Real Estate Investor Magazine South Africa October 2014 | Page 56

FOREX

BY ANDREW RISSIK

The Rand’s Volatile History
Leading up to a perfect storm

T

he Rand’s recent behaviour is a major cause
for concern. A look at its turbulent past reveals
the causes of long-term devaluation and shortterm wild swings, leading up to a perfect storm.
1979 – 1985 - Pegged to the Dollar, the Rand seemed
to track the Pound until the foreign debt crisis brought
on a decade-long devaluation.
After 1994 - We still had the dual exchange rate
system and very tight capital controls to cushion
foreign reserves from politically-motivated capital
flight. The financial Rand, created in the ‘60s and
available only to foreigners, was used heavily in the ‘80s
and ‘90s before being abolished in 1995. The unified
currency then traded well on international markets - a
vote of confidence in SA.
1996 – 2001 - A 16% slide to R4.30/$ from R3.70/$
followed rumours that Nelson Mandela was ill. From
then until December 2001, the Rand slid from R3.70/$
to R12.45/$.
2002 – 2008 - By 2002 the Rand was stable, with
SA in a period of growth and positive sentiment. The
Rand climbed steadily and by 2005 reached R6.00/$.
It bumbled along until the Global Financial Crisis
(GFC) struck and a run on emerging markets saw the
Rand plummet to R11.20/$ by October 2008.
2009 – 2011 - By June 2009 we reached pre-GFC
levels. The Rand started a new growth phase, peaking
in May 2011 at R6.60/$, aided by positive sentiment
around the 2010 FIFA World Cup and major exchange
controls relaxation.
August 2011 - the present - Strong devaluation
followed the Eurozone crisis and importers and
individuals stopped buying foreign currency, believing
the Rand would bounce back. SARB relaxed controls
and, with the realisation that the Rand had found a
new weaker level, trade began again.
Major events since then, including the Mangaung
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October 2014 SA Real Estate Investor

ANC conference and the rise of nationalisation
advocate Julius Malema in 2012, along with strikes,
saw people moving their money abroad. Strikes and
violent protest in an ever-more militant mining
sector, punished an industry is vital to Rand stability.
SA’s mining sector shrunk during the world’s biggest
commodity boom.
The perfect storm
Though the Rand is affected by international crises, our
economy is plagued by domestic uncertainty.
SA is importing too many finished products and
too many people are borrowing to buy them. Our lost
markets aren’t returning quickly enough when the
Rand weakens. Exporters are keeping as much currency
revenue offshore as possible. The Customer Foreign
Currency (CFC) relaxations are not promoting selling
of reserves and exporters are reluctant to invest in SA.
Combined with marginal emerging market growth,
a reduced demand on commodities due to China’s
slowdown and reduced liquidity due to quantitative
easing, we are headed for trouble.
The wealthy have realised we are once again on a
slippery slope. Even the most patriotic continue to
hold wealth offshore because the Rand will keep on
devaluing due to inefficiencies and low productivity.
Until government creates a secure long-term
investment environment, rather than a short-term
speculative market, this sentiment won’t change. It
remains prudent to be hedged. SA is an emerging
market, so to hedge effectively it should be a basket
of major currencies. Globally there will be further
corrections, toxic debt and other shifts, but the Dollar
will survive.
To adapt peacefully, SA needs educated citizens in
an environment where hard work is rewarded. Our
actions affect the future of this country. If the Dollar
collapsed due to hyperinflation, owning an asset with a
dwindling debt would only be a good investment.

RESOURCES
Sable FX
www.reimag.co.za