It's the economy, stupid, and it's bust
In the coming weeks the effects of the dramatically weakened rand will ripple through the economy, fuelling inflation and price hikes and hitting the poor hardest. Yesterday, the rand had recovered after a mauling on Monday and was at just over R13 to the dollar. The currency strengthened on news of a Chinese interest rate cut after heavy selling had pushed it to an historic low of R14/$.The rand has shed nearly 15% of its value against the dollar this year, pressured, like other emerging-economy currencies, by slowing growth in China, the world's second-biggest economy, and expectations that US interest rates will rise soon.Another blow to South Africa's economy yesterday was the news that the gross domestic product had shrunk 1.3% in the second quarter of this year. Three consecutive quarters of contraction define a recession.The effect of the current situation, said Mervyn Abrahams, director of the Pietermaritzburg Agency for Community Social Action, will be felt in an increase in food prices, in particular that of maize. South Africa is importing maize because of drought and has to pay for it in dollars."Maize is a staple but is also used in making processed foods and as animal feed. This means it will even affect the price of meat," he said. Already, he said, food prices had been steadily increasing. "We expect that this (Monday's rand devaluation) will take six to eight weeks to work its way to the retailing level," he said.Abrahams said his organisation had recently set up food focus groups because they had noticed widespread borrowing among the poor."We found the poorest people are borrowing to survive and will get deeper and deeper into debt," he said. "People are in debt for necessities, not cars or houses."The rich will be hit by price hikes in imported goods, such as consumer electronics, and by food price increases. The cost of travel to countries with strong currencies will rocket.Economist David Shapiro said the rand had a habit of bouncing back quickly - but this time might be different.Economist Dawie Roodt also sees a gloomy future."The worst-case scenario is that the rand sits at between 14 and 15 to the dollar; the best is that it gets no worse than R12," he said.Economists agreed that the falling oil price might cushion the effects of a weakened rand. A weaker rand would help exports."But commodities are not doing well at all - and neither is the manufacturing industry," said Roodt. "No one is benefiting from this."Roodt and Shapiro believe the government can improve the economy only by:reforming labour legislation,improving the efficiency of the public service and parastatals, and making South Africa a good place in which to invest.Yesterday President Jacob Zuma urged the government, business and labour to work together to save jobs in the iron and steel industry, which have been badly affected by the latest global crisis.Although the South African economy might appear to be tanking, seasoned investors have warned against panic. Market volatility is par for the course, and people should not make irrational investment decisions such as rushing to move money offshore...
There’s never been a more important time to support independent media.
From World War 1 to present-day cosmopolitan South Africa and beyond, the Sunday Times has been a pillar in covering the stories that matter to you.
For just R80 you can become a premium member (digital access) and support a publication that has played an important political and social role in South Africa for over a century of Sundays. You can cancel anytime.
Already subscribed? Sign in below.
Questions or problems? Email helpdesk@timeslive.co.za or call 0860 52 52 00.