A rand in ruins – the Gordhan-Gupta saga and South Africa’s economy
It’s not often that South Africans and investors dealing in the South African currency have chance for celebration. However this had seemed the case when global markets opened on Monday 27 March as news broke that Trump’s healthcare reform had failed.
This is not to assume that money-watchers had been either for or against Trump’s healthcare reform. Nevertheless, failure to repeal ObamaCare had shaken the dollar enough, and shall we say in the right ways, to give emerging market currencies like the rand a welcome boost.
But as most economic experts will tell you – celebration is usually premature. Within hours of the rand gaining exchange-rate footing last seen in 2015, news broke that the presidency had ordered Minister of Finance, Pravin Gordhan, along with Mcebisi Jonas to cancel their international investor roadshow and Gordhan had been instructed to return to South Africa post-haste. South Africans, of course, breathed a collective sigh of mortification, knowing full well the repercussions of any flash decisions involving the finance ministry, Pravin Gordhan, or the Gupta family would have an immediate, if not lasting, detrimental impact on the South African economy.
This is, of course, exactly what’s happened, and many believe that this is undoubtedly not the last straw. Rand Rescue looks at the state of South Africa’s economy and how it affects South Africans across the globe.
The Zuma-Gordhan standoff
The battle lines for this epic battle of wills and wits had been drawn ages ago. In fact, they’d been redrawn so often in the past few months, for most South Africans, the lines of this strategic standoff now resemble and existential Jackson Pollock painting – the purpose and outcome of which is decidedly muddled and incomprehensible.
The most worrying part of this story is not necessarily Zuma’s disdain for the man at the steer of South Africa’s economy, but rather that he’s excluding ANC cadres from this erratic stone-hauling match. Daily Maverick reported that ANC secretary general Gwede Mantashe had confirmed neither the ANC nor the NEC had had any inkling as to Zuma’s decision to recall the two statesmen from their offshore representations.
Of course, the overwhelming sentiment among analysts and politicians seems to point towards this animosity being sparked by Zuma’s relationship with the controversial Gupta family, but Zuma’s silence on the matter essentially leaves the doors for questioning his actions indefinitely and frustratingly shut.
Whatever the motivation for the president’s actions, South Africans have been told to brace themselves for more shakeups. Reliable sources had revealed to Business Report Online that Zuma has every intention of appointing former Eskom head, Brian Molefe, as the new South African Minister of Finance.
Additionally, the sources claim that a further reshuffle of up to 9 ministers is planned for the near future. Of course, this is not the first time insiders had hinted at Molefe’s appointment. His “road to riches” following a red-faced resignation from Eskom had already been paved by the North West ANC earlier this year who had requested his inclusion as member of parliament – an act which will have prepared him for cabinet representation.
The future of our finance – home soil and further afield
In the last few months most analysts have been playing a rather puerile game of seesaw; proclaiming the South African economy a crumbling mess one moment and touting apparent blue skies ahead with a giddy presumption which is no doubt rather foolish.
The only true conclusion one can draw in analysing the South African economy over the past few years is that this emetic currency oscillation is bound to continue until such time as a victor in this political power struggle is proclaimed beyond any reasonable doubt.
When we cast our sights a bit further afield, it is important to reserve our arrogance once more and consider that the rand’s interim strength had not been a result of our own canny and craft, but rather due to political disquiet in the USA, Europe and elsewhere. Though a temporary rallying in foreign currencies usually sends the rand surging, the long-term implications of a global economic crisis are far more complex.
Although investors tend to favour gold as a hedge during times of unrest – something which is a definite benefit for South Africa’s economy – such unrest has significant knock-on effects in other areas. While this conservative investment view may benefit our mining sector, emerging currencies could also see investors withdraw from other higher-risk industries and initiatives. Furthermore, this conservative approach is mirrored through amendments to foreign policy and trade agreements between economic powerhouses and smaller fish like South Africa.
Has Trump been trumped or will his ire be loosed upon the world?
The new leader of the USA has been quite vocal about his disdain for many a policy left over by his predecessor as well as trade agreement with other countries, and indicated that radical changes to US policy and legislation would be a running norm under his rule. President Trump has, thus far, signed several executive orders – legally binding and authorised orders by the President of the United States of America which should be carried out by law.
Quite antithetically, these orders can also be found unlawful by the US courts or from within the ruling party’s ranks – as was the case with the Obamacare repeal.
His latest order compels a complete reorganisation of the executive branch in addition to the elimination of redundant federal agencies. This seems like déjà vu in a sense for saffas with an eye on local politics.
Other orders and memoranda which may have a significant bearing on the worldwide economy include:
- Outlining steps for building a physical wall along the Mexican border. Trump had ordered the wall to be constructed by Mexico and the Mexican government to accede to this within 30 days lest foreign aid to Mexico be cut. This stance, however, was later slackened – claiming the cost will most probably be footed by US taxpayer money at first. The order includes the appointment of 5 000 additional border patrol agents.
- Warning of federal funding withdrawal for “sanctuary states and cities” of undocumented immigrants, as well as hastened deportations. Several regions and cities have already appealed the order, and are in the process of suing Trump for what they claim to be an unconstitutional order.
- Execution of a travel and immigration ban on refugees and immigrants from seven majority-Muslim countries, including Iran, Iraq, Libya, Somalia, Sudan and Yemen which received a 90-day ban and Syria which received an indefinite ban – this order had been overthrown by the courts and reintroduced following amendments. The latest ban sees a 90-day ban on entry for citizens of Sudan, Iran, Somalia, Yemen, Syria and Libya and a 120-day ban on all refugees to the USA. The new ban has been met with equal opposition and has once more been halted.
- Easing corporate and business regulation by instructing the repealing of two existing business regulations each time a new regulation is proposed.
- Changes to ethics restrictions, imposing new foreign government lobbying rules and cutting the restriction of executive branch employee’s lobbying rights to one year.
- Reorganisation of the National and Homeland Security Councils, removing nation’s top military and intelligence advisers and disinviting the chairman of the Joint Chiefs of Staff and Director of National Intelligence from the forum.
- A revision of the Clean Water Rule which has been called a major blow to private property and environmental rights.
- Executing an order to rebuild the military and conduct readiness reviews of the armed forces as well as the US ballistic missile defense system.
- Changing the order of succession in the Department of Justice. This would increase the likelihood of Trump’s own appointed acting Attorney General Jeff Sessions’ chance of succession.
- Executing an order to expedite environmental review and impact studies for infrastructure projects which are considered a priority by federal agencies and governors.
- Memoranda for the revival of the Dakota Access and Keystone XL pipelines which had been halted by President Obama as well as instruction for sourcing and construction pipeline materials solely from the US.
- A memorandum to review the regulations on US manufacturing sector for a maximum reduction on regulation.
- A review of Wall Street regulations with the aim of reducing regulations.
- A memorandum for reviewing the fiduciary rule aimed at protecting retirement money.
- A memorandum reinstating the global gag rule which bans American non-governmental organisations abroad from discussing abortion in any way or form. The memorandum includes cutting funding to international organisations advising on or performing abortions.
- Memorandum to freeze all executive branch hiring except for the military. Opponents see the freeze as counterproductive and a threat to talent-acquisition as well as government programs, but Trump holds fast that it’s aimed at cutting government spending.
- Memorandum of intent to withdraw from the Trans Pacific Partnership which is aimed at lowering tariffs for 12 countries around the Pacific Rim.
There are other controversies also plaguing the new presidency, including Trump’s purported shady connection with Russian leader Vladimir Putin which we’d be wise to keep in mind when making financial decisions. The ripple of minor actions elsewhere affect economies everywhere.
2017 – the battle of the leaders
Of course, the story doesn’t end here. Across the globe 2017 has a lot to be mindful of. With Brexit having been officially authorised by the House of Commons in February, proceedings for the UK’s exit from the EU will be kickstarted sooner rather than later. This, of course, will undoubtedly impact international trade, travel, and international relations.
Then, of course, the world is watching the unravelling of the French presidential race with soap-like excitement. The elections are scheduled for 23 April 2017. Following current leader Francois Hollande’s refusal to run a second term, polls had placed Francois Fillon of the Republican Party, Marine Le Pen of the National Front and Emannuel Macron of En Marce! head-to-head in the race.
Things had not gone to plan for Fillon in podium position whose campaign had been stained by accusations of fraud. This purported slight had seen Fillon’s numbers take a dooming nose-dive and boosted both Le Pen and Macron’s voter intentions to 26% overall in a 50/50 tussle for leadership. Though South Africans have thus far not been too concerned with European politics, we certainly need to stay alert.
What makes Macron and Le Pen’s battle so significant is the preceding face-offs of other nations which places patriotism and nationalism against globalism and assimilation. We all know how the British voted – so the question is how other EU nations will vote. Le Pen’s anti-immigration and anti-Euro stance is clear, while Macron’s stance is a stark opposite.
And recent terror attacks seem to be playing right into Le Pen’s hand – casting more shadows over the fate of foreign policy and immigrants globally.
Unlike France, Germany’s leadership race has been plagued with controversy all along. Though the elections are still a way off on 24 September 2017, these successive global elections and debates would undoubtedly influence the decisions of other nations. Most polls point toward Merkel retaining her seat at the helm, but many believe Merkel would have to pawn off some of her liberal leadership policies as a sacrifice for the throne. Among other things, Merkel has indicated reviewing her controversial open-border policy which seems to hint that temperatures are rising in political inner circles.
As if Merkel doesn’t have enough on her plate, Turkish leader, Recep Tayyip Erdogan decided to chip in on the action by accusing Merkel of fascist behaviour. Merkel’s administration had not taken kindly to the accusation and it seems some more battle lines had been drawn.
But Germany is not the only country bumping heads with Turkey. Of late, the Netherlands had sparked Turkish outrage by banning pro-Erdogan rallies – an action which has scratched open the graves of the Srebrenica massacre and stirred old animosities. Erdogan has since vowed to contravene the ban and that the Dutch will face further consequences.
This year will also see the election of new Indian, Iranian, East Timorese, Hungarian, Rwandan, Slovene Turkmenistan and Czech leaders.
Now consider the broader global impact – Japan’s battles with Trump over Toyota contracts as well as their warnings to the UK that they are considering relocating their firms from the UK. And who can forget the world’s second largest economy, China – a major player in the global market who has persistently thwarted the rules and standards of other nations and international unions?
Not only has the republic bit its thumb at the US quite publicly over the American nation’s activities in the East China Sea, but the Chinese would undoubtedly be irked further by Australia’s decision to trash the extradition treaty between the two nations following strong opposition against Malcolm Turnbull in ratifying the treaty.
Then, of course, we have a disgraced South Korean president, a secretive and trigger-happy North Korean leader, a Russian leader perfectly placed to build a new super-union, a middle east which has not seen true peace in eons and, of course, our very own political gameshow playing out in South Africa.
Rescuing your rands: transfer your South African funds offshore
Given all these global factors, fights and occurrences at play, the safest bet you could make is to keep your funds close. For South Africans living in foreign countries this would undoubtedly mean exchanging their rands and transferring these funds, as well as retirement annuities and other policies to reinvest in funds which are more stable and could see higher yields. If anything, it would keep your funds safer for the interim.
Rand Rescue is the best resource for expatriating your hard-earned money offshore. Not only can we offer you better rates than our competitors, but we have assisted thousands of South Africans in getting their funds to their new homes and our track record speaks for itself. We offer secure, affordable and expedited services for your cross-border portfolio.