The Rand: Reasons for cautious optimism

As a UK-headquartered business that has operated in South Africa for 16 years, Sable International has seen the Rand's performance against the world's major developed-market currencies up close. Over that time, one trend has remained fairly consistent: the Rand has generally weakened against sterling, the US Dollar and the Euro.

But currencies rarely move in straight lines, and right now the Rand is particularly interesting.

Global forces still have a big say in the Rand

South Africa remains an emerging-market economy, but the Rand also behaves, to an extent, like a commodity currency. Global risk appetite, interest rates and the commodity cycle therefore matter enormously, alongside what happens domestically.

Recent resilience in the Rand has been supported at times by improving sentiment and favourable global dynamics, while higher commodity prices and improving logistics can provide support to the South African economy.

Inflation over the past few years has been a global phenomenon, driven by energy prices, supply-chain disruption, geopolitical events and the extraordinary monetary and fiscal response to COVID.

Yet wherever you are in the world, political commentary often reduces inflation to a simple conclusion: our government caused it.

But the picture is more complicated than that. In South Africa, as elsewhere, global forces matter. Current inflation risks again include energy prices and international geopolitical disruption. That doesn't mean domestic politics don't matter. They do.

SA's political landscape could support the Rand

South Africa has entered a fascinating era of coalition politics. If the various parties can maintain constructive engagement, deliver reform and give investors greater confidence in policy and governance, there is a credible case for further Rand-positive sentiment.

There are still plenty of risks. But for perhaps the first time in a while, there are also reasons for cautious optimism.

And as someone who has spent the past 16 years doing business in this country, I think South Africa remains a remarkable place with enormous potential.

Managing currency risk? If your business has exposure to GBP, USD, EUR or ZAR, speak to our forex team about managing that risk and developing a suitable currency hedging strategy. Email [email protected] or call +44 (0) 20 7759 7554 or +27 (0) 21 657 2153.