Increased rates of interest, no development

The current dispute often called #LadyRussiaGate between South Africa and america over claims from the U.S. Ambassador to South Africa that South Africa had equipped weapons and ammunition to the Russian authorities would hurt South Africa’s financial system. That’s in keeping with Environment friendly Group Economist Dawie Roodt who anticipated some restoration within the Rand’s worth, however he advised Biznews that the foreign money would stay weak, leading to inflationary stress. Roodt stated {that a} fifty base level hike in rates of interest in response to the state of affairs is probably going and that the South African financial system might be not going to develop this 12 months. – Linda van Tilburg 

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Dawie Roodt on arms-to-Russia
Dawie Roodt

Weaker rand unlikely to get better to earlier ranges 

What’s attention-grabbing concerning the South African foreign money is each time there’s some kind of disaster, or a unfavourable factor occurring, then you definitely see a sudden weak point within the foreign money. The rand actually bombs out, precisely what we noticed the final two days or so after which after some time, it does appear to quiet down slightly bit and the rand turns into regularly just a bit bit stronger and I believe that’s what we’re going to see once more. So, I gained’t be stunned if we see extra volatility over the following couple of days after which the rand stabilising and regularly appreciating slightly bit to 18.5 perhaps even higher than R18 to the US greenback. 

Relying on what politicians are going to say or do over the following couple of days or even weeks will decide whether or not we are going to see the foreign money remaining at these very weak ranges or regularly drifting a bit stronger. However I don’t anticipate the foreign money to return to R16 or R17 to the US greenback, that’s fairly unlikely. 

Learn extra: Rand hits all-time low of R19.27/$ after US says SA is supplying arms to Russia.

Increased inflation, one other rate of interest hike, South Africans are poorer 

The implications of this clearly can be that it is going to be inflationary. It implies that we as South Africans are poorer as a result of the rand is principally the share worth of South Africa. It implies that the Reserve Financial institution is prone to enhance rates of interest once more. Beforehand, I assumed we might have been on the finish of the rising cycle in rates of interest or that they [The South African Reserve Bank} were going to go for 25 basis points. I’m afraid I think they’re now going to go for the 50-basis points increase and that in itself will be bad for economic growth as well. So, I’m afraid we are in for some really, really difficult times for South Africa. 

Read more: Cyril’s Rubicon? RW Johnson on arms-to-Russia torpedo for SA’s motor industry, AGOA, ARV supplies.

South African economy is probably not going to grow at all this year

If South Africa is excluded from AGOA, it will be bad for us. Total trade with the US is in excess of R400 billion. We are currently running a trade surplus with the Americans. So it’s going to affect us much more than the Americans. We’re going to be the big losers here. But it doesn’t mean that we’re going to stop trading with America. So, we will continue to trade with the Americans but  it’s going to become more expensive. It’s going to become more difficult to trade with the Americans and it certainly will impact the economy. But we are not talking about one or 2% negative economic growth. We are probably talking about small percentages like 0.1%, 0.2%, to point 0.3% negative effect on the South African growth potential. But having said that, we can’t lose anything because the South African economy is probably not going to grow at all this year. We could be in an annual recession, we could be in a so-called technical recession already. We have exceptionally high levels of unemployment and poverty and everything that goes with that, and we can’t lose anything. So although the impact is not necessarily going to be that large on the South African economy, every time we shoot ourselves in the foot, it  is bad for the economy and this is another example of that. 

Read more: SA a failing state on the cusp, stirring analysis from Dr Edward Mienie

West is just more important in terms of size as trading partners 

Look at the numbers. It is true that China is a significant trading partner of South Africa, the biggest trading partner of South Africa, but China is significantly smaller compared to the United States and Europe. Those are far more important trading partners combined than China. Russia is a tiny trading partner to South Africa. Russian trade with South Africa is about $2 billion or so, significantly less than the United States as an example. When it comes to investments, the Europeans and Americans are much, much bigger investors in South Africa than the Chinese. So I’m not suggesting that the Chinese and the other countries are not important. Everybody’s important. But in terms of size, the Europeans and Americans are just far more important to South Africa from an economic point of view.

Investors could increasingly turn to other African countries

Many of the other African countries are going out of their way to make life as easy as possible for foreigners to invest.South Africa is still a very attractive investment destination. We’ve got an amazing, well-developed capital markets and financial markets, it is well regulated, very liquid and all of that. But the other African countries are catching up with us as well, and I think the other African countries are eating our lunch in many instances. If our political politicians don’t pull up their socks, South Africa will keep on losing relatively to the rest of Africa. 

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