The fall of the rand: Zuma’s big idea

From talking up South Africa to international investors and trying to keep the mining sector calm in the build up, to what will undoubtedly be contentious wage negotiations, President Jacob Zuma and his ministers are softly trying to inspire investor confidence in their public statements and appearances. But will the markets listen to them?

Last week, government announced that the country's gross domestic product (GDP) growth rate for the first quarter of 2013 was a measly 0.9 %. Then the rand plunged to a four-year low of R10 to the dollar. This was immediately followed by the news that the country's current account deficit was wider than expected as imports exceeded exports.

Zuma moved to ease concerns, announcing on Thursday that various plans were in place to mitigate the fall-out, especially in the fractious mining sector, which Zuma pointed to as the heart of the country's economy. The manufacturing sector is contracting, and official unemployment figures released in May indicate further job losses.

The World Bank also lowered its growth forecasts for South Africa for the remainder of 2013.

By Friday, Zuma's words did little to assure investors and the rand remained shaky. He was also heavily criticised for failing to announce concrete interventions in any sectors.

'Somewhat exaggerated' fall
South African Reserve Bank deputy governor Daniel Mminele was among the first to try to ease investor sentiment. He told bankers in Pretoria last week that the rand's fall had been "somewhat exaggerated".

He said the rand's plunge indicated "growing sensitivity to domestic factors such as concerns about the funding of a wider current-account deficit, as well as broader socio-economic issues illustrated by increasingly violent labour conflicts in the mining and other sectors".

Then, in an interview with the Sunday Times, Finance Minister Pravin Gordhan said he believed the rand had been oversold and would recover. He said government wanted to "work collectively" to stabilise the mining sector.

Gordhan also defended Zuma and denied any links between Zuma's press conference and the rand's fall that followed it.

"The weakness of the currency has got nothing to do with the statement made by President Zuma, who was reassuring the public that, as government, we understand the importance of the mining sector," Gordhan said.

Part of Gordhan's role would be to use every opportunity to restore investor confidence, Zuma said. Last Tuesday, treasury announced the promulgation of the Financial Markets Act. The Act was designed to prevent market abuses like insider trading and was due to come into effect this week.

The announcement gave the treasury the opportunity to talk about market stability and investor confidence. The treasury said: "The Act seeks to ensure that financial markets in South Africa operate fairly, efficiently and transparently to promote investor confidence."

Plan of action
Democratic Alliance parliamentary leader Lindiwe Mazibuko called for a special convening of Parliament to discuss ways to revive the economy.

Mazibuko said Zuma's announcements were "vague" and that decisive policy decisions were needed to stimulate higher growth. Among others, Mazibuko said Zuma should have announced:

  • * "Immediate changes to the 'winner-takes-all' labour relations framework that have heightened tensions between competing unions and caused more strikes in the mining sector;
  • * "The appointment of a new, capable and permanent head of the [Special Investigations Unit] and [national director of public prosecutions] to bolster the independence of the judiciary and our country's fight against corruption;
  • * "That accountability would be enforced in his Cabinet and non-performance would be met with removal;
  • * "That all red-tape that is limiting the growth of small businesses would be cut as a matter of urgency, and furthermore, provide guarantees that the Business Licensing Bill would not return to Parliament with any of its problematic components … "

Assistance from government
Zuma said he had asked Deputy President Kgalema Motlanthe to push for talks with labour and mining companies.

"In this regard, last week, I asked Deputy President Kgalema Motlanthe to lead the interactions with labour and the mining companies, assisted by the ministers of finance, labour and mineral resources.

"A series of interactions have taken place during the past week and these have been fruitful. The parties have appreciated the intervention and assistance from government," he said.

Labour Minister Mildred Olifant's task is especially prudent. Official figures released by Statistics South Africa early in May showed the country's official unemployment rate rose in the first quarter of 2013 to 25.2%.

About 4.6-million people were looking for work in the first quarter of 2013.

Meanwhile, Zuma said Mineral Resources Minister Susan Shabangu would "continue with her task of supporting the industry in both policy and operational aspects to promote certainty and stability in the sector".

'Narrow interests noted'
On Tuesday, Shabangu cracked a nod from the gold industry when she called for calm and confidence to be restored in the sector. She was giving her budget vote address in Parliament.

Dr Elize Strydom, chief labour negotiator for the South African Chamber of Mines, said Shabangu's comments that union leaders should avoid pursuing "narrow interests" during wage negotiations, were "noted".

"If there was ever a time for all parties to put aside factional differences and negotiate with the nation's greater good in mind, it is now."

For now, it seems unlikely that interest rates will be cut, meaning respite for consumers is unlikely to come soon.

Kamilla Kaplan, from Investec Group Economics, said the South African Reserve Bank is unlikely to reduce interest rates in spite of the gloomy economic outlook.

"Already there has been a rapid depreciation in the rand and foreign investor confidence towards the South African economy has weakened," Kaplan said.

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Sarah Evans
Sarah Evans

Sarah Evans interned at the Diamond Fields Advertiser in Kimberley for three years before completing an internship at the Mail & Guardian Centre for Investigative Journalism (amaBhungane). She went on to work as a Mail & Guardian news reporter with areas of interest including crime, law, governance and the nexus between business and politics. 

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