- The Rand reached a peak of 18.7 against USD from a low of 20
- The performance was anchored by strong GDP stats, despite a recurring grid failure
- However, Rand’s performance poses a double-edged sword effect to Zimbabwe
Harare- After weeks of recording mixed performances hugely dominated by depreciations since the Pretoria-Kremlin’s arms support saga, the Rand edged high on the 12th of June 2023 after trading at 18.7 against the United States dollar, surpassing an all-time high of 18.8 reached during the early trades of May.
The rand deviated from an all-time low of 19.9 and 20 against the greenback traded during the first week of June, despite record power cuts and extended blackouts in the outlook.
Rand’s performance was sparred by the country’s latest GDP figures where South Africa avoided a recession in the first quarter. However, it is worth noting that South Africa's economic growth slowed sharply to 0.2% year-on-year in the first quarter of 2023, down from a downwardly revised 0.8% in the previous three-month period.
This was the weakest pace of expansion since a contraction was recorded in the first quarter of 2021.
The biggest elephant in the room, suppressing the Rand’s performance remains the grid failure and lately, the country’s alignment with Russia. Investors are scared that given that South Africa fails to arrest Putin in August’s BRICS summit, the West (EU and USA), South Africa’s biggest trading partners will impose sanctions on the latter, putting the economic viability in question.
One of the immediate solutions to shy blackouts in South Africa is to auction off power plants to private companies and allow them to compete to offer power. A profit motive (though tariffs will be high) would result in better performance. However, privatising power plants seem to be unpopular as the government is not willing to do so.
Privatisation would lower the high levels of corruption currently haunting the South African energy sector according to the Zondo Commission’s reports.
Eskom has 45,000 megawatts of baseload in coal, enough to run the country, but power plants are poorly run and maintained due to corruption and mismanagement of funds.
How will this affect Zimbabwe?
South Africa is Zimbabwe’s best trading partner, with Zimbabwe importing over 50% of goods and services from South Africa. With the 11th of May’s 2023 decree which removed taxes and duties from 11 basic commodities, a rapidly depreciating Rand means Zimbabweans can import more using their US dollars.
This will flood more South African goods into the market, leading to competitive prices, thus, cheaper products.
This, however, has also a damaging effect as it will affect local producers through a glut of cheap foreign goods.
However, a depreciating rand also means it will be difficult for people in the diaspora to send more money home. A depreciating rand means buying a single greenback will require more rands, hence, remittance contribution from South Africa will decline.
This will affect Zimbabwe at a macroeconomic level as low remittances mean low foreign currency in circulation. In turn, the volatility of the exchange rate, given that Zimbabwe is not producing enough for exports will continue to spike.
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