Normally, February is the month when all eyes are on the Budget and what we can expect for the next year. This year was not only one of the most difficult and important budgets, but it comes after months of intense scrutiny of our economy.
It was therefore positive to see Finance Minister Tito Mboweni deliver such an optimistic 2021 Budget Speech on Wednesday, 24 February.
Mr Mboweni set out to reassure all stakeholders that government is on top of its finances. Amidst concerns that the Rand would devalue following the Budget Speech, it has instead remained reasonably strong.
To adequately plan for the upcoming months, however, it is important for businesses to balance the positive with the negative, and to look at international markets as closely – if not more so – than our local economy.
Macro Economic Factors
As Mr Mboweni pointed out, we saw an income surplus towards the end of last year, which is always positive. Much of this was the result of mining commodity prices going up and strong agricultural exports.
Similarly, the fact that the National Treasury has allocated additional funding to vaccines and additional lockdown measures should we experience a third or fourth wave will also be viewed positively by international investors and credit agencies, because we are proactively putting steps in place to support our people and our economy.
However, even though Mr Mboweni spoke about reducing the debt to GDP ratio from 95% to 88%, this is still an enormous amount of money.
There were also no concrete updates around planned expenditure cuts and the ongoing court battle with the public wage sector in terms of these cuts, which is unlikely to be resolved any time soon.
Overall, though, we believe that global influences are impacting the Rand’s value far more than our local economy.
For example, a $1.9 trillion stimulus package is about to be approved in the US. The European Union is announcing the approval of €1 trillion. Some of this money will eventually find its way into the South African economy.
We’ve also seen that all the fundamentals – both locally and internationally – that we use as market indicators are not revealing what we would normally expect from them, and this also has a lot to do with the stimulus packages. People in the US and the EU are expecting to receive cheques soon, and consumer behaviour has shifted as a result.
It’s clear that the world economy is trying to get back on track. Copper is at an all-time high, the dollar is strong and brent crude is over $60 a barrel.
Importers should leverage the strong Rand
These international factors have resulted in a strong Rand. Prior to the budget speech the Rand was floating at around the R14.60 mark and appreciated to a low of R14.39 as the first press releases circulated and at first glance the budget looked positive.
Based on global market movements, we expect the Rand to remain at strong levels in the short term, which means that for importers, it’s a good time to strategically hedge your orders and imports for the next three months or so. If you’re an exporter, however, it’s potentially the right time to hold out and cover any orders on a spot basis.
As the world economy starts to recover following the vaccine rollout, we believe we will see the Rand weaken in the mid- to long-term, particularly from the mid-year onwards.
Given these market fluctuations, we would recommend that business owners work closely with specialists who can help them navigate this terrain to protect the business and capitalize on opportunities.
