The USDZAR exchange rate has fascinated South African investors and businesspeople alike since the rand was introduced. Our beloved rand, introduced on Valentines day of 1961 to replace the British coin system (3 months before South Africa declared itself a republic). We have become accustomed to the rand having substantial losses to the US dollar over the years which has allowed South African investors to benefit from offshore investing.
To begin with, the rand was worth $1.40 (R0.72 per US dollar) from the time of its inception until late 1971, the US dollar became stronger than the South African rand for the first time on the 15th of March 1982. Due to high inflation, mounting political pressure and sanctions, due to international condemnation of the apartheid system, the value of the rand was severely eroded, with the rand trading at over R2 per US dollar by February 1985. In July of 1985, all foreign exchange trading was suspended for three days to try and stop the depreciation.
R3 to the US dollar was breached for the first time in November 1992 with a host of local and international events influencing the currency, thereafter, including the election of Tito Mboweni as governor of the SARB (South African Reserve Bank), the inauguration of Thabo Mbeki in 1999 and the September 11, 2001, twin towers attack saw the rand reach its weakest historical level in December 2001 at R13.84 to the US dollar. The severe depreciation seen in 2001 led to a formal investigation and a dramatic recovery with the rand trading under R9 to the US dollar again, and by the end of 2004 trading under R5.70 to the US dollar. The rand softened over the next few years with factors including South Africa’s worsening current account deficit, which widened to a 36‑year high of 7.3% of gross domestic product (GDP) in 2007; inflation at a five-year high of just under 9%; escalating global risk aversion as investors’ concerns over the spreading impact of the sub-prime crisis grew; and a general flight to “safe havens”, away from the perceived risks of emerging markets. The rand depreciation was exacerbated by the Eskom electricity crisis, which arose from the utility’s inability to meet the country’s rapidly growing energy demands.
In late 2012 the rand continued its spiral due to a stalled mining sector and led to new lows in early 2013. In January 2014 the rand slid to R11.25 to the US dollar with analysts saying that “word from the US Federal Reserve that it would trim back stimulus spending, which led to a massive sell-off in emerging economies.” By the end of a tumultuous time, the rand was trading at R15.05 per US dollar, partly due to South Africa’s consistent account deficit with the rest of the world. The days of 9-13 December 2015 were drastic times for the South African currency, where the rand dropped over 10% due to President Jacob Zuma’s surprise replacement of Finance Minister Nhlanhla Nene with the barely known David van Rooyen, the rapid drop saw Zuma quickly back track, and announcing Pravin Gordhan as the new Finance Minister shortly thereafter. This confusing time damaged international confidence in the rand leading to an all time low to the US dollar with the exchange rate volatile throughout much of January 2016 and reaching an all-time low of R17.91 to the US dollar on 9 January 2016 before rebounding to R16.57 later the same day.
Following the United Kingdom voting to leave the European Union, the rand dropped further in value by over 8% against the US dollar on 24 June 2016, the currency’s largest single-day decline since the 2008 economic crash. This was partly due to a general global financial retreat from currencies seen as risky to the US dollar and partly due to concerns over how British withdrawal from the EU would impact the South African economy and trade relations.
In September 2017, Goldman Sachs said that the debt and corruption of Eskom Holdings was the biggest risk to South Africa’s economy and the exchange rate of the rand. At the time, Eskom had no permanent CEO. Colin Coleman of Goldman Sachs in Africa said the company was “having discussions on solutions” on finding credible management. In October 2017, the rand firmed against the US dollar as it recovered from a six-month low. Reuters noted, “South Africa is highly susceptible to global investor sentiment as the country relies on foreign money to cover its large budget and current account deficits.” On 13 November 2017, the rand fell by over 1% when the budget chief, Michael Sachs, stood down from his position in Jacob Zuma’s administration.
Since 2017 the rand has sustained a multitude of blows, including state capture, SOE corruption, maladministration of funds, incompetent governance, a strengthening dollar and a government that was struggling with a direction to follow until very recently.
The following table illustrates the rand on 1 January and 31 December in each year since 2017, to show you, the reader, how the rand has fared over the past few years:
| 1st of January | 31st of December | % Increase/Decrease | |
| 2017 | R13.74 | R12.37 | +10.49% |
| 2018 | R12.40 | R14.36 | -14.64% |
| 2019 | R14.39 | R14.01 | +2.67% |
| 2020 | R14.01 | R14.66 | -4.53% |
| 2021 | R14.66 | R15.95 | -8.42% |
| 2022 | R15.95 | R17.02 | -6.49% |
| 2023 | R16.98 | R18.29 | -7.42% |
| 2024 | R18.31 | R17.88 (11/09/2024) | +2.37% |
Source: ExchangeRates.org.uk
For us as South Africans living in rands, it has been positive to see the rand strengthening against the US dollar, since the launch of the GNU (Government of National Unity). We have seen the rand recovering some of the losses made over previous years, with forecasts suggesting we could expect to see the rand strengthen further over the next year, but this could easily go the other way if conditions worsen. This is a welcome relief for South Africans living in South Africa as we have seen recently with how the petrol price has started to come down due to the rand strengthening and cheaper oil prices, importing prices may improve due to the buying power of the rand improving and overall, this will benefit the lives of everyday South Africans. Whether these short term gains are here to stay or not, remains to be seen, with speculation about the strength of the GNU being a major factor as well as the hopefulness that new leadership will bring positivity from foreign investors and strengthen the local economy.
Ultimately trends would illustrate that we should not act based on emotion and haste and rather take a measured approach to ensure our finances are kept in check. Meaning that offshore investments should still be viewed as a catalyst for tremendous growth if utilized correctly, and not listen too much to the noise produced by a fragile environment. Whether or not the rand will continue to regain some of its lost ground over the next few years or whether it will continue to fall is up for future interpretation, but ultimately, as always, as individual investors we need to trust the long term process of investing, particularly investing offshore. Remember the end goal that has been set in place for you as an individual client, a business or a family, as well as the plan that was implemented when you, our client, began your journey of investing with RWM.
Sources: Trading Economics, ExchangeRates.org.uk, Google Finance, SARB, Wikipedia, Calculator Soup
