Rand in freefall

This week, the rand fell to its worst level since April 2020 and has seen near-perpetual depreciation against the dollar.

Experts say the weak currency is largely attributable to South Africa’s continued load-shedding and the threat of a grid collapse.

The rand is currently the worst-performing emerging market currency. While other emerging markets like India are seeing currency gains, the rand has been stranded above R18/USD since the start of April.

Many experts argue that the rand should be trading at around R16.50 to the dollar. However, it has not been below R17/USD since mid-January 2023.

Head of markets research at RMB Isaah Mhlanga told The Money Show that this is a domestic concern that is being reflected in the currency.

He mentioned some global events affecting the rand’s value, like poor data coming from China and geopolitical tensions.

However, he said the biggest driver had been the bad sentiment surrounding Eskom and potential stage 8 and above load-shedding.

“It all has to do with load-shedding – stage 8 and fears of a potential grid collapse,” Mhlanga said.

While the possibility of a grid collapse remains an extreme scenario, every time the country switches from stage 4 to stage 6, it brings fears of a collapse which are reflected in the rand.

“It’s all sentiment-driven as far as the total collapse of the grid is concerned,” he said.

Despite being driven by sentiment, stage 6 load-shedding does real harm to the economy.

Mhlanga said many corporates could only operate up to stage 3 load-shedding – stage 4 means production has to be shut down.

Therefore, four hours of load-shedding implies only two hours of production daily. No production takes place on days with up to 11 hours of load-shedding.

This is a real threat to the economy and places sentiment firmly into negative territory, which reflects in the rand’s performance.

Sasfin Securities’ David Shapiro told Business Day TV that he is very concerned about the country’s structural problems and the impact of load-shedding. “It’s taking us down and doing enormous damage,” he said.

Shapiro pointed to the significant operational costs retailers like The Foschini Group incur to keep the lights on during load-shedding. 

This comes in addition to the customers they lose in that time, which Shapiro identifies as the “real problem” for these companies.

FNB Wealth and Investments’ Wayne McCurrie told Business Day TV that South Africans and investors should not panic about the rand’s recent performance.

“The rand is behaving like the rand – it does blow up on the bottom and the top. This is, unfortunately, normal behaviour for the rand,” he said.

Every time the rand has blown out in the past, it has come back and often to over-valued levels. 

In addition, he said the medium to longer-term outlook for the rand is promising.

US Dollar to South African Rand Exchange Rate in 2023