Big blow for rand, economy as ANC set to change Constitution on land

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It is with uncanny ability that South Africa's politicians deal the beleaguered economy yet another blow just when it appears as though things are settling down.

This was the reaction of TreasuryONE head currency dealer Wichard Cilliers after President Ramaphosa announced late on Tuesday night that the ANC would be looking to change the Constitution to more explicitly allow for expropriation of land without compensation. The ANC said earlier expropriation would only be done in a manner that didn't harm the economy, agricultural production or food security.

"While the market was shaping up for a break below the R13.00 handle [against the US dollar], this news has dealt the ZAR a blow and in all likelihood the news will not be well received," he said in a note on Wednesday morning.

"This latest move is once again believed to be politically motivated ahead of the National Elections next year and is aimed at neutering the political stance of the EFF," he added.

“This is a surprising and premature announcement by the ANC because Parliament is still in its review process on changing the constitution,” Lawson Naidoo, executive director of the Council for the Advancement of the South African Constitution, told Bloomberg.

“Parliament still has to gather and evaluate the many submissions that have been made. We are in a pre-election phase and the ANC announcement is part of that.”

The rand responded immediately to the news on Tuesday, losing 16c against the greenback after Ramaphosa announced that his party wanted to amend the Constitution to clarify the conditions under which expropriation of land without compensation would take place.

Ramaphosa, speaking in his capacity as the head of the ruling party, was giving an economic update at the conclusion of a two-day ANC lekgotla.

"The ANC will, through the parliamentary process, finalise a proposed amendment to the constitution that outlines more clearly the conditions under which expropriation of land without compensation can be effected," said Ramaphosa, who was elected ANC leader in December. 

He said the aim of the amendment was to promote redress, advance economic development and boost food security. 

"It will also transform the unjust spatial realities in urban areas."

The local currency opened trade at R13.28 on Wednesday morning from R13.10 just before Ramaphosa started speaking and "there is a high probability that it will likely weaken further".

"If communicated poorly this holds the potential of turning into a game changer depending on how seriously foreigners view this threat to property rights more generally," said Cilliers.

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