The impact of the world financial crisis on South Africa

This is a link to a very positive and encouraging article on one of my favourite websites about South Africa (http://www.sagoodnews.co.za/) about the impact that the current world financial crisis might have on South Africa. Or, might not. Depending on whether you believe the writer of said article, one Ian Mcdonald. 🙂

I particularly like the title: “America has sneezed, how bad will our cold be?” (Probably ‘cos I’m trying to shake a cold…)

Mcdonald cites several factors that favour South Africa’s surviving this crisis relatively intact:

  • Exchange controls 
  • The National Credit Act
  • We have had a budget surplus
  • Infrastructure investment
  • Our banking system is world-class
  • Our property market is strong

I was about to exclaim: Well, then, if all is so hunky-dory in South Africa’s economy, why the blazes is our Rand so weak when compared to the US Dollar, the Euro and the Pound Sterling? According to http://www.xe.com/:

  • 1 US Dollar = ZAR 11.1329
  • 1 EURO = ZAR 13.8744
  • 1 GB Pound = ZAR 17.2094

Isn’t that HORRIFYING?!

And these figures have IMPROVED from what they’ve been in the last two weeks!

All I can do is heave a HUGE sigh of relief that we came back from our overseas trip just before our Rand went into a tailspin.

Mcdonald’s explanation for all this:

What about the Rand?
Our current account (trade) deficit is the main cause for concern as this has to financed with foreign capital inflows. The current global financial turbulence has placed the foreign capital inflows that are needed to fund the deficit at risk and this makes the Rand more vulnerable.

The Rand has taking a pounding recently, but not only as a result of the current account deficit. Almost all emerging market economies have been under pressure as investors have pulled their funds from countries with a perceived higher risk and repatriated the money within their own countries.

The depreciation of the Rand is not a reflection on the economic fundamentals of the country. Conversely, the US dollar, as the major international currency reserve, has strengthened – despite the dire outlook for the US economy.

Does all this sound plausible? Sometimes I wish we’d been taught the basic principles of economics at school…

Nonetheless, by the end of the article, I did feel a veritable goosh of patriotism. 🙂

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