What’s the story with the rand

South Africa’s four major banks
The Rand Exchange Rate 2014

Currency predictions are notoriously difficult to predict and you can read many views over whether the rand will strengthen, weaken and why it has seen a decline in recent months.

We make no attempt below to give you any predictions but have garnered some of the thoughts in the marketplace for your perusal to give you some background as to its recent movements.

Many experts point to 3 main reasons that the rand has been in decline:

  1.  South Africa’s current account deficit – this refers to the difference between exports and imports and South Africa currently has a R200 bn deficit that needs funding. In short South Africa is spending more than it is earning.
  2. Attraction of foreign investments – the current account deficit has traditionally been funded by foreign investment. The USA has been tapering its efforts for economic recovery meaning less funds available to purchase assets, this is hurting not just South Africa but many developing markets, think India and Turkey.
  3. Some negative market sentiment towards labour unrest is also a much quoted contributing factor.

Of course what it does mean is that South Africa’s exports become all the more appealing as they become cheaper for foreign currency purchases and also that South Africa is becoming increasingly popular as a tourist and retirement destination for those with ‘hard’ currencies.

The TBCSA/FNB tourism business index, compiled for the council by consultancy firm Grant Thornton, finished at 114.6 points at the end of the year versus the expected 110.8 points. House prices, as an example in GBP, are approx one third cheaper than this time last year and of course foreign pensions are going very much further in terms of there purchasing power.