Strikes hold economy to ransom

2014-01-26 14:01

Multimedia   ·   User Galleries   ·   News in Pictures Send us your pictures  ·  Send us your stories

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.

Join the conversation! encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions. publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.