Warning that the rand can weaken to R50/US Dollar in a worst-case scenario

Renowned political economist Frans Cronje warned that the rand could weaken to R50 to the US dollar if the wrong leader steers South Africa into a doomsday scenario.

He shared his view about South Africa’s political and economic landscape during a Biznews Podcast with Alec Hogg.

Cronje said that the government of national unity (GNU) held South Africa in a position from which the country could still recover.

From this position, the country still has the potential to become a thriving and successful emerging market.

However, the alternative, a coalition government with the ANC, EFF, and MK in power, would have created a much more dire situation.

“One day after that election, they would have driven National Health Insurance (NHI) very hard and moved on to expropriation without compensation,” he said.

He said that such a coalition would have significantly weakened the rand, and the interest rate picture would have been very different.

“The bond market would have been repriced for the relative degree of risk, which means that debt and the deficit would be escalating quickly,” he said.

“South Africa would be in a steep downward spiral from which the prospects for recovery would slim.”

Cronje said that the government of national unity, where the DA is the ANC’s main coalition partner, prevented this scenario.

However, it is not entirely off the table. He pointed to the looming 2027 ANC Elective Conference, where President Cyril Ramaphosa’s successor will be chosen.

He sketched a scenario where Paul Mashatile is selected as the new ANC President, who then brings the EFF and MK into the government.

They will likely pursue NHI and expropriation without compensation, which, in turn, will cause significant economic damage.

“Immediately, you’ll see the currency come off, the bond market will weaken, and the debt curve will start to climb,” he said.

He said that in this scenario, the rand can weaken to R50 or even R100 to the US Dollar over three or four years.

One group of South Africans would still do well

Cronje said that in the scenario where Paul Mashatile is elected President and does his worst, the country can slip into recession.

The currency can also weaken significantly. “The rand can go anywhere, like R50 to the US Dollar within 3 to 4 years, or even R100.”

However, even in this doomsday scenario, he said that South Africa’s elite middle class will likely withstand it well.

This is because they are uniquely insulated from the fallout, having become government-proof over the years.

He explained that as state infrastructure collapsed, private citizens substituted it with private services. Good examples are transport and electricity.

As the railways collapsed, road freight stepped in to transport goods. There was also rapid growth in rooftop solar when load shedding increased.

Self-sustaining enclaves, which include residential security estates and well-run towns, thrive precisely because the state is failing.

“These enclaves across South Africa are going to be as strong as the state is weak to an infinite degree,” Cronje said.

“If the state’s a little bit weak, then you might have your own solar power. If the state collapses into anarchy, you will be infinitely strong, and you’ll withstand that,” he said.

Cronje said that these enclaves will ensure South Africa retains its entrepreneurial skills, capital, and tax base through a difficult decade.

“Therefore, for the elite middle classes, there is no long-term downside to South Africa anymore. It’s the first time in the country’s history that that’s true.”