How elections impact the rand 

The uncertainty surrounding South Africa’s national elections tends to negatively impact the country’s currency. However, it is often not the dominant driver of rand strength or weakness, but rather only one force among many. 

This is feedback from Debra Slabber, portfolio specialist director at Morningstar South Africa, who collected data showing the rand’s performance during election years going back to 1966. 

Slabber said 2024 is a big year for elections, with more than half of the world’s population heading to the polls. 

This has resulted in investor uncertainty, with many waiting for the election outcomes to be known before investing their money. 

In South Africa, this compounds the already significant negative sentiment surrounding the country regarding its economic performance, poor governance, and collapsing service delivery. 

Sentiment towards the ruling party has been falling and some polls predict that the election will see the ANC lose its majority. 

This may require the ruling party to form a coalition government for the first time since 1994, potentially resulting in slow decision-making and political instability.

This could be a headwind for a country looking to improve its economic prospects and negatively impact the rand. 

The table below shows the performance of the rand during election years from 1966 until 2019, with no obvious pattern apparent according to Slabber.

Election year	Rand performance
1966	0%
1970	0%
1974	3%
1977	0%
1981	28%
1984	63%
1987	-11%
1989	8%
1994	4%
1999	5%
2004	-15%
2009	-22%
2014	9%
2019	-3%

Research from Oxford Economics indicates that a left-wing coalition between the ANC and the EFF could have disastrous effects on the country’s economy. 

The first economic effect of the news that the ANC and EFF are forming a coalition government will be felt through asset prices.  

As soon as the news comes out that the ANC and the EFF have agreed to combine in government, there is a selloff of the rand in currency markets.

The rand/dollar exchange rate will weaken in the second quarter of 2024 and briefly breach the R21.50/USD level in the third quarter. 

While the rand will recover slightly from the overselling, it will remain lower than in the baseline scenario over the forecast period.

This fear may be overblown, with the country’s largest asset manager, Ninety One, saying the probability of an ANC-EFF coalition is actually far lower than many investors anticipate. 

However, even if this ‘doomsday coalition’ does not materialise, the rand will remain on a knife’s edge and highly sensitive to domestic or global shocks. 

This is feedback from TreasuryONE’s senior currency dealer, Andre Botha, who told Daily Investor that the rand has actually started to appreciate since mid-April.

He said this strength has been counterintuitive given that South Africa is heading for the most important elections in recent memory. 

He explained that much of this has to do with some of the rand’s risk premium being unwound due to some state-owned enterprise failures being corrected or alleviated with the private sector’s help. 

For example, a recent milestone has been 50 days without load-shedding in South Africa. This was achieved because Eskom’s performance has improved, demand has been lower, and renewables have become widespread.

Botha said it is important to remember that the rand has been undervalued for the better part of two years. Therefore, any good news about South Africa can be seen as a boon to the rand. 

However, he warned that this undervaluation still remains as not everything that has been priced in the rand will be fixed overnight. 

In addition, the realisation that the elections could avoid a hard swing towards the extremes of the political spectrum and that some of the risks priced into SA markets can now be unwound.