In December 2015, when then president Jacob Zuma appointed Des Van Rooyen as finance minister in an extraordinary weekend, the world of politics and business headed for a tense showdown. The appointment created anxiety in the business world not only over Van Rooyen’s suitability as an individual, but also over what his appointment was meant to achieve.
The country’s energy crisis — a matter dating back to 2008 — had led to suggestions that nuclear power was the solution. The problem, according to the National Treasury, was that the country simply could not afford it. The man tasked with delivering that message to a president and cabinet members who did not wish to hear it was incumbent finance minister Nhlanhla Nene — the man Van Rooyen was to replace.
Mindful of the background to the appointment, the business class lobbied Zuma to reverse the appointment to avoid the bloodbath that was starting to take place in the capital and currency markets. The concession by Zuma that caused Pravin Gordhan’s return as guardian of the Treasury was regarded as an elegant solution that neatly avoided catastrophic fallout.
Since that moment the question of the currency’s reaction to political dramas emanating from the party headquartered at Luthuli House has been revisited whenever it finds another reason to plunge itself into crisis. Last week, when Zuma finally walked into prison, the view shared by many was that the currency would strengthen because this development reflected the robustness of state institutions.
This was premised on the theory that investor sentiment materially influences the currency. And as investors are keener to invest in places where institutions of state are more capable than not, any step that reinforces their robustness, or in the case of the judiciary their independence, should have positive spillover effects on the currency.
Structural unemployment that leads to poor economic performance can hardly be expected to buoy the national currency
Less than a week later, as the looting that originated in KwaZulu-Natal persisted and spread to Gauteng, the question of the currency’s reaction to the riots was again a talking point.
On the one hand the view was that the looting is a reflection of the genesis of a failed state, which can be expected to trigger disinvestment and hence currency collapse. Another view is that the currency’s daily fluctuations are caused by an intersection of many variables, only one of which is the stability of the nation.
Meanwhile, some difficult conversations are going on regarding how we ended up here. The long-term deterioration of the rand, reflected in that it averaged R7.32 to dollar in 2010 and R16.46 in 2020, indicates that the variables underpinning rand performance have been on a steady decline. Naturally, some of these are linked to the trigger points of the current riots.
Structural unemployment that leads to poor economic performance can hardly be expected to buoy the national currency. Rather, it creates cyclical and intersectional domino effects. When fewer people are employed or employable, the pressure on state resources is amplified. When the state has to borrow its way to supplying such resources, the country’s risk profile — particularly when measured by ratings agencies — similarly deteriorates. The sum of these variables has more fundamental effects on the currency — the December 2015 episode was more about the possible knock-on effects of the Van Rooyen appointment than the man himself.
Had it materialised and the nuclear deal become a reality, the long-term effects on the national economic variables and economic outlook would have been acute. Similarly, the incarceration or otherwise of an individual does not have much impact on a currency. The current unrest has been long in the making and reflects the long-term deterioration of the national social contract.
SA’s problems need to be addressed at grass-roots level. Citing the volatility of the currency as a reason to stop is unlikely to resonate with people whose sense of exclusion persists and deepens regardless of the rand’s performance.
• Sithole (@coruscakhaya) is an accountant, academic and activist.
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