OPINION: Rand favoured unit for African exposure
It is no secret that the South African markets have been in a state of flux. In his first State of the National Address last year, President Cyril Ramaphosa promised “a major push this year to encourage significant investment in the economy”. Pivotal to this push, foreign investment from firms and individual investors outside of our borders was necessary.
But, taking into account the dismal financial results reported by Moody’s in the first quarter of 2019, will Ramaphosa be able to make the necessary changes and reforms to help economic growth accelerate to as high as 3 percent by 2022?
According to the group, in a macro-analysis released at the beginning of June, the odds that South Africa may experience a technical recession are high. This, in a large part, can be contributed to the widespread power outages experienced so far in 2019 that have had substantial negative effects, particularly for the mining and manufacturing sectors.
The task of resuscitating South Africa’s economy is an onerous one, with the reality being that now is the time to dig deep as a country and harness all available resources.
But it isn’t all doom and gloom on the investment front. With the recent ANC election win under the leadership of Ramaphosa, hopes are high for renewed reforms that could potentially tackle the unemployment rates and provide a re-energised push to ignite growth.
While financial markets are generally positive towards South Africa at the moment, an underlying sentiment that seems to be weighing on investors is whether the government can effectively address the Eskom issue. After more than a decade of increasingly slow growth, and an exponential rise in joblessness, immediate policy priorities from Ramaphosa are a crucial first step.
So, why South Africa and why now? The outcome of the election has been in line with market expectations, and sentiment towards South African markets remains tentatively positive. The announcement of a drastically smaller, reshuffled Cabinet is also bound to alter our economic course. Add to that Moody’s decision to skip the much-anticipated assessment of South Africa’s sovereign credit rating until November.
The rand is expected to weaken over the next few weeks, but the dominant position of the South African economy on the African continent, still makes the rand the currency of choice for investors seeking African exposure.
Daniel Kibel is the founder and director of CM Trading.