South Africa’s rand experienced the worst start of the year in over a decade, making it one of the poorest-performing currencies in the world.
The rand weakened from R17.00 to the US Dollar on 1 January to R18.28 on 17 February, which means it lost 7% of its value in six weeks.
There are many reasons for the weaker local currency, including a stronger greenback and South Africa’s structural economic problems.
The recent US jobs report, which pointed to a strong-than-expected labour market, supported the US Dollar.
The robust US labour market may point to prolonged high inflation and interest rates in the United States, which strengthened the US Dollar.
On the local front, significant economic headwinds caused by load-shedding, failing infrastructure, and policy uncertainty weighed on the rand.
President Cyril Ramaphosa’s response to South Africa’s energy crisis did little to convince economists that matters are under control.
Instead of making tough choices, like an immediate opening of the grid and encouraging private power producers to invest in new power plants, he appointed a new energy minister.
During the debate on the state of the nation address, many political party leaders raised concerns regarding the appointment of an additional energy minister.
Their concerns include the increased complexity in an already inefficient environment devoid of quick decision-making.
Others highlighted that there are enough ministers overseeing energy production and that another minister would not solve the energy crisis.
Ramaphosa defended his decision, saying ending load-shedding needed urgent action, which is why he is appointing a minister in the presidency and why a national state of disaster has been declared.
His response did not convince offshore investors, and the rand weakened significantly relative to all major currencies.
Comparing the weakening of the rand to previous starts to a year revealed that it performed the worst since 2011.
Rand’s performance YTD since 2011
Rand’s performance against the US Dollar in 2023