Hidden threat to the South African rand

South Africa’s deteriorating logistics infrastructure, pressure from United States tariffs, and increased demand for imports have weakened the country’s terms of trade. 

While this weakening is not at crisis levels yet, South Africa’s current account balance is heading in the wrong direction. 

With the country’s current account deficit widening to just over 1% of GDP, pressure is beginning to mount on the rand. 

The local currency has enjoyed a strong 2025 against the dollar, with the greenback weakened by concerns over the United States’ financial health and greater uncertainty in American policy. 

While the rand has held up well so far this year, increasing attention should be paid towards South Africa’s weakening export performance, Stanlib chief economist Kevin Lings said. 

Lings explained that South Africa’s current account deficit is at an acceptable level at around 1% of GDP, but is trending in the wrong direction. 

“Overall, you would say that our trade balance is manageable, but is moving in the wrong direction,” Lings told The Business Show. 

Lings said the two main reasons for the country’s current account deficit widening are South Africa’s deteriorating logistics infrastructure and increased pressure on exports to the United States. 

“The infrastructure decline is just not helping us. The infrastructure to get commodities to whichever port we want to use is not functioning anywhere near as well as you want,” Lings said. 

The deteriorating infrastructure results in frequent breakdowns, delaying exports, and potential losses for both Transnet and companies who cannot get their products to market. 

“Then, if you look at our exports to the United States, they have been under pressure for a number of months, even before tariffs were imposed,” Lings said. 

Lings explained that US companies have generally held back on importing from South Africa over the past few months due to fears of a slowing economy and a breakdown in relations between the US and South Africa. 

“The combination is not good for us and so, we are seeing some deterioration in our trade balance,” Lings said. 

The rand

While South Africa’s current account deficit is not at a level of concern yet, it still has significant implications for the local economy and particularly the currency. 

The current account deficit gives a good idea of how much foreign exchange is moving in or out of a country, which is vital for the strength of a local currency. 

A current account deficit weakens a country’s currency by increasing its supply and foreign currency demand, leading to depreciation of a local currency, such as the rand. 

This happens because a deficit implies a country is spending more on foreign goods and services than it earns, requiring it to supply more of its own currency to pay for imports while receiving less foreign currency for exports. 

The increased supply of domestic currency and higher demand for foreign currency in the forex market drive the domestic currency’s value down.

“It is not putting us under enormous pressure as yet, because you can see the rand is holding on,” Lings said. 

“If it becomes a big problem, then you will see the rand normally weaken. The rand has not done that yet.” 

However, Lings said the country’s widening current account deficit is something South Africa needs to pay attention to. 

“We are managing, but it is something that we need to pay attention to because it can get quite a bit worse,” he said. 

What the country’s deteriorating current account indicates is that its infrastructure is beginning to fail, with significant consequences for South Africa. 

“The first major problem South Africa has currently is that we have messed up the infrastructure, like big time,” Lings said at the 2025 Morningstar Investment Conference. 

“I am not talking about potholes. I am talking about a proper decline in the quality of major infrastructure in South Africa, resulting in power outages and water shortages.”

Lings said infrastructure is the base of any economy, effectively enabling people and goods to flow and commerce to occur. 

“A lot of our stuff now is at risk of failure. There is only one A-rated piece of infrastructure in South Africa, which is the Gautrain. This means there are a lot of things that are broken,” Lings said. 

“There is quite a lot of stuff that is E-rated, including water and sanitation, various parts of our railways, and some of our roads.”

This effectively prevents the economy from experiencing any meaningful growth, as the basic resources needed for that cannot be supplied to businesses. 

“Here is the question: Can you grow the economy at 4%? Can you grow South Africa’s economy at 4%? Could we achieve that? No,” Lings said. 

“As you try and grow faster, at any rate, you will run out of things. You will run out of electricity. You will run out of water. Run out of rail capacity. Run out of port capacity.”