/ 21 October 2015

Rand falls nearly 2% after student chaos

The rand fell sharply to R13.52 against the dollar as chaos erupted outside Parliament, where Finance Minister Nhlanhla Nene was delivering his medium-term budget policy statement.

The rand was trading almost 2% down from R13.27 before students and the Economic Freedom Fighters (EFF) attempted to disrupt the minister’s speech in Parliament. Nene managed to deliver his speech almost an hour later.

The rand also traded weaker against the euro at R15.34 and the pound at R20.88.

Independent treasury specialist to corporates Adam Phillips of Umkhulu Consulting said: “Firstly, the bounce down to R13.00 was too quick and there was not enough good news to keep it down there.

“We have filled back in some gaps very quickly on the back of concerns that a US hike might still happen in December. Chinese growth is still a concern and I don’t think from a sentiment perspective that the student fee protesting and EFF causing problems helps either. “Rating agencies will now comment on Nene’s speech. The one to watch is Fitch.”

Phillips said the rand-dollar exchange rate might be near the short-term top, but it remains volatile.

Nene emphasised throughout his speech that without economic growth, revenue cannot increase and without revenue growth, expenditure cannot increase.

South Africa needs more foreign direct investment to help boost economic growth and for this to happen, it needs to nurture trust internally before it can regain the trust of the outside world, said reputation management expert Solly Moeng.

He was referring to the need to protect the public protector and other democratic institutions and said that by gaining this trust, South Africa can attract skills and foreign direct investment (FDI) to its shores.

But the 2015 FDI Confidence Index released in April this year showed that business leaders were increasingly looking for global growth opportunities, but not in South Africa.

According to the 15th annual index from global strategy and management consulting firm AT Kearney, two-thirds of companies plan to return to pre-financial crisis levels of FDI by 2016, but no African or Middle Eastern countries ranked in the top 25 FDI destinations in 2015.

Last year, South Africa ranked 13th in the index.

The other African countries included in the survey were Algeria, Angola, Egypt, Ethiopia, Ghana, Kenya, Nigeria, Sudan and Tanzania.

Martin Sprott of AT Kearney Johannesburg said at the release of the index that the main reason for South Africa slipping out of the index was the the capital flight to developed markets as investors move away from emerging markets towards safer destinations for better returns.

Political analyst Daniel Silke said Wednesday’s events would reverberate in our domestic politics for some time as student anger was once again assuming its place at the vanguard of protest against ineffective governance.

A return to the past
“South Africa is witnessing a return to its past as anger and frustration of a younger generation clashes with years of poor policy formulation and lack of implementation,” he said.

Silke said it is doubly ironic that these protests came on the day when Nene had to explain and confront a declining economy and weak economic performance.

“It reflects the dismal state of the country’s finances, all in the context of vast inequality and the inability to adequately kickstart growth in the economy.”

Silke said that what South Africa and the world witnessed on Wednesday was a classic tale of two countries: MPs locked into a political vacuum in Parliament while emotions, frustrations and anger boiled over just steps away outside.

He said events in Parliament would damage relations between the electorate and the executive, and that political parties should be concerned.

According to him, the executive seemed oblivious to the chaos outside and this would serve to deepen the sceptical views the electorate have of their leadership. – News24.com