The rand has lost 41% of its value under Cyril Ramaphosa’s presidency which is equivalent to an annualised compounded decline of 10%.
When Ramaphosa defeated Nkosazana Dlamini-Zuma in the fight for ANC president on 18 December 2017, there was widespread hope of a new dawn.
Business leaders were optimistic about a future with solid economic policy, good governance, and a clampdown on corruption.
There were high hopes among all sectors of society that the damage under Zuma would be reversed and that the country would be put on a growth path.
The optimism could be seen in the strength of the rand. The local currency strengthened from R14.47 against the US dollar in November 2017 to R11.55 after Ramaphosa became president.
Affectionately known as Ramaphoria, the president was widely hailed as the man who would put the country back on track.
However, as the months and years passed without any notable improvement, people started to realise their trust was misplaced.
Sygnia founder and CEO Magda Wierzycka described it well. “Instead of economic growth and good governance, the country just started spiralling downwards. I call it State Capture 2.0.”
The country now faces record levels of unemployment, daily power cuts, infrastructure collapse, a crime wave, and a total collapse of municipal services.
Instead of aggressively addressing these problems, Ramaphosa continued his inaction which caused these problems in the first place.
The effect of the poor government is clearly seen in the rand’s collapse. Over the last two years, the rand weakened from R13.43/USD to over R19.70/USD.
South Africa’s FATF greylisting and its stance on Russia were partly behind the most recent weakening, which pushed the rand to a record low.
When the South African Reserve Bank, which is tasked with protecting the currency, tried to act with an interest rate hike, the situation got even worse.
After the 50 basis point interest rate increase on Thursday, the currency weakened to R19.83 to the greenback.
The large drop in rand strength was unexpected. Usually, when interest rates within a country increase, it strengthens the currency.
If interest rates are higher than foreign economies, it typically attracts offshore investments, positively impacting local exchange rates.
This time it was different. Efficient Group chief economist Dawie Roodt pointed to two possible explanations for the weakening of the rand.
The first explanation points to SARB governor Lesetja Kganyago, who expressed concern for the country at Thursday’s Monetary Policy Committee (MPC) meeting.
Kganyago’s concern could have “spooked” the markets, as he said there are likely to be more upside risks to inflation in the coming months.
The second explanation is that the financial markets “are simply not believing the Reserve Bank anymore” and do not believe that the SARB can lower inflation.
Mark du Toit from Oyster Catcher said the rand weakening on the interest rate increase signals real concern for growth in South Africa.
He added that large economies such as the US are divesting from South Africa, which further impacts the exchange rate.
Many South Africans are moving their money out of the country to protect themselves against the ever-weakening rand.
Without an end to load-shedding and creating a business-friendly environment, the country remains unattractive to foreign investors.
Rand weakness under President Cyril Ramaphosa
Since Cyril Ramaphosa took over as president in February 2018, the currency has lost 41% of its value, equivalent to an annualised compounded decline of 10%.