The South African rand rallied to become one of the five best emerging market currencies for the first time since 2016.
A sign of renewed confidence in the country’s economy, but arguably overdue for a G20 state, a member of BRICS and (for now) the most advanced economy in Africa.
The case for confidence
Investors have been cautiously optimistic in the wake of the formation of the country’s coalition government established in the wake of the 2024 election. The ‘Government of National Unity’ – a broad coalition of opposition parties and the ruling African National Congress – is predicated on a unified push to get South Africa’s economy growing following the state capture years and President’s Ramaphosa’s lacklustre first term. (We discussed South Africa’s growth prospects in our recent edition of the Finalto Watchlist.)
That optimism seems to be holding firm. A survey of local CEOs featured in the Daily Maverick reports that business leaders are “overwhelmingly optimistic” about South Africa in 2025.
The cases for optimism rests on a number of connected factors, including political stability, improved power supply, and easing inflation. Analysts see scope for further easing of interest rates, as inflation has stayed within limits.
Global interest?
But does homegrown optimism translate into international investor confidence? There are some positive signs. To take just one data point, Investec reports enhanced appetite for global investors to meet with South Africans companies.
Foreign demand for South African assets will remain the true test. The rand experienced a record-low period of volatility earlier in 2024, but – as Bloomberg suggest – not necessarily for encouraging reasons: “the drop in volatility points to a troubling cause: a long-term decline in investor interest in the country”. A stronger rand will depend on sustained interest from global investors.
If the country can push through structural reforms – critically, ensuring energy security and improving transport infrastructure – we could finally see sustainable growth.
Of course, the rand’s ups and downs depend on a myriad of factors, many of which are beyond local policymakers’ control (such as US interest rate movements). Whatever the fate of ZAR this year, the rand will no doubt feature prominently in the thoughts of FX traders throughout 2025.
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