Load shedding has been blamed by strategists as the single biggest factor weighing on the rand. So, signs that the crisis is easing bode well for the currency.
Prospects for gains in the rand in the next year or so are “really firm”, and much of this optimism is down to the outlook for electricity supply, according to Mamokete Lijane, global markets strategist at Standard Bank Corporate and Investment Banking.
“If we continue to resolve that issue — even if it’s not whittled to zero, but we’ve brought it to a place where growth can be better — that would increase our competitiveness, boost our rand,” Lijane said in Johannesburg on Wednesday.
South Africa’s state-run power company is unable to meet demand, subjecting the country to hours of scheduled daily blackouts that the central bank estimates may shave 2% off economic growth in 2023. Electricity minister Kgosientsho Ramokgopa said this month that available generation capacity and unplanned breakdowns are improving at Eskom.
There’s some evidence that foreign investors are responding to the slightly better power supply. Between 1 June and 15 August, non-residents were net buyers of R34.4-billion in local bonds, based on data from the JSE.
During that period, blackouts reached stage 6 — when Eskom cuts 6GW from the grid — only three times, according to data from ESP, an app that provides updates and alerts on load shedding. That’s a turnaround from May where at least a third of the month was spent at that level.
The currency gained 2.6% against the dollar in that time, though it’s still 11% weaker this year at about R19.15/$. The median of analyst forecasts compiled by Bloomberg sees the currency averaging R18 in the first quarter of 2024, about 6% stronger from where it is now.
Longer-term, the rand’s fortunes rest on how soon South Africa can address structural challenges, said Lijane. “Looking through the noise, I’m quite constructive on the rand,” she said. — Colleen Goko, with Timothy Rangongo, (c) 2023 Bloomberg LP