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The Rand and the world

by Andrew Rissik | Feb 26, 2016
  • I certainly would not have thought that the night before the budget speech, the Rand would be nearing R15.00 to the US Dollar, when only two months ago it touched R17.99. But there are two sides to any currency story as, in any rate, a pair of currencies are priced against each other. Every currency is bashed about and influenced by a wide range of factors that differ from country to country.

    The Rand does not move in isolation

    Internationally, there is a lot of uncertainty affecting how the Rand does against established currencies like the Pound and the Dollar. In Britain, David Cameron is trying to persuade fellow conservatives that the UK should remain in the EU. While in America, concerns are rising over an election that billionaire Donald Trump may just snatch.

    To get an accurate idea of what the Rand is doing you must track it against a basket of hard currencies. The Rand’s strengthening against the Pound right now indicates that investors, who don’t like uncertainty, may be pulling out of UK-based investments. The same may happen later this year in the US. We as South Africans tend to be very negative and inwardly focused, but the grass isn’t necessarily greener on the other side. 

    Turn the corner, or fall off the cliff

    Late last year, we saw Rand weakness and Dollar strength. This created the perfect storm and smashed South Africans’ on-shore wealth by almost 30% in Dollar terms.
    Crises do tend to change behaviour and one lives in hope that someone in the ruling party has taken note of how the markets punished us recently. President Zuma certainly read out some positive sounding intentions during his SONA speech, just as he dropped a few quiet bombs. As a result, South Africa continues to appear to most commentators to be on the verge of “a tipping point”.

    Quite simply, the country can no longer afford the wasteful expenditure and abhorrent government corruption. After his Budget Speech Minister Gordhan has received a lot of support, but he could be bolder. Steps must be taken to beat back the forces that perpetually drag this country down - the same forces that hold back so many of our youngsters who dream of freedom and economic upliftment.

    Reverse the outward flows of investment

    Two things that will carry South Africa forward are trust in our career politicians and unity. Unfortunately, the media, heavily influenced by a powerful elite, propagates divisive stories that avoid the real issues. The bottom line is that when the coffers dry up, we will have to turn somewhere for income and that’s not going to be a good day for any of us.

    If the economy is at the top of the government’s agenda, then they must enact the reforms Minister Gordhan alluded to. This should arrest any further economic decline and improve how South Africa is perceived by both internal and external investors and, of course, the ratings agencies.

    This country can be a destination worthy of inward capital investment, we just need clear investor-friendly policies which are realistic. The global economy is creaking right now, so making ourselves attractive to investment should be relatively easy. All that is needed is the will to act. 

    South Africans have traditionally kept their wealth within the country. However, recent trends show that even at such low levels, we are developing an appetite for offshore investment. Now more than ever, government needs to impress local investors. After all, what foreigner investor will believe in this country if we do not believe in it ourselves? 

    Andy Rissik is the Managing Director of our Forex department, helping people from all over the world transfer their money in or out of South Africa.

    We are a professional services company that specialises in cross-border financial and immigration advice and solutions.

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