Johannesburg – The country’s widespread strikes will cost not only mines and transport companies dearly, but consumers as well.
Over the past week anxious investors caused the rand to lose 35c to the dollar.
On Friday afternoon the rand sank as low as R8.68/dollar and at the JSE’s close was still trading at R8.66.
The JSE’s All Share [JSE:J203] index closed the week 2.31% stronger at 36 588 points.
Mike Keenan, a value analyst at Absa Capital, says the rand could slip to R8.80/dollar in October.
He says the currency’s chances of recovery will remain slight until the strikes are over.
He says it also appears as though the rand is now being driven only by concern about local events. “There is generally strong correspondence between movements in the rand and global stock markets. But currently there is almost no sign of this relationship.”
Keenan says this can also mean that the rand will derive no benefit from better market sentiment in the rest of the world.
Graham Ledbitter, a portfolio manager at BoE Private Clients, says a weaker rand always hurts the average South African the most.
“The three most significant expenses for working people are fuel, food and electricity – and the prices of these things rise when the rand weakens.”
Ledbitter says a weaker rand makes commodities like wheat, maize, coal and oil more expensive for South Africans because commodities are priced in dollars.
“We do indeed produce coal in South Africa, but the coal price is still in dollars. The weaker rand therefore makes coal for our power stations more expensive.”
PSG Konsult economist Dawie Klopper says a weaker rand renders all imports more expensive and thus impacts South Africans’ pockets.
“Most consumer goods are imported. Just think of your shoes, your whiskey – everything is imported.”
Klopper says more expensive imports also mean that South African manufacturers’ costs rise when they buy parts and equipment from foreign countries.
A weaker rand can sharply push up the costs of South Africa’s proposed infrastructure programme because expensive advanced equipment is imported.
The higher costs will have to be recovered by means of higher tariffs.
Klopper says the weaker rand can nevertheless be positive for exports.
“The problem is that, because of the strikes, in the mining industry we are not producing what we are supposed to export.”
The strikes thus put pressure on South Africa’s exports while the country’s imports are becoming more expensive.
This trend will simply further increase the country’s trade deficit – as well as the current account deficit. A bigger current account deficit can, in a vicious circle, cause the rand to weaken further.
The other way to fund the current account deficit is through foreign capital flowing to this country.
Keenan says the rand has thus far enjoyed the support of foreigners who bought South African government bonds in the run-up to the country’s addition to Citigroup’s World Government Bond Index at the beginning of October.
Thursday’s JSE data shows that foreigners have started to reduce the South African shares and bonds they hold, probably because of negative sentiment over the strikes. - Sake24
- For business news in Afrikaans, visit www.sake24.com
Fin24 on Twitter