Finance

The rand plummeted – and it was right

Dawie Roodt

The rand weakened significantly after an advisory panel found that President Cyril Ramaphosa may have violated the constitution following the theft of $580,000 at a farm he owns.

The scathing independent judicial report cast doubt over Ramaphosa’s version of events of the theft of cash at his Phala Phala farm.

Initial media reports suggested that he was set to resign despite saying he followed due process and denying that he broke the law.

However, the latest reports say that Ramaphosa’s political and business allies have convinced him to fight attempts to remove him from office.

When the judicial report hit the airways, the rand plummeted from R17.08 to R17.92 to the US Dollar. Since then, it has strengthened slightly to R17.61.

Efficient Group chief economist Dawie Roodt said the rand weakness was justified considering the political uncertainty.

“The financial markets are jittery at what is happening around Ramaphosa, and there are good reasons for that,” Roodt said.

South Africa is already struggling with poverty, high levels of unemployment, and social tension.

With this context in mind, there are two reasons the market reacted so significantly to the Phala Phala report.

  • The report and Ramaphosa potentially stepping down as president creates policy uncertainty which can affect the economy.
  • South Africa is on the brink of getting grey listed by the Financial Action Task Force, and the actions by Ramaphosa are exactly what the task force is concerned about.

“With these allegations around the president, the chances increase that South Africa will be grey listed,” Roodt said. “If the country is grey listed it will have a negative effect on the economy.”

He said it shows that the reaction by the markets, seen by the weakening of the rand, is justified and that South Africans should be concerned.

Although a resignation may be the right thing to do, Roodt said it is unlikely to calm the markets.

“Should Ramaphosa resign, it raises the question of who will take over from him. There are no candidates who will be viewed favourably by the financial markets,” he said.

“The best thing for the financial markets is for the president to stay. However, from a personal perspective, he should go.”

USD ZAR chart over 5 days

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