AuthorAuthor: Chris CammackUpdated: February 23, 2023

Last Updated On February 23, 2023

Chris Cammack

It’s been a busy few days for the rand versus the major currencies. With the rand already on the defensive as one of the worst-performing emerging market currencies this year, it has been particularly susceptible to any bad news. And there has been no shortage of bad news in the last few days.

First, on Sunday, ESKOM announced that Stage 6 load-shedding would continue until further notice, following the breakdown of 8 power generation units. This was followed by the 2023 Budget Speech by Finance Minister Enoch Godongwana. At first, it seemed as if the speech had calmed investors, with the rand falling back from a pre-speech peak of 18.38, its weakest reading since November 2022.

In his budget speech to South Africa’s parliament, the Minister said the government would take on 254 billion rand of Eskom’s 423-billion-rand debt, which he said was at risk of default. “This budget should be a welcome surprise for the market, which did not expect much detail with regards to Eskom allocations,” Deutsche Bank economist Danelee Masia said.

But the rand’s rebound was short-lived, despite a surprise increase in US business activity, which saw the USD fall against a basket of global currencies.

On the morning of the 23rd of February, South Africa awoke to the news that the CEO of Eskom had been summarily fired after giving an interview with eNCA. In the interview, de Ruyter claimed that the government did not have the political will to end the corruption at the power utility and that over 1 billion rand is being stolen from Eskom every month. Even more extraordinary, he claimed that high-ranking government officials – possibly ministerial level – were involved.

De Ruyter had already announced his intention to step down following an attempt on his life late last year. In response to a question on how to combat the corruption at Eskom, de Ruyter stated, “We’ve started closing the taps and that doesn’t make you any friends. It is difficult to speculate on who might have wanted to make an attempt on my life, but the people with motive, there’s a pretty long list.”

Needless to say, this news has not gone down well with nervous investors. The USD/ZAR roared back up to a peak at 18.37 before losing some of its ground in later trading. Peter Attard Montalto, head of capital markets at Intellidex, the South African research firm, said, “It seems rather odd a board would force out a CEO after an interview raising the widely known issue of rent extraction in and between the government and Eskom. A live wire has clearly been touched and the board has succumbed to political interference to remove him.”

Lost in all the chaos were two welcome measures introduced by the finance minister in his budget speech:

  • From 1 March 2023, businesses will be able to reduce their taxable income by 125% of the cost of an investment in renewables with no thresholds on the size of the projects.
  • From 1 March 2023, individuals who install rooftop solar panels can claim a rebate of 25% of the cost, up to a maximum of R15 000.

But with no short-term fix for the power outages crippling the South African economy and a strong USD, the rand is expected to continue to lose ground over the coming months; and with many now calling on President Ramaphosa to act on de Ruyter’s claims, the potential for further political and economic instability cannot be discounted.

Stay updated

This form has double opt in enabled. You will need to confirm your email address before being added to the list.