Over the past few years the rand has shed enormous value against other currencies, sliding from around R6.5 to the US greenback in 1994 to nearly R14 to the American dollar at the close of 2001. More recently it was the world’s second-worst performing currency. Just a year ago, the thought of having to pay R20 for a single British pound would have been laughable.
Today, such dramatic currency plunges are bringing about a radical change to the South African mindset. Some are delighted, others appaled. It all depends on the individual: for the gold miner, it is manna from heaven; for the overseas traveller, a total nightmare.
The collapse of the Argentinean economy was well underway when the rand began its latest meltdown, so the effect on South Africa of the South American nation’s eventual default in its $132bn foreign debt was that of driving the nail further into the financial coffin as the rand bore the brunt of negative sentiment about emerging markets.
Comfortingly for South Africa, however, at virtually the same time the International Monetary Fund (IMF) said it is ready to consider financial support for South Africa if that is requested. But so far the South African government has not asked for help. “We have received no official request from South Africa for financial support from the Fund,” an IMF spokesperson reports. At that stage, in mid December, the rand had fallen by some 45% since the start of 2001.
A reason that the IMF was ready to help at a time when Argentina was reneging on the biggest foreign debt in history is the Fund’s belief that “the weakness of the rand is not supported by South Africa’s macroeconomic fundamentals, which remain solid”.
In other words, in the IMF’s view, South Africa’s economy is in fine fettle. If that’s the case, what’s the problem with the rand? It may be no more than a matter of foreign investor confidence which views with a jaundiced eye South African big business’s flight to first world shores.
The spate of big SA companies into self-imposed corporate exile abroad over the last couple of years, mainly to the UK, undoubtedly undermined foreign confidence in the rand and contributed to its weakness. Dimension Data, Anglo American, Old Mutual, SA Breweries - to name a few - shifted their primary listing to the London Stock Exchange, citing difficulties in raising capital through South Africa as the principal reason.

Read the full story in the February 2002 edition of African Business Magazine

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