South Africa’s economic outlook has deteriorated rapidly as the country’s supply of electricity has shrunken to worrying levels in recent months and is expected to get worse this winter.
On Wednesday, the rand slumped to its worst level since April 2020, reaching R18.87/$ today. Less than a year ago, it was trading below R15.30.
On Tuesday, the rand had fallen about 1.7%. The country’s sovereign dollar bonds also dropped, with longer dated maturities being the hardest hit. The 2052 maturity was down more than 1 cents in the dollar to 82.8 cents. The yield rose above 9%, its highest in almost six months.
This comes as the struggling state-owned utility Eskom resolved to implement Stage 6 load-shedding indefinitely, and at times even higher than it’s communicated to the public.
Eskom told parliament Tuesday that there would be a 45-day delay in returning a generating unit online. The delay is likely to add further pressure on the grid during winter, which could result in major parts of the country seeing more than 10 hours a day of load-shedding.
The weakening rand, which is being outperformed by other emerging markets like Brazil, India and Mexico as they’re reportedly seeing currency gains, as well as the increase in the cost of imports and exports, are just some of the far-reaching consequences of load-shedding.
Economists say the strong dollar is another major factor keeping the rand from gaining traction as interest rates in the US remain high.
Speaking to the ‘Money Show‘ presenter Bruce Whitfield early this week, head of markets research at Rand Merchant Bank (RMB), Isaac Mhlanga, attributed the rand’s deterioration to a number of factors, including, at the very best, the ongoing Stage 8 load-shedding and above.
“It all has to do with load-shedding – potentially stage 8 – and seeing it as a potential grid collapse,” Mhlanga said, adding that while it’s quite obvious that a lot of domestic factors are playing into the weakness of our currency, a cocktail of global events add to what we’re seeing locally. He makes mention of poor Chinese data, US recession fears, geopolitical tensions in Asia, as well as the South Korean tension with China “which are also bubbling in the background”.
Locally, however, he attributes load-shedding as the biggest driver behind the weakening rand. “Every time we have the switches from stage 4 to stage 6 in a matter of hours, that obviously brings fear of a potential grid collapse. It’s all sentiment driven as far as the total collapse of the grid is concerned. But nonetheless, stage 6 of load-shedding is bad for the economy.”
He adds: “A lot of corporates that we speak to tell us that they can only function up to stage 3; stage 4 literally means they have to shut down production in some of their businesses; or that 4 hours of load-shedding implies for them only 2 hours of operation in a day if it’s repeated twice. With up to 11 hours of load-shedding in one day, there’s just no business that can run. And that is actually driving sentiments in an extremely negative territory.”
