It’s an enduring criticism of financial journalism, and business in general, that it often fails to make a direct enough link between financial markets and everyday life as experienced by the majority of citizens. It’s not entirely unfair criticism and it’s arguable that this failure is behind much of the distrust that exists between the wider community and big business in particular.
This may explain some of the noises about motorists protesting against fuel prices, as if this is something that can be engineered by any particular government, when it’s driven by a variety of factors from higher international oil prices and a weakening currency since US President Donald Trump embarked on his foolish path towards a global trade war with China and others.
The Financial Times reported on Tuesday that the value of trade covered by Trump’s economic wars will break through $100bn this week and that could easily jump to $1-trillion over time, with dire consequences for the world economy.
The threat of slowing global growth has been one of the major factors weakening emerging market currencies and pushing up the cost of imported goods from oil to maize.
The rand is far from being the only currency to get hit, with the Indian rupee, for example, slumping to a record low against the dollar last week, while China’s currency is trading near its weakest level in almost a year.
Since the end of 2017, when the currency was initially boosted by optimism that President Cyril Ramaphosa’s victory at the ANC elective conference would usher in a new period of growth, it has depreciated by about 11% against the dollar.
That loss of value in the currency has been matched by a similar increase in the price of petrol, which on Wednesday jumped above R16 per litre for the first time. It might be hard to take for SA’s motorists, commuters and other consumers, but these are forces that are well beyond the control of any country, even one as well resourced as China.
Oil prices have soared to about $77 a barrel – it seems scarcely believable that prices were below $30 in early 2016 – and Trump’s tweet that he had secured Saudi Arabia’s agreement to increase production barely made a dent.
One can make the argument that the government can intervene by reducing the taxes on fuel, which account for a significant portion of what the end user pays. But that’s hardly a cost-free choice as the drop in revenue would have to be made up elsewhere, either through increases in other taxes or spending cuts.
Of course, global events out of our control are not the only thing that has driven the currency lower.
Almost daily, the Nugent inquiry into governance, or lack thereof, at the South African Revenue Service (SARS) gives more insight into the wrongdoing that eventually weakened the institution to such an extent that it missed its target by almost R50bn in 2017. The bureaucrats at SARS may seem far removed from the daily experience of most people, but it is arguably the most important institution in the country, because it’s the one responsible for collecting the money needed to fund services and support the economy.
And while state capture has become a buzzword, there is still little appreciation of the consequences for ordinary citizens. The almost total collapse of state-owned enterprises and the subsequent credit downgrades that eventually pushed the sovereign into junk are still largely seen as events far removed from normal people, concern for stockbrokers in Sandton or New York, rather than workers in Soweto. Nothing could be further from the truth. An even weaker economy and lower currency have been direct and expensive consequences for ordinary people.
The Reserve Bank isn’t scheduled to decide interest rates until July 19 and it still remains to be seen how long policy makers will wait before they decide the rand’s effect on future inflation will justify a rate increase, which would be another real-life consequence of events that may seem far removed.