Lights out for the rand

Load-shedding has contributed 75% of the rand’s weakness since October 2022, when power cuts ramped up as Eskom’s operational performance deteriorated. 

Thus, the sharp reduction in power cuts over the past year and the optimism surrounding the Government of National Unity (GNU) should strengthen the local currency. 

This was revealed in the Discovery Invest Market Outlook report, which detailed the various trends the asset manager is watching in 2025. 

The report also outlined what drove stock market returns in 2024 and whether these factors are set to continue playing out or not. 

Discovery Invest CEO Kenny Rabson said that 2025 may prove pivotal for emerging markets and South Africa, particularly as a Trump presidency is set to test their resilience. 

“There are many emerging markets that look undervalued, and I agree with Ninety One that there is an abundance of bottom opportunities,” Rabson said. 

“However, against a mixed backdrop for emerging markets, for instance, due to vulnerabilities from President Donald Trump’s trade policy changes, country-specific granularity is key.”

South Africa may stand to benefit as the country’s diversified export partners and a relatively high level of self-reliance mean that it may avoid the worst effects of a global trade war. 

Furthermore, much of the country’s challenges are internal by nature and, thus, are not reliant on external factors to improve. Many of them can be fixed regardless of what happens elsewhere. 

Chief among these local challenges is load-shedding, which has acted as a permanent handbrake on the South African economy, Ninety One said. 

It has left consumers and businesses “idling in the parking lot of SA Inc”, the asset manager said. 

One measure of the damage caused is the local currency – a staggering 75% of the rand’s weakness since at least October 2022 can be attributed to load-shedding. 

This is shown in the graph below, courtesy of Discovery Invest and based upon data from Ninety One. 

Things are set to change in 2025 as load-shedding appears to have ended as a structural handbrake on the economy. 

This boost has been coupled with the formation of the GNU, which has resulted in vastly improved investor sentiment in South Africa. 

For 10 months, South Africa enjoyed an unusual but much-needed milestone – zero load-shedding – thanks to strong collaboration between the public and private sectors.

Renewable energy generation doubled to 20% of total capacity in just two years, narrowing the energy-driven discount on the rand and boosting economic confidence, Rabson said. 

With inflation moderating, further interest rate cuts on the horizon, and improvements in business and consumer confidence, South Africa seems to be on the recovery path.

“One policy the market will be paying attention to is Operation Vulindlela, an initiative to deliver on infrastructure delivery and growth. Expectations will now shift to tangible results,” Rabson said. 

“We think growth expectations may still be challenged, and we see the achievement of two years of 2% GDP growth being delayed but not denied.”  

Meanwhile, the favourable outlook for the rand, inflation, interest rates, and growth supports the South African bond market. 

“Income will remain an important driver of returns, with high yields offering investors the opportunity to earn returns well ahead of inflation”. 

While South Africa is in a far stronger position than it was a year ago, staying on this trajectory will depend on the stability of the GNU. 

The coalition has made strides, but differing policy priorities among its member parties could challenge decision-making and policy execution. 

To sustain momentum, the GNU must demonstrate unity and follow through on its commitments, ensuring that economic reforms and infrastructure investments translate into tangible growth.