National Unity (GNU).

The president announced his new executive late on Sunday evening, comprising ministers and deputy ministers from across political lines.

On Monday, the rand was trading at these levels against major currencies:

• ZAR/USD: R17.97 (-1.10%)
• ZAR/GBP: R22.75 (-0.96%)
• ZAR/EUR: R19.32 (-0.77%)

The announcement brought to an end two weeks of uncertainty and fears of a breakdown of the GNU.

Markets responded well to the announcement, with the GNU and the ANC’s executive partners in the DA, IFP and others seen as a more business-friendly and pro-reform combination – compared to the alternative: a tie-up with the EFF and Jacob Zuma-led MK.

There was also relief that many key portfolios, such as the Finance Ministry, will see continuity with minister Enoch Godongwana remaining in his position, with David Masondo—and new deputy, the DA’s Ashor Surapen—in tow.

Locally, business groups have also welcomed the new cabinet.

Business Leadership South Africa chief executive Busi Mavuso said that the new administration will find goodwill from many quarters, “both (in South Africa and abroad”.

“There has already been a vote of confidence from investors, and the finalisation of the GNU will support that. Business is looking forward to working with the new administration to deliver – we are fully aligned with the President’s agenda to drive economic growth,” she said.

However, the goodwill is conditional and finite.

As markets showed over the past two weeks of public spats and tense negotiations, conditions can flip very quickly on signs of conflict or risks that the political parties now in power cannot find middle ground and get things done.

One of the issues constantly flagged about the GNU is that it comprises political opponents and leaders with disparate views. These views are now spread among various government departments, which could lead to conflict.

However, Mavuso and other analysts have posited that the new administration now has a unique opportunity to get things done, leveraging the market positivity to drive forward the wider reform agenda that started with president Ramaphosa’s appointment back in 2018.

A keystone of this is Operation Vulindlela—Ramaphosa’s reform vehicle that has already resulted in many gains for South Africa, including the opening up of the electricity market and building better relations between businesses and the state to resolve other crises.

While Ramaphosa’s time as president is in question—as his term as ANC president will end during the seventh administration—analysts like Old Mutual Wealth Investment Strategist Izak Odendaal say the new government can still make a massive difference while it lasts.

Odendaal said that the GNU has put adherence to the Constitution and the professionalization of the public service at the centre of the agreement. Thanks to Operation Vulindlela, it is also primed to continue the inclusion of the private sector.

While the newly inaugurated GNU under President Cyril Ramaphosa is not going to solve all or even most of the country’s problems, Odendaal said that it can address a handful of big blockages that hinder economic growth.

Mavuso echoed this, saying that the new administration must use the goodwill it will encounter to enable the new cabinet to get things done.

“Action and delivery must be clear,” she said.

Business Unity South Africa (BUSA), another group representing business interests in South Africa, said that the announcement of the new cabinet signals that “South African leaders are now ready to put aside their party-political differences and tackle the social and economic development tasks at hand, in the national interest.”

While the group acknowledged that not everyone will be satisfied with all the appointments, the new administration needs the support of all South Africans so it can urgently implement “practical, evidence-based policies that will deliver sustainable, inclusive economic development, job creation, investment, and social development”.

The group said that the new government should prioritise creating an enabling business environment so that it can attract international investment, and keep building on establishing more public-private partnerships.

It is also vital to get public finances under control, it said.

“It is crucial that we continue to prioritise bringing public finances under control in line with the fiscal consolidation measures outlined in the 2023 Budget.”

Read: Ramaphosa announces new cabinet – these are all the new ministers and deputiesRead: