Sep 10 2008

The story about Zuma, uncertainty and the rand

Published by at 3:39 pm under Opinion,South Africa

First published on my old blog on 28/11/2007. 

The rand is falling and it is quite understandable why. Since last weekend it is clear that SA’s new president will most likely be Jacob Zuma, the guy who told the court he thought one could protect oneself against Aids by taking a shower after you’ve had sex. But, his ideas on Aids are not why the rand is falling. 

The rand is falling partly because the world financial markets are nervous and have been positioning themselves for a downward move for a while now. (Because of the huge amounts invested in the JSE by foreign portfolio managers, the rand is now extremely vulnerable to international market movements and will take a big dip when (if) these markets lose their footing.) 

But, I believe there is also a lot of Zuma in the recent decline of the rand from R9,70 to the Euro to the current R10,38 to the Euro level. For the simple reason that no-one has a clue about the kind of economic policies this guy will go for when he’s the boss. 

In fact, never in the short history of the new SA has there been such a gap in knowledge about the government’s thinking on economic policy than now. 

Of course, I don’t read everything published in SA, but as far as I can make out, the mainstream media also don’t ask these questions. Why they don’t, I don’t know. All the international markets get from SA is…silence. 

And, of course, the constant stream of reports on crime. Such as the murder of the Austrian soccer player last weekend – on the same weekend the eyes of the world were fixed on SA, because of the draw for the 2010 World Cup preliminaries. 

Murders are nothing special in SA. But, murders are not all alike. Some come and go, others have the power to cause a hellavalot of damage to country and economy. This murder made the headlines in the German press last Sunday – ahead of the news which countries Germany will face in the play-offs. The TV report (main story on prime-time national news) of the crime situation in SA, sent a very negative message to Germans. As murders go, this was a very “unfortunate one” for SA. 

This could also have played a role in the rand’s drop on the first two days of trade since then, but the main reason (in my estimation) still is the Zuma factor. More specifically, the uncertainty factor….the fact that no-one knows what Zuma’s views about the economy are. And what role Cosatu will play in future economic policy. 

To me it feels like we’re back in 1996, in the months before the government under Mandela published the GEAR policy document, which spellt the government’s economic policy out. Then uncertainty was also the big word. Until the GEAR document came. Which infuriated Cosatu, but brought certainty and calm to the markets. 

But, this time around it’s just a little scarier than in 1996. Then there was still Mandela. Now there is just the little man Zuma. And the outlook that Cosatu might be the big policymaker of the future. 

It’s always a stupid thing to forecast exchange rates. But, I’m going to do it anyway. And say: The rand has a good chance of dropping through R12 to the Euro in the days after Zuma’s election. Where will it stabilize? The new level going forward will probably be between R11 and R12. Stronger than R11 against the Euro it’s not likely to go again. 

The SA media could help avoid a depreciation of this proportions by writing about Zuma’s economic ideas, how economic policies might change after Mbeki, what Cosatu wants and what the future role of trade unions might be in the Zuma era. 

Let’s hold thumbs for articles of that kind….and (probably more important) let’s pray that Trevor Manuel doesn’t decide soon to pack it in. Because then the rand will be in real shit.

And then there’s the story of the frail Mandela….and the rand. 

But, let’s rather not go there.

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