In the 26th of September 2022 edition of MD’s Insights, I compared South Africa’s economy with where it was relative to a year ago, and I concluded as follows:
“…. most of the challenges to economic growth existed prior to the Ukraine war, with commodity prices, stable inflation rates and the absence of war at that stage being the positive forces for SA. And despite these challenges the SA economy regained pre-Covid levels by the end of Q1 2022.
The Ukraine war added inflation and currency weakness to SA’s challenges as has been noted in detail in previous editions of MD’s Insights.”
I have previously examined the inflation rate differentials between Euroland and South Africa as well as this country’s lack of dependence on wheat and maize imports, the abundance of positive economic date, the impending tourism boom and the good news from NERSA indicating applications for vast new supplies of renewable energy, albeit that this will take time to be implemented. But I added the following caveat:
“If Escom could be brought back to an even keel, if the RET faction and ANC electoral shenanigans could be brought under control, the future might just not be as dark as it appears now.”
Expecting Rand strength, I was dismayed to note in the MD’s Insights of 26 October 2022 that the Rand had in fact fallen, despite strong indications for its strengthening. The reasons of course were extensive, but Escom’s protracted stage 4 load-shedding combined with more than just suspected sabotage, a dysfunctional ANC (and accordingly a dysfunctional government) displaying open hostility towards the President (think of the RET faction facing prosecution and, hopefully, imprisonment) and of course factors beyond South Africa’s control such as Xi Pings entrenchment of absolute power which negatively impacted on Chinese shares such as Tencent Holdings which has a massive influence on the JSE via locally listed Naspers and Prosus.
In the past two weeks, the Rand has started to regain strength as the following chart indicates:
The Rand should of course be stronger but for the factors mentioned above. The impact of the ANC government on South Africa’s economy is overwhelmingly negative, whether through direct actions such as misguided economic policies, restrictive energy policies and uncontrolled wage demands by its leftist political partners or through indirect policies such as cadre deployment in the public service and the staffing of State Owned Enterprises, where the results speak for themselves. It is in the ANC’s interests, and as such in the country’s, to support certain ANC initiatives to clean up in this regard.
On the inflation front the differential between Euroland and South Africa grows ever wider:
Euroland is now at an average of 10.7% with South Africa at 7.5%. This again speaks for Rand strength in the absence of the negative factors outlined above. If one considers the Rand versus the US$, all indicators suggest growing Rand strength going into 2023, the following being ETM Analytics’ research conclusions in this regard:
- The US Dollar is overvalued, being at some of its highest levels since the 1980’s
- The gap between US (The Fed) and SA (SARB Repo) benchmark policy rates has narrowed
- USA inflation and thus interest rate expectations have lowered
- ETM’s Rand Sentiment Indicator (“ZSI”) shows that in the professional market there is no appetite for betting on Rand weakness i.e. the market expects tremendous growth in Rand strength going into 2023.
So, let’s see whether the government can step up to the plate!
We have managed to extend our special on phones and devices until the end of December, which is a great opportunity to purchase your stock now before they go back to full price in the new year. This special does include the new CP110 & CP210 (both Gigabit phones), so we encourage you to take full advantage while you can! Further, our wall-mount systems are on discount, at the lowest prices they have ever been. On another note, the CP200 is being phased out and replaced by the CP210. The CP400 is being replaced by the CP410, and we are eagerly awaiting a release date on these units. We will keep you up to date which all relevant information, and please contact us if you have any further questions.
Peter Gees
Chartered Accountant (SA)
Advocate of the High Court of South Africa
