TOWARDS the end of last year, the rand staged a strong recovery against the dollar in what was a difficult final quarter for the country as illegal mining strikes spread to different sectors of the South African economy.
As we start 2013, it seems investors have once again awoken to the fact that the South African condition is a rather serious one and set only to get worse.
On Wednesday, the rand had its worst day against the dollar since October and is trading at about April 2009 levels.
Highlighted as the main investor concerns are issues around the current account deficit and an even gloomier picture for our exports due to production problems and weak commodity prices.
Another major downside risk to the local currency, which more than our equity markets is much in tune with the state of the South African and global economy, is improving sentiment towards the major economies of the US, China and Europe.
The improved sentiment has seen rising risk appetite as stock markets reach new highs and other emerging market currencies are holding firm against the dollar, just not the rand.
The more secure investors feel over the economic prospects of the US and Europe in particular, the more negative they have become about a South African story shaped by our domestic problems.
Compared to other emerging markets, we paint the gloomiest picture at the moment.
In the first four weeks of the year, economic data from the US and China have served to ease fears over the fate of the world’s first-and second-biggest economies, respectively. News out of Europe is that its long-running sovereign debt crisis is no longer set to dominate the headlines — as it has for the past three years.
The German-led heavy-handed focus on austerity is expected to ease up during the course of the year. The borrowing costs for troubled nations such as Spain and Italy have also eased to a point where governments in Madrid and Rome can breathe a little easier.
(The European Central Bank’s July decision to do whatever it takes to defend the euro against irrational panic seems to have worked a treat.)
Europe might also have a better year politically, with coming elections not looking as tenuous as they were last year.
If newly elected governments in places such as Greece can keep their nerve and keep to austerity commitments, the possible exit by a member of the common monetary union may remain last year’s headline.
Fears of contagion, which have been the biggest drag on confidence in Europe and its 14-year-old euro project, could ease.
It’s the promise of these developments that has brought about this general positivity. Unfortunately, the rand isn’t as big a beneficiary.
The JSE is more immune to the negativity about South Africa as it is dominated by 20 stocks that make up close to 70% of its total value. Most of them have operations that aren’t too reliant on the local economy.
While the rand may not be an immediate beneficiary of the more positive view of Europe, South Africa’s exports will in the medium term to long run benefit from improving conditions.
And a weaker rand could provide a temporary competitive edge, acting as a much better stimulus than another Reserve Bank rate cut. Of course, it is a short-term advantage over our trading partners because of the damaging effect of higher inflation in the long run.
But for all the pieces to fall in place favourably for South Africa Inc, relations between business, labour and the government in the country’s key export-earnings contributors — commodities and agriculture — need to be mended, which is unlikely in the short term.
In a televised address from Davos, Switzerland, on Wednesday, President Jacob Zuma said South Africa was in talks on how to resolve its labour disputes. Markets, though, are fast losing patience.
The rolling strikes across these sectors that have affected other parts of what is an already struggling economy need a long-term solution, and very soon.
I know that an economic Codesa, as this paper has so often suggested, has been thrown out as a solution to finding a way forward. But there is no doubt that some sort of social contract needs to be agreed on, whatever name you want to give it.
It’s set to be a tough 2013 for the country and the ruling party.
There is no Mangaung to look forward to; there’s a much bigger task ahead.
To regain confidence will prove a much more difficult task than being re-elected.