South African currency, the rand, is traded on a global scale and it is used as a stand-in for investments in emerging markets; this makes the currency volatile. The volatility of rand discourages local businesses and foreign investors are unwilling to fund business endeavours.
According to IMF, the main causes of the rand’s volatility are political instability and policy uncertainty. Besides the rand’s instability, it has also been steadily losing value. The value of the rand has decreased from R7.17/$ in 2007 to R18.42/$ in 2023, more than half over the last 15 years,
Because of this, it is very challenging for foreign investors to make profits from their investments since they prefer stable currencies.
The South African Reserve Bank (SARB) made an effort to buffer the currency’s external shocks and keep the local economy afloat. South Africa’s National Treasury also try to lessens the impact of these shocks by ensuring that the country’s debt is paid in rands, it does this by regulating the financial industry.
The poor economic performance of South Africa rand and the impact of uncertain policy, however, cannot be mitigated by the SARB or Treasury.
According to Pieter Faber, a sound macroeconomic policy, investor security, and political stability are needed for currency stability.
The IMF agrees that a fluctuating rand discourages businesses from making long-term investments since the profits are unlikely to outpace inflation and rand depreciation.
Faber asserts that acquisitions are the only method for businesses to truly create a return in South Africa. However, IMF noted that South African businesses are accustomed to working with a fluctuating currency. Therefore, local businesses are struggling because of currency swings.
