The Strong Rand

The South African rand is currently very strong and the reasons for that is apparently because of the weakness of the dollar and also due to our high interest rates in comparrison to more developed countries. the high interest rates makes it very attractive for international investors due to the higher yields on their money.  This results in the inflow of foreign capital and the demand for our currency increases and therefore a resulting appreciation in the currency.

We know that our expensive labour and low productivity is one of the reasons why we need a weaker rand, as we need to have some leverage to still be more competitive. We are also a very commodity driven economy. For the exporting of our commodities such as gold we therefore need a weaker rand. It is therefore not good news for the future prospects. However the gold price have increased considerably recently and the price is about 30% higher, unfortunately the increase in income from the resulting higher gold prices is offsetted by the strength of the rand and the electricity hikes, ect. and we are basically where we were.

It is however not all doom and gloom as we know that Eskom and Transnet plans major infrastructure projects that amounts to billions of rands, These projects need machines and material that should be imported into the country and a rand that is so strong will assist Eskom and Transnet to get it much more cheaper then anticipated. They should act quickly in getting these materials as quick as possible as they will save in the long run.

These infrastructural projects are long overdue and will enhance not only capacity in the country but can be regarded as a major investment for the future.


It is also my opinion that the Reserve Bank has now the opportunity to cut interest rates even further as the inflationary pressures is very low due to the strength of the rand and that will ensure an increase in investments in businesses, because of the lower cost of capital to starting up of a new business, which will go a long way to reduce unemployment levels.