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 imposed to curb the spread of Covid-19.
First appearing in China in December 2019, it has spread in European countries, and now there are fears that Africa will become the major hotspot. In particular, South Africa has been affected greatly, where the government imposed strict measures, and at some point selling 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, the South African Rand, is in a difficult situation, and even though it tries to regain the status quo somehow, nothing really changes. Covid-19 has massively changed the dynamic. Events in South Africa will influence 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 before 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, its prices support the South African currency. If you 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 central banks’ measures 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. The South African Ministry of Finance declares this.
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 developing 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 unique feature when compared to others. It is cumbersome 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, introducing a whole new batch of foreign currencies inside the country without directly letting Rand leave the economy.
This creates an amazing loop of consequences for Rand as more people get 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 alcohol sales just six weeks after buying alcohol became legal again in the middle of July. South African President Cyril Ramaphosa declared that it was essential that we do not burden the clinics and hospitals with alcohol-related injuries.
According to him, the coronavirus’s current storm 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 trauma and emergency departments’ hospitalization.
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 coronavirus’s spread, but South Africa’s economy, already in recession, shrank sharply, with its unemployment rate exceeding 30 percent.
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.