Last year, the Jacob Zuma regime ended after being outed by his vice president, Cyril Ramaphosa. This brought optimism to a country that had seen its economy mismanaged by a corrupt president. This led the South African rand to strengthen against the dollar, reaching a low of 11.4. This was the lowest level for the USD/ZAR pair in almost two years.
This year however, things have changed and the pair has crawled back upwards, reaching an YTD high of 12.8. Every week, the pair has inched upwards.
The current weakness of the South African currency is attributed to the ongoing challenges in the economy. While Foreign Direct Investment (FDI) has rebounded, investors have become cautious about the direction of the economy. Early this year, the parliament passed a motion to take back the land owned by white people without compensation. This move was championed by Julius Malema who is the leader of the Economic Freedom Fighters party.
The current president has endorsed the move. This is because the country will be headed to another election in 2019 and his failure to endorse such a move would make it difficult for him to win the election.
However, this is a slippery slope because such a policy has been tried in the past. Years ago, Zimbabwe, a then rich country implemented these policies where Robert Mugabe took land from white people and distributed it to locals. Since the latter had no experience in farming, the country’s exports declined.
In addition to this move, the former president has continued to dominate local politics, often appearing in campaign rallies. Experts believe that he could place a formidable politician to oppose Cyril Ramaphosa in the coming election.