Rand’s perfect storm

TODAY’S RAND depreciation, the so-named flash crash, is the result of several factors, many of them self-inflicted.

Although analysts attribute the drop as a reaction to the blow-out in the Chinese market, and the fallout from the  Nene fiasco, there are several important factors, all of which contribute to Rand volatility.

  1. Over-reliance on Chinese imports, this retail (arbitrage) model creates dependency on Yuan-Rand exchanges.
  2. Too much debt, not enough liquidity = Rand vulnerability. Insufficient savings, a culture of spend as if there is no tomorrow. South Africans need to be saving more, see new tax free savings accounts. A highly indebted nation.
  3. Emphasis on the dirigiste economy, shackles growth by removing competition in key areas, including transport, telecoms, energy and health. Instead of bailing out SAA, government could settle sovereign debt while taxing the sector.
  4. Twenty years of bashing neoliberalism and open markets without providing functioning, workable alternatives. The experiment with a mixed economy has shown that the dirigiste-side has failed. Time to move on from ideology towards long-term stability.
  5. Caving into the Agoa trade war, not being pro-active enough and too readily resorting to the begging bowl, shows weakness. Why is South Africa not marshalling support within the AU and SADC where trade is concerned? Why are we in a currency war?
  6. Punching above our weight when it comes to BRICS, and not being active enough when it comes to African Unity, the good story in our backyard. Both Angola and Mocambique have been booming. Trade with Mocambique, an economy whose GDP Annual Growth Rate averaged 6.36 percent from 2000 until 2015, is increasing, this good story gets lost when we appear to be the weakest member of BRICS. Angola, another neighbour recorded growth rate of 3.8 in 2015 and looks set for 4.1 in 2016.
  7. Not managing inequality and  wealth distribution via a social wage and instead resorting to political brinkmanship, mob violence and threats of expropriation, which inevitably spook markets. Does the social contract need to be explained to the masses, who will benefit indirectly from capital inflows such as the listing of Ab InBev, and directly from government grants funded via taxation?
  8. Foreign policy, backing corrupt regimes such as Assad, Omar al-Bashir, and Hamas, and not standing up for human rights when it comes to issues such as the Dalai Lama, Myanmar, Syria, all affecting sentiment.
  9. Weak national leadership, a president who increasingly appears to be the ruler of one province, the emergence of tribalism and other demands, which all stem from the administration’s own policies. The flipside of this is are Zuma’s global ambitions, at the expense of national unity. A party that comes before the country. See Zuma’s Afrochinistan Affair.
  10. Insufficient attention to South Africa’s image abroad. SABC remains invisible when it comes to the important issue of connectivity via the Internet. Why is the national broadcaster not available alongside RT, Al Jazeera and BBC?
  11. Erosion of civil liberties and human rights within the country, as evidenced by several pieces of legislation before parliament, each one seeking to remove key individual rights protected by the constitution, acts as a disincentive to investment.
  12. Lack of coherent industrial policy and marketing of SA brands abroad. Where are the special economic zones? NDP appears to be nothing more than a talkshop, without follow-through from government. Where is the next economy, how is South Africa planning for the future?

How much did it cost South Africa to prop up the Greenback?

Manual in love with the Dollar?
Manual in love with the Dollar?

TREVOR MANUAL will come to rue the day he chose to support the Dollar and devalue the Rand. South Africa’s entry into financial markets has literally cost every man, woman, and child R6000*. In an instant we have wiped out the gains of the last five years, pushing the currency back to levels that are dangerously close to the devaluation which occurred during the mid-nineties. The Reserve Banks activity in buying the Greenback shortly before the devaluation should become a subject of public inquiry, since in so doing, we have allowed our country to yet again become the slave to Wall Street Bankers.

The recent crisis in capitalism comes after the market in derivatives based upon junk bonds was allowed to get out of hand, forcing the collapse of several banks including US Treasury’s Fannie Mae and Freddie Mac. To call it a “sub-prime” crisis is to miss the point about junk bonds. The continued use of complex derivative schemes that leveraged assets that did not exist, or had little worth in the real world from an equity perspective remains. The problem of what Joseph Stiglitz calls “the phantom economy” , in other words, a false economy, is the result of the abandonment of financial regulations in favour of a wholly deregulated market – George W Bush’s supposed radical reforms. The role of the South African Reserve Bank in the critical period before the devaluation needs to be to be investigated, but is not all that surprising, since the Bank has continued to allow itself to be drawn in as a guarantor of last resort, even for debt that it does not own, propping up the system with tax-Rands.