Killing the Rand
The value of the South African rand drops and the corporate mainstream media, institutionalised economists, mischievous academic analysts and owners of the economy conveniently blame President Jacob Zuma and the ruling African National Congress.
However, nowhere in the world do presidents, ruling parties and governments control currencies.
A senior economist points out, “We experience a negative business mood, causing the sell-off of the rand with the subsequent devaluation of the South African currency.
“Who stands to gain? It is a small sector, which controls some six percent of the country’s and the region’s economy – the mining sector. It is a raw material-based export, which includes raw primary goods such as iron-ore, gold, platinum, chrome, copper, diamonds, vanadium, zinc, also maize, wheat, fruit and vegetables, now receiving more rands for the US dollar; but no one else.
“Meanwhile, certain banks in this country caution their clients that the rand will drop to twelve rand per one US dollar by August this year.”
The rand has dropped in value and seems on its way to be devalued further, similar to 2001 when Former President Thabo Mbeki had to appoint a judicial commission of inquiry to investigate who had orchestrated it.
The value of the rand bounced back then from R13.89 per US$1, to R5.50 per US$1.
Known financial institutions and an oil giant were directly involved in that case.
Today the rand has dropped to around R10 per US$1.
Kit Juckes, strategist with Society General, claimed in an interview with a daily South African paper that “the bull market is over” for developing market currencies. The rand is the “first of what I suspect will be a series of dominoes to fall”.
But we must ask: are collusion and manipulation the reasons for the collapse of the rand?
“The hawkish Eurocentric sentiment in the global market regards South Africa’s economy as a ‘fire sale’ based on a high level of Afro pessimism. In other words, after a disaster one would sell off what is left over.
“It is a self-fulfilling prophecy that feeds on itself. If one speaks fear and becomes a doomsayer … (you get) the emotive side that follows the inspired fear.
“It also demonstrates that market technicians are no rocket scientists, rather that they are driven by a herd mentality,” the economist elaborates.
Who drives this agenda?
South Africa is the world’s leading platinum miner.
The new trade union, the Association of Mineworkers and Construction Union (AMCU) went on a wildcat strike (ie, without permission), announcing, it will make all mines ungovernable.
AMCU also challenges the traditional National Union of Mineworkers (NUM), a leading member of one of the tripartite alliance partners, COSATU.
The Marikana strike and its violence with wildcat strikes spilling over into platinum and gold mines has caused negative publicity.
Would it be wrong to thus say that AMCU effectively triggered the slide of the rand?
A senior economist explained to this writer, “It seems that AMCU collaborates with the mine owners for the obvious reason that the mine owners get more rands in exchange for US dollars. Their share prices will therefore, climb too.”
He goes on to say, “AMCU betrayed the worker movement. The mine owners earn more in share prices and their companies will earn more in rand.
“In return, the labour force actually earns less. As the trade union movement negotiates double digit increases, those very increases were the offset of the slide of the rand.”
Blade Nzimande, who is the Secretary-General of the South African Communist Party, a tripartite alliance partner, has accused global mining powerhouse BHP Billiton of mischief and covertly funding AMCU, obviously for its own interests.
The big losers are the poor, earning the same amount as before but having to at the same time pay more for basic foodstuffs and fuel.
It is important to know that all commodities are US dollar-denominated. If the rand weakens by 25 percent, most foodstuffs will climb by 25 percent.
Commodity prices are determined in Chicago in the United States on the world commodities exchange. Gold, silver, copper, coal, chrome, iron-ore, Brent crude, maize, wheat, pork bellies etc are quoted and determined in Chicago by speculators and traders and not here.
It also means that the South African rand and its linked currencies, such as the Namibian dollar as well as countries like Zimbabwe that also use the rand, buy at least 25 percent less when these things happen.
Is it not that when the poor have to pay for a huge increase in basic commodities they blame their governments?
In the end it will lead to unrest and a further devaluation of the currency. It is a downward spiral.
• Udo W Froese is a political and socio-economic analyst and columnist based in Johannesburg, South Africa. For more of his work you can see his blog at theotherafrika.wordpress.com, or follow him on Twitter handle: @theotherafrika