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FOREX Africa: Rand Tumbles To 5-Year Low

FOREX Africa: Rand Tumbles To 5-Year Low

As a frontier market, the countries of Africa represent tremendous opportunities and tremendous risks. On the risk side of the ledger are all the usual complications of international trade and investment compounded by the problems inherent in a developing, emergent continental market consisting of 54 countries and 1.1 billion people – it’s a lot to keep track of.

Luckily, the ups and downs of the African currency markets are not one of them if you know where to look. To help with that, AFKInsider has compiled FOREX Africa: news you need to know now in order to slim down your currency risk.

Platinum strike rumors hit rand

The widely-traded South African rand tumbled again just two weeks into the new year, falling to 10.87 with momentum in the market looking to push the rand to 11 rand to the dollar within short order.

This latest round of problems for Africa’s most widely traded currency comes on the news of continuing labor unrest in the nation’s all-important mining sector, with the Association of Mineworkers and Construction Union meeting later this week to vote to strike over pay at South Africa’s three biggest platinum producers.

Platinum, a pricey, extremely rare precious metal used in electronics, clean energy devices, and other high-tech end products is found mostly in South Africa. The country is by far the world’s largest producer of the metal and typically accounts for 75 percent of annual world output. Platinum prices have, accordingly, spiked to $1,433 per troy ounce.

Labor unrest in South Africa is nothing new, or course, as this major precious metals producer has a long history of labor activism, but of late that activism has been getting louder and more pronounced.

In August, South Africa’s gold mines were hit by wildcat strikes while similar activity at several car manufacturers caused a loss of $60 million a day and left 30,000 workers idle for much of the summer. Then, as now, desire for higher wages by workers is the major stumbling block preventing an agreement between management and labor.

Post-apartheid blues

Part of what is driving this resurgence in labor activism in South Africa is frustration with the post-apartheid status quo in which political rights, but not economic inclusion were granted to the country’s majority black population. When democracy was finally instituted in 1994 the sheer newness of political freedom and the joy with which the country’s first black president – the late Nelson Mandela – was ushered into office papered over expectations for immediate economic returns to the granting of the political franchise.

Today, 20 years after Mandela’s election and just a few weeks after his funeral, most of the economic fruits of democratization have yet to trickle down to the average South African who once suffered under apartheid. True, an entrepreneurial black middle class has emerged since Mandela’s triumphant election, but these so-called “black diamonds” are often tied to government – particularly the ruling African National Congress. There have been accusations that corruption has tainted the divvying up of government contracts and has affected the hiring processes in some parts of the country.

Indeed, corruption has become a major problem in South Africa since democratization, and outside observers have long been warning that Mandela’s legacy is being threatened, if not undermined altogether, by the growing venality of the ANC.

Schools go underfunded, social services – including public health – are falling apart, and, in the meantime, South Africa’s vast youth population is facing an unemployment rate of greater than 50 percent. Perhaps most telling, the gap between rich and poor in South Africa is greater today, under ANC rule, than it was during the apartheid era.

Public frustration is growing, with labor unrest just a tip of the iceberg. Violent crime, rooted in economic desperation, has become an endemic problem throughout much of the country, and the potential for political violence is growing as inequality and social disintegration grow.

The massacre of 34 miners during the wildcat Lonmin strike in 2012 saw black police firing on black workers in one of the worst incidents of security-service violence since the apartheid era. It’s a bleak reminder that lurking behind the prosperous veneer of modern South Africa is a simmering anger by the country’s “have nots” — an economic status quo that seems to only benefit the politically connected.

ANC heal thyself

So what does this mean for the rand and the South African economy? In the short run labor unrest, especially in the mining sector, is likely to continue and may eventually result in some economic gains for the nation’s workers. Until that happens, though, expect industrial  disputes to continue undermining output.

More broadly, the tapering off of the quantitative easing by the U.S. Federal Reserve and a slowdown in Chinese growth could hit both the rand and the South African economy in the coming year. As ever, external factors will loom as important factors determining South Africa’s economic fate.

While this may be the case, the underlying cancer eating away at South African economic prospects does not fall outside its borders or otherwise beyond its ultimate control. After 20 years in power the ANC needs to learn to govern not as a liberation party coasting on its glorious anti-apartheid past, but as a modern, growth-focused, technocratic party that is seriously concerned with reducing corruption and bettering the lives of South Africa’s least fortunate through the adroit use of public policy.

Until that happens, no matter what outside conditions South Africa faces, ANC misrule will prevent the country from reaching its full potential. South Africans and the rand deserve a better government than they are getting, but it remains to be seen whether the ANC will step up to provide the better leadership and governance that the country desperately needs. As the country goes to the polls this summer, South African voters might do well to remind the incumbent ANC of that fact.

Jeffrey Cavanaugh holds a Ph.D in political science with a specialization in international relations from the University of Illinois at Urbana-Champaign. Formerly an assistant professor of political science and public administration at Mississippi State University, he writes on global affairs and international economics for AFK Insider, Mint Press News and BAM South.