The rand has come in for a beating over the past few years, mainly because of the political and economic situation in the country. Pundits are hopeful that the rand will strengthen further, but these days, who knows what’s happening with the rand? It just keeps seeming to remain weak, like a sick patient not responding to medicine.
But is the right medicine being applied? We all know what that medicine should be: an economic plan, inflation kept in check, robust, refurbished infrastructure, less political interference, and something being done to stop the corruption and looting of public funds.
Going around the country, so many municipalities have been looted. It may sound like an exaggeration, but closer examination will show the extent to which public organisations, such as municipalities, have been hollowed out. Johannesburg is a disaster.
Then there’s the credibility question: international ratings agencies have long been concerned about governance and have downgraded South Africa over the years.
However, the rand also has other factors underlying its weakness and its sudden glimmers of strength. So let’s look at those fundamentals.
The rand isn’t just about South Africa
The rand is unusually sensitive to global risk appetite. It’s actively traded, so investors use it to express views on emerging markets, not just South Africa. When global sentiment improves, capital flows into emerging markets and the rand gains; when risk aversion rises, it falls. Recent support has come from a softer US dollar and firmer gold — helpful for a major mineral exporter — but neither signals domestic reform.
Domestic strengths — limited but real
- Monetary credibility: The Reserve Bank’s independence and inflation-targeting attract confidence.
- Deep markets: The JSE, local bond market and large pension funds provide liquidity.
- Fiscal progress: A 2026 sovereign-rating upgrade and a reduced 2026/27 borrowing requirement (R380bn, down from R434.3bn) show fiscal consolidation.
The constraints
Debt is high (near 79% of GDP) and debt servicing consumes about 18% of revenue. Growth is sluggish — Treasury projects 1.6% in 2026, rising to roughly 2% by 2028. Infrastructure failures (rail, ports, electricity) and municipal collapse add costs and deter investment — Johannesburg’s recent R5.25bn payment to Eskom is a stark example.
Why volatility persists
Global flows and a weak dollar can lift the rand; domestic weakness drags it down. The result: a currency that can look healthy without signalling real economic recovery.
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