Double blow for the rand 

The rand has been largely buffetted by external forces so far in 2025, with US trade policy and aid removal playing a major role in weakening the currency. 

However, local factors cannot be discounted as tension within the Government of National Unity (GNU) and a decade of poor economic performance weigh on the currency. 

This is feedback from Standard Bank chief economist Goolam Ballim, who outlined his macroeconomic projections at the bank’s Economy 2025 presentation. 

The rand has been on a rollercoaster ride over the past twelve months, with 2024 being dominated by South Africa’s national elections in May and the US Presidential election in November. 

These two events proved to be the main driving factors of the rand’s performance, albeit in different ways. 

The formation of the GNU after the local national elections significantly strengthened the rand versus the dollar. 

Some analysts dismissed this as a relief rally due to the removal of political uncertainty in the buildup to the election and the avoidance of a ‘Doomsday Coalition’. 

However, Ballim said the optimism was sustained beyond the point of relief and continues to bolster the rand at the beginning of 2025. 

The currency ended 2024 as the best-performing emerging market currency versus the dollar and has held its own. 

This is despite the rand weakening on the back of Donald Trump’s victory in the US election in November 2024, with his stated trade policies resulting in investors flocking to the dollar. 

Trump’s victory has proven to be the high watermark point for the rand, after which it has steadily declined compared to the strengthening dollar.

Since November 2024, capital has flooded into the US as investors view it as a safe haven amid elevated geopolitical instability and many think Trump’s policies will boost the dollar in the short term. 

One thing that is clear amid the uncertainty, Ballim said, is that the US remains the preeminent global economic power and will continue to attract excess global capital. This will strengthen the dollar further versus most currencies in the first half of 2025. 

In 2025, the driving forces behind the rand’s value have shifted somewhat as local factors have become increasingly prominent, Ballim said. 

While much focus has been on the news coming out of the US, the heightened tension among GNU partners has also contributed to rand weakness.

The crossing of two of the Democratic Alliance’s (DA) redlines in the BELA Bill, and the implementation of the NHI have not gone unnoticed. 

The stability and survival of the GNU are central to the ongoing positivity surrounding South Africa and the ongoing optimism in local financial markets. 

The coalition is perhaps stronger than it appears from the outside since the parties need each other and find the alternative populist scenarios unappealing, though for differing reasons. 

However, they must also maintain individual identities and keep their internal audiences onside.

Overall, the incentives for the GNU to stay together are very strong as it has garnered widespread public support. 

Data from Standard Bank indicates that around 60% of South Africans believe the GNU is working well and has had a net positive impact on the country. 

Crucially, there are also selfish reasons for the parties to remain in the GNU as, since its formation, support for its member parties has improved. 

Furthermore, as South Africa is the G20 host this year, all parties involved will avoid global embarrassment over petty political infighting.

However, betting on politics is extremely risky, and it is very difficult to make investment decisions based on political change.

Investors also have a much longer time horizon and will be eyeing the upcoming end of Ramaphosa’s second term at the head of the ANC in 2027 with worry. 

There is great uncertainty about who could replace Ramaphosa as the party’s leader, and the main question will be if his successor will keep the ANC in the GNU or find a way out.