Strikes hold economy to ransom

2014-01-26 14:01

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But some economists believe SA’s currency is doing so badly because it is catching up with global trends, writes Thulehto Zwane

The strike in the platinum sector has been blamed for the rand flying beyond the R11 to the dollar mark, reaching a low of R11.18 before closing at R11.11 on Friday.

Economists agree that the strike will affect the rand, but disagree about whether it is the main reason for this week’s drop to levels last seen during the 2008 global financial crisis.

Annabel Bishop, Investec’s chief economist, blames it squarely on the strikes, which she says hurt the currency through two channels: exports and the equity market.

She says strike action is becoming widespread and will slow down mining output, which will lead to a weaker rand.

In addition, the expected slowdown of mining output will reduce company earnings and profitability.

“The more persistent strike action proves to be, the greater the negative impact on foreign ownership of South African equities and hence the more protracted rand weakness,” says Bishop.

But Absa’s investment analyst, Chris Gilmour, says the strikes are, at this point, still a “peripheral” cause for rand weakness. “[The rand has just] caught up in the general wave of currency depreciation in emerging markets,” he says.

“The Argentinian peso has been devalued by 30% and Turkey is trying to prop up its currency by buying dollars.”

The growing realisation the Federal Reserve is tapering its quantitative easing programme must be held responsible for the performance of the rand this week, he says.

In May last year, Ben Bernanke, the chair of the Federal Reserve, announced it would start reducing the size of the bond-buying programme designed to stimulate the US economy.

“When Bernanke started talking about tapering, cheap money that propped up many emerging market currencies started flying out,” said Gilmour.

He said the platinum and gold sector strikes would only start having adverse effects on the rand and the economy if they continued for six to eight weeks.

Bishop agrees that the rand’s weakness over 2013 was largely in anticipation of tapering, but believes this year’s weakness is mainly due to strike action and loss of earnings.

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