- South African Rand hits lowest point since late October, trading at 18.9 against the US dollar
- ESKOM, like its Zimbabwean counterpart ZESA, faces challenges of mismanagement and corruption, hindering sustainable solutions
- Unfavourable global metal prices further compound economic challenges
Harare- The South African rand reached its lowest point since late October, trading at 18.9 against the greenback. This sustained downward trend is attributed primarily to ongoing power outages, which are impacting the country's productivity, as well as unfavourable global metal prices.
The South African Rand was once a highly esteemed currency, renowned as the best-performing currency in the Southern African Development Community (SADC) and across the African continent. However, its prominence is gradually diminishing.
Similar to its counterpart ZESA in Zimbabwe, ESKOM in South Africa is also facing challenges stemming from inadequate management and corruption which is weighing on currency perfomance. These issues have hindered the implementation of sustainable solutions, such as the privatisation of the national grid to bring a long standing respite to the rand.
In 2021, the South African Rand reached a peak of 13 against the US dollar. However, over the course of two years, it has experienced a significant depreciation of more than 30%, currently standing at 18.95, which equates to 19 Rand per dollar.
This year, the Rand experienced an unprecedented decline, reaching an all-time high by surpassing the 20 mark against the US dollar. This performance represents one of the worst depreciations in the currency's history, mainly due to corruption and mismanagement.
These factors have placed the rand in a precarious position.
Currently, South Africa is facing a situation of severe power cuts, and the power utility ESKOM has indicated that these blackouts will continue throughout the festive season.
The nation is grappling with Stage 3 power blackouts, which are significantly impacting various sectors mainly manufacturing, services, and mining. These industries heavily rely on a stable supply of electricity.
Stage 3 load shedding typically involves shedding up to 3000 megawatts (MW) of electricity demand, which is equivalent to approximately 6% of the national load. During Stage 3, power cuts are more frequent and prolonged compared to lower stages, and they have a more significant impact on industries, businesses, and households.
Due to the combination of power cuts and a weaker Rand, South Africa recorded a trade deficit of ZAR 12.7 billion in October 2023. This outcome contradicted market expectations, which had anticipated a surplus of ZAR 9.1 billion.
The trade deficit followed a downwardly revised surplus of ZAR 12 billion in September. The power disrupted manufacturing and production activities, impacting the country's ability to export goods and contributing to the trade deficit, while the weaker Rand has made imports more expensive, further exacerbating the deficit.
The challenges faced by South Africa's economy are further compounded by the unfavourable global metal prices. The geo-fragmented global economy, characterized by political conflicts and trade wars, has contributed to the decline in metal prices.
South Africa, as one of the leading producers of Platinum Group Metals (PGMs), including platinum (ranked first globally), rhodium (trailing behind Russia), and palladium, is particularly affected.
Despite the World Platinum Investment Council's anticipation of a record deficit in the platinum market, the prices of platinum, palladium, and rhodium have experienced significant declines year on year.
Platinum is down by 8%, palladium by 48%, and rhodium by 69%. These declines can be attributed to several factors, including the spike in interest rates by major economies, which has dampened global economic activity.
The increase in interest rates has led to a slowdown in economic growth worldwide, impacting the demand for commodities.
Weaker commodity prices, combined with recurrent power shortages and a weaker rand, have resulted in a downward projection for South Africa's economy.
The projection suggests a decline of 0.9% this year and an additional 1.8% next year, compared to a growth rate of 1.9% in 2022.
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