MONEY
25/01/2018 09:52 SAST | Updated 25/01/2018 10:03 SAST

The Gaining Rand And The 'Cyril Effect' – What It Means For Your Pocket

Expect to breathe – that's if the rand continues to strengthen.

Matthew de Lange via Getty Images

The rand recently hit its strongest mark against the dollar since 2015. On Wednesday, it broke through the R12.00 level. Around midday that day, it was trading at R11.96 against the dollar.

Some have reasoned it's partly because of the "Cyril effect" – since Ramaphosa won the ANC presidency in December.

"In my view, it all has to do with credibility," said Nazrien Kader, managing partner at Deloitte Africa's tax and legal services.

"For example, for the first time in a long time, we are proud of government representation at Davos – the credibility and transparency with which the team has presented itself. And there seems to be optimism around the country's growth prospects."

The subsequent strengthening of the rand, therefore, has to do with with the renewed confidence the international community has in South Africa currently, she reasons.

"We would also have to consider the things Ramaphosa has done since the ANC presidency win that might have boosted investor confidence, for example, the quick action concerning Eskom's board, his seeming strong intent in fighting Gupta family state capture allegations and the strong delegation he's leading at Davos," added Ntokozo Nzimande, an economics lecturer at the University of KwaZulu-Natal.

"While it may be too early to judge, it seems, for now, there is confidence of a more stable political outlook under his leadership of the governing party," he added.

The effect of the weaker dollar is also a consideration not to be set aside, Nzimande pointed out.

What the gain in the rand means for the South African consumer

  • Foreign investor confidence = jobs

Investor confidence is important because they will likely invest in our country. Their investment creates employment that Kader says "the country desperately needs". Job opportunities ensure that the great number of our youth without jobs have access, their lives improve, and they in turn plough money back into the economy for it to grow even further.

  • Cheaper imports

A stronger rand means South Africa will pay less to get goods into the country such as oil and food. This may have a ripple effect on interest rates, which might not need to be hiked this year, pointed out Nzimande, and the demand for our goods might grow. This might also mean that inflation – which is the sustained increase in the general price of goods – will also decrease.

  • Fuel cuts

Oil prices will likely go down if the rand continues to strengthen. That's good news for drivers, as they will fork out less for fuel. Further, notes Nzimande, because the moving of goods, for example, primarily relies on oil, lower oil prices may eventually result in cheaper prices for the goods we buy at shops.

"It feels like a bounce-back and all we need to do is keep ourselves there," said Kader enthusiastically.

Nzimande, however, cautions: "Ramaphosa does not lead in a vacuum. Over time, the people he leads with – the top six of the ANC – will also need to show that as a collective, they are worthy of South Africans putting their confidence in them. We must also remember that corruption is not a one-person, one-state, or one-family affair – its deep roots in government will also need to be dealt with decisively, if the stable political outlook will grow."