We have seen what can happen when an emerging economy takes on the USA and loses, in this case Turkey. The Turkish lira has dropped more than 70% against the US$ in 2018. South Africa has not escaped the pain and the rand is down 18% year to date. As South African citizens we cannot be arrogant when it comes to international affairs. Our economy is only 0,4% of the world economy, while the USA economy is 24% and that of China 15%.
We have to understand that, for now, the USA economy is strong and it will remain strong for some time to come. Our government has chosen China and Russia as our best friends, which automatically makes the USA our opponent. We have seen the power of the Russian and Chinese governments when it comes to clamping down on corporate and consumer freedom in the recent restrictions imposed on Tencent’s online gaming licences, thereby erasing more than $160 billion’s worth of market value since January.
Our mines and our SOEs like Eskom are caught in a death spiral with labour unions demanding double-digit wage increases for the workers, resulting in retrenchments. These, in turn, are blasted by government and unions as unpatriotic and they consequently demand nationalization of the mines. Meanwhile the share prices of commodities are collapsing, making most mines in South Africa unprofitable.
All of these things will put pressure on the rand and leave dollar investors smiling.
