{"id":660789,"date":"2023-01-31T09:20:44","date_gmt":"2023-01-31T07:20:44","guid":{"rendered":"https:\/\/businesstech.co.za\/news\/?p=660789"},"modified":"2023-01-31T09:20:44","modified_gmt":"2023-01-31T07:20:44","slug":"rand-knocked-out-by-energy-crisis","status":"publish","type":"post","link":"https:\/\/businesstech.co.za\/news\/trending\/660789\/rand-knocked-out-by-energy-crisis\/","title":{"rendered":"Rand knocked out by energy crisis"},"content":{"rendered":"

South Africa’s rand is trading weaker as investor confidence in the country’s economy is eroded by load shedding.<\/p>\n

Investec’s chief economist Annabel Bishop said that January typically sees seasonal strength in the rand, but this year market players penalised the rand as the state failed to ally investors’ concerns over the electricity crisis.<\/p>\n

Rolling blackouts enforced by the failing national power utility Eskom to try to curb a total grid collapse have increased across the country and continue to plague businesses and stifle economic growth.<\/p>\n

Bishop said that the situation has worsened with no near-term state solution to end the damaging effect on the economy.<\/p>\n

“Additionally, Transnet\u2019s deteriorating ability to meet the demand for its rail and port transport services has further dented investor and business confidence, threatening export-led growth and afflicting the rand,” said Bishop.<\/p>\n

South Africa’s growing electricity crisis implies a substantially weaker 2023 outcome for the economy and a growth rate well below the previously predicted 1.1% year-on-year rate – it is likely to settle closer to 0.6% this year, said the chief economist.<\/p>\n

Already industrial production contracted in the first two months of the final quarter last year – down by 1.4% versus the same period in the third quarter, said Bishop. Due to the country\u2019s deepening supply-side energy shortages, she added.<\/p>\n

Bishop said that Eskom also faces high and rising costs from its use of diesel to fuel open-cycle gas turbines, desperately needing cash injections (and a wholesaler’s license) to purchase diesel.<\/p>\n

“The looming threat of stage 8 load shedding, and outages, including stage 6 so far, have eroded confidence in the domestic economic outlook, with no government solution in sight in the near term, pushing the rand weaker.”<\/p>\n

“This year, little improvement in state infrastructure is expected, particularly on the rail, port, electricity and water supply front, which will impede economic growth and job creation, keeping the rand weak,” added the economist.<\/p>\n

Future predictions<\/strong><\/p>\n

Despite global and domestic economic shakeups, the rand is expected to strengthen in 2023<\/a><\/strong>, says Sebastian Steyn, a forex expert at Sable International.<\/p>\n

He said that the South African currency is predicted to grow further in 2023 as the global market looks for new opportunities in emerging economies outside the developed world.<\/p>\n

As a result of the dollar soaring in 2022, the rand ended up being undervalued – this is expected to change, said Steyn.<\/p>\n

The Economist’s latest Big Mac Index for 2023<\/a><\/strong> shows, however, that despite being undervalued, the rand is trading closer to its ‘real value’ this year.<\/p>\n

The Big Mac Index is based on the theory of purchasing power parity (PPP) – the idea that, over a long period of time, exchange rates should move towards the rate that would equalise the prices of identical baskets of goods and services (for example, a Big Mac burger) in any two countries.<\/p>\n

According to the index, a Big Mac costs R49.90 in South Africa and US$5.36 in the United States. The\u00a0implied exchange rate is R9.31\/$<\/strong><\/p>\n

The difference implies a 45.9% range undervaluation.<\/p>\n

The rand is currently trading at:<\/p>\n