The rand has taken a steep dive against the dollar, the pound and the euro since finance minister Enoch Godongwana presented his budget on Wednesday. At close of business on Friday, our currency was worth R19.30 to the dollar, R20.80 to the euro and R24.45 against the pound — levels last seen in 2015 when then president Jacob Zuma and the Gupta family tried to install Des van Rooyen as finance minister.
This time it’s harder to say why, though the standout feature of the budget saw the government access the Reserve Bank’s foreign currency savings for the first time since 1994. It will take R150bn from an obscure account called the Gold and Foreign Exchange Contingency Reserve Account (GFECRA) which houses the unrealised profits (or losses) on South Africa’s gold and foreign exchange reserves.
The account makes money only when the rand falls in value, which it has been doing since Jacob Zuma became president in 2009. And it means that the further falls in the rand since the budget will further bolster the account.
Sadly, I fear, the ANC will get the majority it needs in May to drive a stake deeper through our economic heart for another five years
This is economics standing on its head. The “profit” of the GFECRA doesn’t exist. The only way to make money out of this failure of the rand is by either selling the foreign currencies we have themselves or by printing money to the value of the account. The “profit” stood at about R507bn on Wednesday. It will be sizeably bigger today as the rand has since weakened significantly.
Had the decline in the rand been planned it would have been one thing. Governments around the world often try to manage down the value of their currencies to make their exports more competitive. That hasn’t happened here and our export performance has remained poor despite the rand weakness. We are simply being judged as an investment destination — if you’re a British business thinking about investing here for export you would have to plan on fabulously low South African production costs to make your investment look good in pounds back home.
The best way to measure investment performance is to track President Cyril Ramaphosa’s investment target of R1.2-trillion from 2019 to last year — he made the target easily but, in fact, it represented only about 13% of fixed capital formation against the 25% or more of GDP targeted by more ambitious economies. The latest figures from 2022 would be 30% in Algeria, 29% in Indonesia, 26% in Japan, 24% in Botswana and 24% in France. We languish alongside the 13% in Eritrea and 14% in Greece.
We simply do not seem to get it right, and our huge unemployment numbers, the highest in the world, are testament to a ferocious mix of poor policy, poor management across the board, rampant corruption and excessive crime. The poor policy is the ANC’s choosing — it is fixated on trying to emulate the old Afrikaner nationalist siege economy policies of industrialisation and import substitution. But the Nats lived in a world which had rightly spurned them for their apartheid policy. We live in a world that was once open to us to an almost impossible degree and we have simply squandered the opportunities we once had.
People don’t invest much here anymore because they are not welcome. Our big investors are from the West. Just this past week ANC secretary-general Fikile Mbalula was in Russia swearing eternal fealty to President Vladimir Putin as his most feared critic, Alexei Navalny, died mysteriously (or not) in prison. “We, South Africa, stand with Russia as our friend and we make no apologies for that ... We will never abandon you,” Mbalula told an audience in Moscow.
Daily Maverick reported he said South Africa was ready to sacrifice its relationships with other friends for the sake of its friendship with Russia. When questioned about Mbalula, Ramaphosa responded that South Africans should “relax”. Thanks but no thanks. Swiping nonexistent money from the GFECRA allowed Godongwana to fully fund an unbudgeted pay rise given to the unions in 2023 and to keep up politically vital welfare payments to millions of the poor. When that money is spent the next pot of gold will be a wealth tax.
The ANC is simply incapable of running a modern economy, let alone a business and sadly, I fear, it will get the majority it needs in May to drive a stake deeper through our economic heart for another five years.
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