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MANY South Africans have undoubtedly watched the precipice into which the rand seems to have fallen with trepidation. The unit, which briefly touched its lowest recorded level of R14.07/$ overnight on Sunday, has weakened 6.2% since the South African Reserve Bank's last monetary policy committee meeting and 25% over the last year.
What is going on? In most of the analyses I have seen, the Chinese economic slowdown seems to be playing a crucial role. According to this logic, the Chinese problem has a negative influence on the emerging markets – including, of course, South Africa.
I know matters such as currency value changes are often highly complex processes, far too intricate for a simple mind like my own to grasp. And, without downplaying or denying the Chinese connection, I think there is more under heaven and earth than we can dream of, as Shakespeare taught us.
Starting, therefore, with the statement that many factors are responsible, I want to focus on one today. With me understanding much more about politics than economics, this would naturally be in the terrain of the political economy.
In some respects (please note the careful wording) a country’s international currency value may be compared to a company’s share price on the stock market. If said company is well led, its financial well-being wisely managed, its work force well cared for and its profit-making capacity protected, investors will see it as a good choice to put their money into.
And when many investors buy shares, the share price will naturally rise.
However, when a company’s leaders are seen to be corrupt, clinching dubious deals and visibly leading the enterprise badly, investors will flee from its shares. And the share price will tumble.
All of this is elementary, my dear Watson. But the principle is also, with certain reservations, applicable to countries and their leaderships.
If a country is wisely led, if the government provides political, economic and social stability, if corruption is energetically countered, if enough is done to produce a well-educated population – if all of this and more happens, it will go well with the economy. (Of course, this is provided that the international economic environment allows it, and if there is no international crisis to mess things up – all other things, thus, being equal.)
Stable economy, stable currency
A stable economy provides good value for its currency on the international market.
And when all is well with the economy, the country visibly stable and well led and the population more or less contented, this is a significant factor in ensuring a good value for its currency on the international market.
What can we say about South Africa?
We cannot say that the country is well led, not by a long shot.
The government has made a mess of our electricity supply. They are letting the railway system go down the drain. Roads are all too often not properly maintained. The fresh water situation is moving towards a crisis.
Many schools, especially those in townships, are falling apart (and I am not just referring to the buildings), ensuring that young black South Africans will be forever trapped in a vicious cycle of poverty and hopelessness.
Thanks to the government’s ineptness, the economy is not growing nearly enough to create enough job opportunities to absorb the growing population.
In fact, in the second quarter of this year, the economy even contracted by 1.3%. (And then a leading thinker like Jimmy Mzwanele Manyi recently had the temerity to suggest that all of this is the fault of whites, as they are the ones dominating the economy - as if government’s role in the economy is but an afterthought.)
READ: Manyi: ‘White-Owned’ business has betrayed Mandela’s reconciliation legacy
But I forget. According to the government (and its lap-dog Hlaudi Motsoeneng, the big boss of the SABC who, incidentally, lied about his qualifications), we journalists should not dwell on these negative matter but concentrate on positive developments.
Yes, there are many positive things happening. But they mostly happen in spite of, rather than because of, the government. Like the civic rights organisation AfriForum, which last week tackled the water shortage in the Mpumalanga town of Amsterdam (caused by incompetent governance) by providing a lorry with 30 000 litres of water and sinking a borehole.
These kinds of things – although not necessarily the Amsterdam example – filter through to international investors. The international press does not take much notice of South Africa nowadays, but when it does, it is invariably negative in nature and often scathing in terms of the governing ANC.
And when other things go awry, such as the slowdown of the Chinese economy, the South African “share price” has no cushion to protect it, and it goes into free fall.
As the advertisement some years ago said: Who do we have to thank? Well, certainly not that bank.
* Leopold Scholtz is an independent political analyst who lives in Europe. Views expressed are his own.
