South African Rand is challenging COVID-19 but it’s losing
2020 has become a direct synonym for economic devastation and disruption in our lives. The virus literally caused life to “stop” for several months while economies of different countries suffered immensely due to the restrictions that were imposed to curb the spread of Covid-19.
First appearing in China in December 2019 it has then spread in European countries and now there are fears that Africa will become the major hotspot. South Africa, in particular, has been affected greatly, where the government imposed strict measures and at some point selling the alcohol was also prohibited. According to Johns Hopkins University, South Africa is ranked as the ninth country hardest hit by the disease.
The country’s main currency, South African Rand is in a difficult situation and even though it tries to somehow regain a status quo nothing really changes. Covid-19 has massively changed the dynamic. Events in South Africa will have influence over the currency in the long term.
Rand and Covid-19
If we remember March this year, the Rand in South Africa had its worst period in nearly two weeks, while Johannesburg shares also fell after a poll showed that consumer confidence in the country fell to a 35-year low in the second quarter.
The pandemic is expected to cause significant losses to the South African economy, which was already in recession prior to the outbreak.
The South African Rand is one of the eight most popular currencies traded in the international Forex market. The movement of the South African rand depends on the demand for precious metals and raw materials: since South Africa is the world’s largest exporter of gold and diamonds, the increase in their prices supports the South African currency. If you take a look at the dynamics shown here the Rand has indeed suffered during the coronavirus period.
The weakening of the South African rand due to the spreading volatility in the markets due to the coronavirus epidemic prompts investors to transfer money to safer assets and lingering uncertainty over the effectiveness of measures taken by central banks around the world to limit the impact of the coronavirus has supported increased volatility.
Economy is struggling
The economy of South Africa is at risk of losing 1.79 million jobs as a result of the pandemic. This is declared by the South African Ministry of Finance.
The document submitted by the ministry to the country’s parliament says that if the pandemic drags on, the figure will reach 1.79 million.
The sectors that will be hit hardest by the novel coronavirus pandemic include manufacturing, construction, trade, financial and business services.
In general, the Ministry of Finance predicts this year a drop in South Africa’s GDP in the corridor from 5.4% to 16.1%, depending on various scenarios for the development of a pandemic. In turn, the Reserve Bank of South Africa, acting as the Central Bank, expects a 7% decline in GDP in 2020, which is the worst indicator since the Great Depression of the 1930s.
The South African economy has a very unique feature when compared to others. It is very heavy with cryptocurrency transactions. So much so that it’s not too far away from Rand transactions happening within the country.
Furthermore, the South African population tends to sell their crypto assets rather than hold on to them, therefore introducing a whole new batch of foreign currencies inside of the country without directly letting the Rand leave the economy.
This creates an amazing loop of consequenceless growth for the Rand as more and more people get themselves involved with things like BTC or ETH. This loop of currency pumping is one of the many reasons why crypto regulation in the country is a bit distorted and why the local government prefers South Africans to trade on foreign platforms.
The issue of alcohol and curfew
South Africa has banned the sale of alcohol just six weeks after buying alcohol became legal again in the middle of July. South African President Cyril Ramaphosa declared that it was very important that we do not burden the clinics and hospitals with alcohol-related injuries.
According to him, the current storm of coronavirus is much more severe and destructive than any previously known. South African authorities have also imposed a nighttime curfew to reduce road accidents and have ordered all residents to wear face masks in public. A nationwide curfew obliges people not to leave their homes between 9:00 pm and 04:00 am.
South Africa has recorded more than 7,000 deaths, most of which occurred in the last week. While an influx of infections is expected, the strength and speed at which it progressed is understandably a matter of great concern. The president also added that since alcohol sales were reintroduced, hospitals have experienced a surge in the hospitalization of patients in trauma and emergency departments.
South Africa introduced some of the most stringent restrictive measures in the world in April and May, including the closure of virtually all mines, factories and businesses, and a ban on the sale of alcoholic beverages and cigarettes. These measures have slowed the spread of the coronavirus, but South Africa’s economy, already in recession, shrank sharply, with the country’s unemployment rate exceeding 30 per cent.
Meanwhile, senior South African health officials have warned of an impending shortage of hospital beds and ventilators. Experts say the country will peak the COVID-19 pandemic between late August and September.