THE rand breached the R16/$ level once again on Friday, and stayed below that level for much of on Monday.
If we see the currency as the share price of SA Inc, then we have much to worry about.
On occasion, such as late on Friday, it appeared as if a blood bath were imminent.
There are many reasons for rand weakness, including a stronger dollar, slower economic growth in China, anaemic eurozone demand and continued woes in Japan. These are the world’s largest markets, and are also significant export destinations for South African goods and raw materials.
Outflows from SA’s equity and bond markets are speeding up and by the end of January, they were pegged at about R16bn a month for the previous three months.
It is difficult to see how the rand will recover if the current account and trade deficits continue to widen, even though January’s trade data showed a slight narrowing. SA is importing far more than it exports, a situation made worse by the movements in the exchange rate itself.
Global factors will always be there, but recent events have taught us that much of what makes the rand vulnerable is self-inflicted.
Top of the pile are political decisions that have eroded SA’s credibility. As a consequence, the political inclinations of leaders have become a far more powerful consideration for investors than they ordinarily should be.
It is now common cause that the removal of former finance minister Nhlanhla Nene in December caused havoc in domestic markets and the currency slid to new depths.
Only the appointment of Pravin Gordhan to replace Desmond van Rooyen and assurances that the government would maintain its prudent fiscal path stemmed the bleeding. Mr Gordhan’s budget last week in which he announced further cost-containment measures and a tighter fiscal deficit target, may have helped to stave off a downgrade to junk status — at least for now.
However, as if on cue, ructions around Mr Gordhan leaked out a day later.
They emanated from a long-running battle for the soul of the South African Revenue Service (SARS), an agency Mr Gordhan once headed. He now has executive oversight as finance minister. The new controversy stemmed in part from a Hawks investigation that appeared to be aimed at Mr Gordhan. That, once again, rattled the rand.
Even though the Hawks said on Monday Mr Gordhan was not a target, its probe is inexplicable, given that SARS has ignored recommendations for a judicial commission of inquiry after an investigation it commissioned by Advocate Muzi Sikhakhane.
The Hawks move does, however, appear to threaten Mr Gordhan’s position as finance minister. And in spite of the denials, it suggests a tension between him and President Jacob Zuma, fuelled by the conflict Mr Gordhan confirms exists between him and SARS commissioner Tom Moyane.
On Monday, after the fallout continued to spread, Mr Zuma reaffirmed Mr Gordhan’s position — but this is almost inconsequential.
In the same statement, the Presidency denied that there was a "war" at SARS or between him and Mr Gordhan — yet more denialism.
There will also be questions about the level of influence Mr Gordhan has over economic policy at a time when rating agencies and investors are looking for a sustainable growth strategy.
The Treasury is tasked with macroeconomic policy co-ordination by the Public Finance Management Act, but this too has been challenged, further eroding its standing.
A key pillar in the effort to avoid a crippling credit rating downgrade is an economic strategy that can produce results as fast as possible. It will be impossible to get this done when the department and minister are mired in a controversy that appears to have little to do with the rule of law and more to do with settling political scores.
This sends out a message that SA does not have the ability to do what’s necessary to reassure investors.
This also means we will continue with the risky behaviour that will cause the currency to decline, causing untold harm to millions of ordinary people who have to deal with imported inflation, while incomes are under severe strain. Sanity must prevail.
Much of what makes the rand vulnerable is self-inflicted. Topping the list are political decisions that have eroded SA’s credibility