JOHANNESBURG – While sentiment since the inception of President Ramaphosa’s administration has improved significantly, the rand did not reflect the previously experienced “Ramaphoria”, leading up to and during most the much-anticipated State of the Nation Address according to Bianca Botes, Corporate Treasury Manager at Peregrine Treasury Solutions
The rand retreated by 0.9 percent during Thursday to trade as weak as R13.65/$. However, as President Ramaphosa dug deeper into core issues, such as the dire state of Eskom and what the plan of action was, the rand managed to claw back some of the lost ground.
While South Africa continues to face structural issues such as inequality and high unemployment, there are a few positive elements that deserve to be highlighted.
1. A 9-stage turnaround plan for Eskom that includes bringing in equity partners, selling assets and splitting the utility in to three entities. President Ramaphosa also emphasised the importance of not adding undue pressure to the fiscus or the consumer;
2. A focus on primary education, enhancing literacy amongst youth;
3. Technical schooling to continue being a key element of the education plan for SA, that will assist in enhancing manufacturing and industrialisation, as well as boosting employment;
4. Land redistribution without compensation will start with unutilised state owned land and a reassurance that redistribution will not be detrimental to the South African economy;
5. Digital revolution and South Africa’s ability to participate;
Strengthening the state;
6. Compulsory courses for all government servants.
Overall, this was a well-received SONA, with President Ramaphosa clearly targeting foreign investments to boost economic growth.
While the rand has been in retreat for most of the week, it has not been a result of SONA. Rather, the dollar has bounced back from the weak levels it experienced last week, trading stronger for six consecutive sessions and putting pressure on the rand.
Global politics had a significantly quieter week, with the State of the Union address by US President Trump being largely uneventful, with the focus falling on employment, immigration and trade. The address by the outspoken President put jittery market participants at ease, after many expected a potential escalation of the trade war.
While the US is still shaking off the damage of the government shut down, the global powerhouse is not out of the woods yet, with the Republicans and Democrats struggling to find middle ground on various issues, including the Trump’s insistence on a wall separating the US and Mexico. The US-China trade war however is far from over, with officials stating that is unlikely for President Trump and President Xi to meet before the March deadline, that will continue to keep global market participants on edge.
There was big news for South Africa on Thursday as Total SA opened a world class oil and gas find off the coast of the country, after making a significant gas discovery in the region that could sustain South Africa for the next four years.
The pressure on the rand is mounting, with many market participants reaffirming their bullish outlook for the dollar. For now, however, the focus is shifting back to the USD strength to guide the rand, while local elements will become more prominent as we head to the voting stations.
The rand is trading at R13.65 against the dollar, while euro and pound sterling will cost you R15.47 and R17.66 respectively.
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