In this week’s Currency Focus, currency strategist Andre Cilliers of TreasuryONE explains why, despite the civil unrest in KZN, the rand’s value hasn’t dropped as much as one would have expected. However, he says that we still need to get our house in order because although international markets may have been distracted, soon investor confidence could be lost entirely. “This is by no means over and definitely not a time to sit back and think that it’s behind us. It’s still very much at the forefront and it’s a time where we have to make immediate and drastic decisions as to how it’s going to be handled [going] forward.” – Claire Badenhorst
Andre Cilliers of TreasuryONE on how the currency markets reacted to the civil unrest:
Very immediate, but that’s typical with markets. It’s very, very immediate, and we could see very immediately on the reaction of the rand how much it weakened. But that was not the biggest weakening that I’ve seen in my history. Having been around in 1985 when Mr PW Botha had the Rubicon speech and we were closed down for two days – and that’s where the debt standstill was announced and the rescheduling of South African debt – the turmoil then was much bigger than it was in this period. If we look at the move when Mr Zuma announced the appointment of Mr Des van Rooyen as the new Minister of Finance, the immediate reaction was also bigger. We should not forget that that was where we traded in the 14s or the 13s and we jumped up as high as 16 before that decision was reversed and Mr Pravin Gordhan was appointed. So no. Yes, it was turmoil. Yes, it was chaotic, but it was not the worst that the markets had seen.
This is telling us that the rand as a barometer of what happens in South Africa is very important and that it reacts very quickly and that we need to get our house in order and to get rid of these quick, dirty events that influence so much and then damage our investor confidence on a long term basis. You know, the event takes place for three days. The consequences stay with us for years and years thereafter. We have now seen that Toyota issued a letter delivered to the mayor of Durban City where they expressed the concern about what happens in KwaZulu-Natal and specifically in the Durban area and how damaging that is for companies and the prospects of companies and how they start doubting whether they should put any investment into the country. But that spills over and it has long-term effects and that’s what we need to get right in this country. We cannot afford this. Our growth figures cannot afford this; our currency cannot support these kind of moves, and we need to get our house in order.
On President Cyril Ramaphosa’s handling of the events:
Well, I think the penny is starting to drop internationally. If we look at the investment and fixed direct investment into South Africa over the last number of months, last couple of years, it tells us that we are not one of the emerging markets that attract the most money. We actually are a little bit behind the averages and if you look at our figures that came in in previous years compared to what comes in now, then the investor community is already telling us what they think. I think the markets are a little bit mature, more mature than it was previously, and I think there’s a little bit more depth in the markets. But what was also heartening coming out fairly quickly last week was the fact that within communities themselves, there was some resistance and that I think sends a message that it’s a minority doing these things and that the majority is actually supporting a better rule, a better democratic society and are actually rallying behind Mr Ramaphosa as the leader.
You know, he admitted that they made mistakes and yes, they did, but that’s what you also expect of a leader to admit when mistakes were made and correct them. I think they had a very, very tight rope to run because, you know, if you handled it incorrectly, it could very easily have spilled over into a second ‘Marikana’, which was avoided. The bloodshed that there was, the killings that there was was mostly within the lootings itself. It was not the police firing people or shooting people. It was from injuries and deaths by the looters themselves, where most people were killed and trampled. So generally, I don’t think it was handled too badly and after his consultations with other parties, religious parties, other political parties, etc., he addressed the nation again and things looked a little bit better, as I say, from resistance within our own communities, and I think that helped.
On why international markets haven’t reacted:
I think at the same time, we also had some international news that distracted people a little bit from what happened in South Africa. If we look at the floods that happened in Germany, in Belgium and the Netherlands, I think that sort of put us a little bit on the behind of international news. That is a very important part of the world, a very big contributor to world economies, and I think that was at the same time, Mr Powell also spoke and reiterated that the Federal Reserve will not immediately do anything on interest rates. I think those two events sort of distracted a little bit from what happened in South Africa and by the time that that was on the forefront, the looting was getting a little bit more under control.
I don’t think it’s over and over the next week or three, depending on how it works out and what happens and what is being said and what ratings agencies and other investors put out their feelers as to what happens, it will come back to the forefront. So this is by no means over and definitely not a time to sit back and think that it’s behind us. It’s still very much at the forefront and it’s a time where we have to make immediate and drastic decisions as to how it’s going to be handled [going] forward. But I think we got some reprieve, as I said, from international events.
On what must be done now:
We need to change the moral compass of people in South Africa. We cannot run into streets looting and stealing and having criminal activity all the time. But to change that we need to create jobs, we need to change the gap in the bridge and we build a bridge from between the rich and the poor. We need to get people in jobs. We need to create jobs, and we need to give people some dignity. If we don’t do that, [if] we don’t get that right, then these things are things that will happen every two or three years. We will have this kind of thing that happens to us and it will not build any long-term investor confidence. So we need to work together as private sector and government in changing how things are done in South Africa.
- KZN unrest disastrous for limping economy – TreasuryONE’s Andre Cilliers
- The emerging market space has done well this year, so far – TreasuryONE’s Andre Cilliers
- US inflation is a worry; we are directly affected – TreasuryONE’s Andre Cilliers
- “The visions for the rest of the world just made us the laughing stock” – David Shapiro