Chart of the Week

Each South African president faced significant challenges in each of their terms, notes Liaan Burger of Cirrus Capital.

In 2001, the global economic slowdown affected emerging markets with South Africa facing political uncertainty coupled with several economic challenges, increased crime and HIV/Aids during Thabo Mbeki’s time.

In the US, this was the year of the September 11 attacks which caused global stock markets to drop sharply and emerging market currencies to weaken as investors seek safe-haven assets, thus negatively impacting the rand.

Kgalema Motlanthe came in office around the 2008 Global Financial Crisis, where investors again went for safer investments, leaving the rand vulnerable to further depreciation

In 2015, Jacob Zuma was forced to cope with a dip in commodities, with metal prices falling drastically (recessionary effects) and South Africa facing shortfalls being a key exporter of metal goods.

Cyril Ramaphosa had to deal with the Covid-19 pandemic unnerving global markets, and investors sought to move to safer assets once again.

The rand is thus highly vulnerable during times of global uncertainty and recession.

Nominal gross domestic growth (GDP) growth is useful to assess in this case as, when the rand depreciates, higher inflation is brought about by increasing import costs – an important component in GDP calculations. The economic impact of the weaker rand over time causes significant fluctuations in nominal GDP, demonstrating the impact of import inflation.

Nominal GDP also shows how a weaker rand affects: (1) the cost of doing business, (2) profit margins, (3) investment decisions, and (4) cost of foreign debt. Thus, it gives a better indication of the fiscal impact, particularly in assessing and preparing the government’s revenue and budget over the medium term framework.