I must point out to the economic illiterates that a strong currency does not necessarily reflect a strong economy. Many East Asian countries and China until recently pursued a weak currency strategy to develop their export industries. The movement of the rand usually has little to do with developments in the local economy or politics. As a rule, it is better to first look at the dollar and euro exchange rates to understand what is happening with the rand.
“Madiba Magic” lasted for almost two years as capital inflows kept the rand stuck at about R3.60c to the dollar. The “New Dawn” lasted five months. There was a wave of optimism before and after Cyril Ramaphosa’s election as ANC president in December 2017. The rand appreciated 20% against the dollar to a high of R11.50 on February 26 2018 from a low of R14.40 on November 15 2017. “Ramaphoria” had dissipated by the first week of May.
As I have written many times, Ramaphoria had no substance and was based on about five gimmicks that would not deliver higher GDP growth. Now the same people who brought us the “New Yawn” are using lame arguments to convince us that “government of neoliberal unity” (GNU) vibes will lift the economy after 16 years of declining average living standards. All we have to do is transmit “good vibes” and the private sector will invest. This new optimism is based on intangibles that can’t be measured.
Austerity policies
The ANC-DA coalition has coincided with a pivotal turning point in the world economy, with the US Federal Reserve set to a start a new cycle of interest rate cuts on September 18. The JSE has gained about 5% since the coalition agreement was announced, but 80% of the assets of listed companies have nothing to do with the local economy. Bond yields have fallen, but that is what happens when the Reserve Bank is expected to start cutting rates. The rand has strengthened a little, but the dollar always weakens when the Fed is expected to start aggressively cutting rates.
Let us not forget that the multiple Eskom plant breakdowns and the collapse of Transnet’s operational performance started after 2018, not 2007. But there were four years of declining GDP per capita from 2014 to 2017 as the austerity policies began to bite. The economy was not performing before the collapse of Eskom and Transnet operations, which shows that macroeconomic policy settings matter.
The painful reality is that financial markets support the continuation of the failed macroeconomic policies — structural reforms and austerity — that have resulted in misery for millions of South Africans. The Treasury says structural reforms will add R439bn to GDP from 2022-30, but this “thumb suck” is a trivial amount that will not make a difference. And permanent austerity will continue to suffocate the economy.
Nothing has changed since the ANC-DA coalition was formed on June 14, except that there are now three more white men in the cabinet. Otherwise, this is an ANC government and it feels like an ANC government. And if that government continues to implement failed macroeconomic economic policies the results will definitely also be the same. In its latest assessment the IMF says there will be annual average GDP growth rate of 1.2% in 2024-26.
The positive “GNU vibes” will disappear when the penny drops in financial markets that no-one has explained where the GDP growth will come from, and that there will be three more years of declining GDP per capita. By 2026 we will have had 19 years of declining average living standards.
I pray that this right-wing ANC-DA coalition collapses, so that we can start imagining what change will look like.
• Gqubule is research associate at the Social Policy Initiative. He writes in his personal capacity.
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