FDI expected to keep rand more stable

Foreign direct investment (FDI) is likely to keep the rand more stable in 2006, as it did in 2005, compared with previous years, economists surveyed by I-Net Bridge said.

The average annual forecast for 2006 is from R6 to R7 per dollar with a median forecast of R6,50. Economists do not expect the rand to trade outside a R5,50-to-R7,50 range.

In 2001, the rand traded between a best level of R7,46 per dollar and a worst level of R13,86. The range narrowed slightly to R8,55 to R12,66 in 2002 and R9,08 to R6,09 in 2003.

Last year, the range was from R7,58 to R6,59 with an average of R6,45, while this year so far, the range has been from R6,95 to R5,62 with an average of R6,35.

The trust shown in South Africa by large FDI by the likes of Barclays, Mittal, Tata and Vodafone should send out positive signals to the global investment community, Mark Mobius, who manages a $20-billion emerging-market equity fund for Franklin Templeton Investments, said.

“Investments of this size by such reputable investors draw attention to the country and further bolster investor confidence in South Africa,” Mobius said.

The positive outlook for FDI over the next five years in South Africa has been reinforced by the announcement that United Kingdom-based Vodafone Group plc is considering increasing its stake in South African-based cellphone operator Vodacom from 35% to 50% at the cost of about $2,4-billion or R16-billion, investment bank JP Morgan economist Marisa Fassler said.

“Although the timing of the deal is still uncertain, the announcement supports our view that direct investment inflows to South Africa should rise dramatically over the next five years, driven, in large part, by the improved growth prospects for the economy and the strong focus on fixed investment spending in the public and private sectors.

“The improving FDI trend has already been very evident this year, with the Barclays/Absa transaction expected to have boosted FDI inflows by about $5-billion in the third quarter,” Fassler said.

In the December 2004 survey, the rand’s forecast range for the 2005 year-end was from R5,50 to R8 per dollar with a median of R6,50, while for the 2006 year-end it was R6,30 to R8,50 with a median of R7.

UK-based Consensus Economics estimate the purchasing power parity of the rand at R6,55 per dollar, so on that basis the rand is fairly valued.

Its December 2005 survey of mostly overseas economists shows a range of R6,11 to R7,50 for December 2006 with a consensus forecast of R6,79.

The South African government’s policy is to achieve a stable competitive rand. — I-Net Bridge

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