SA in top 5 losers against surging Dollar

2016-01-04 09:14

Here is the tally of 25 "emerging and/or commodity markets" respective currency depreciation against the US Dollar in the last year:

Zambia is attempting an austerity program on the back of collapsed Copper prices, their main export and source of foreign currency, as well has having to contend with an Energy crises.

Columbia, emerging from a decades long low-intensity civil war, has commodities as their main export with oil contributing 45%  and is suffering from the collapsed oil & commodity prices.

Rapid inflation, meager growth and a debt default have plagued Argentina for years. Under a new non-leftist government, Argentina recently exited currency restrictions, devalued its currency, cut personal taxes and freed imports and exports.

Brazil is suffering from a major leftist government corruption scandal, collapsing commodity prices, high social spending, double-digit inflation, a recent  junk-status rating and a deep economic recession. Overnight it went from emerging market shining knight to emerging market basket case - a stark reminder just how quickly things can deteriorate under leftist, socialist government mismanagement.

South Africa is suffering from an economy teetering on recession, an energy crises, collapsing commodity prices and an uncomfortably growing debt to GDP ratio. There have also been ratings downgrades to just above junk-status. The government also recently severely damaged foreign investor confidence with the Finance minister sacking debacle, the effects of which are going to be felt for a lot longer than policy-makers realize. Junk-status looms large in 2016/17 which could easily send the Rand to R18-R20 to the US Dollar - a depreciation not unlike that witnessed in Brazil.

Many political figures welcome the Rand depreciation, saying it will boost export competitiveness (make our goods cheaper) but apart from tourism (dealt a heavy policy blow due to the Visa regulations debacle) local manufacturing has failed to benefit from currency depreciation since any positive impact has been heavily outweighed by industrial unrest, the largest private sector investment strike in recent memory (lack of confidence in government policy)  and crippling power shortages/outages. Also, we need to bear in mind that manufacturing is only 12% of our GDP and the growth in SA exports is more a function of global growth than merely Rand weakness.  To ramp up manufacturing also requires large scale import of machinery - which has to be paid with more Rands - further compounding the problem.

We also import far more than we export (we have a substantial current account deficit) since we are not a goods producing economy, and these imports have to be paid with a weaker Rand, meaning prices go up for local consumers. South Africa imports almost more than half of its domestic wheat and maize and the current drought will make us import even more. This is staple diet for the less economically fortunate. So whilst steady managed currency deprecation may be beneficial over the long term for an emerging market economy, the violent bouts of uncontrolled depreciation we are seeing now are NET NEGATIVE for the consumer and the economy, particularly the large swathes of less fortunate in SA.

Whilst many commentators and politicians attempt to brush off the Rand depreciation to the surging US Dollar, our position in the TOP-5 falling currencies shows quite clearly that there are other, mostly policy related and localized issues at hand in our currencies' demise.

There is an argument that the wealthy and the middle-class, whilst negatively effected by Rand depreciation, can still make plans to cut back on luxuries, holidays, new cars, larger houses, new electronics goods, fancy food,clothes and restaurants, but the lower class and the poor do not have these options at their disposal. Since the underprivileged, unemployed and poor are affected more by rampant currency deprecation than anyone else, we can deduce that our unchecked Rand depreciation is merely promoting inequality. It is therefore quite remarkable how unfazed the current administration seem of the effects of currency depreciation on the working class and the poor.

I recall an article written almost three years ago on by Investec explaining why R15-R20 to the US$ would be greatly harmful to our economy and particularly the working class and the poor. It is uncanny how many projections made in that article stand true today. I hope you find the time to read it, and understand how wrong and misinformed the current administration is on wanting a weaker currency. Any actions by our government, intentional or not, that weaken the Rand, can be assumed to be an affront to the economy, working class and the poor and promoting inequality. We have a sufficiently weak currency to remove "price of our goods" from the global competitive landscape. Our problem is policy and labor/government productivity, not the level of the Rand.

I recall an old saying that "You cannot save yourself rich."  It means that now matter how much you scrimp and save you will never become rich from saving. You will only become rich from growing your income and wealth. Attempting to solve our problems by weakening the Rand is analogous trying to "trying to save ourselves rich." We should be focused on growing our economy, producing more goods for export and raising the productivity and effectiveness of our labor market and government institutions.

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2010-11-21 18:15

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