President Cyril Ramaphosa. Picture: REUTERS
President Cyril Ramaphosa. Picture: REUTERS

After the exhausting year that 2019 has proved to be, it is hard to believe that the currency may actually end with a little gain. Over the past month, the rand is up more than 3% against the dollar — the second best-performing major currency after the Brazilian real — meaning for 2019 it is now up 0.2%.

Considering the headlines about the economy and possible ratings downgrades, the reasonable expectation would have been that 2019 would turn out as dismal as 2018, when it crashed by a huge 16%. But before we get excited, this hasn’t been of our doing.

The main driver has been growing market optimism that China and the US will finally clinch a trade deal, removing a cloud over the world economy that has had a disproportionately negative effect on emerging markets.

Back to 2018. That year had started on such a positive note, with Cyril Ramaphosa rising to the presidency of the country and setting up a brief period of Ramaphoria.

The combination of Donald Trump’s trade war with China and turmoil in emerging markets such as Turkey and Argentina soon deflated that optimism. But the biggest blow was self-inflicted by that infamous Ramaphosa late-night announcement on the expropriation of land without compensation. That soon dominated the conversation among local and international investors and raised questions about Ramaphosa’s control of his party. Those questions remain today.

With the start of 2019, it became conventional wisdom that none of the big decisions that needed to be made on key issues, from government finances to fixing state-owned enterprises, would be made until the elections in May.

So as Eskom left parts of the country in the dark in the first quarter, the country was left adrift. There was much hope that there would be movement once Ramaphosa had secured a convincing victory for the ANC in the May elections. Sadly for SA, that has largely not materialised.

The medium-term budget policy statement by finance minister Tito Mboweni underlined how dire the country’s finances are.

Things got progressively worse, with SA Reserve Bank meetings notable for their downgrades to the economic outlook. At the January policy meeting, the Bank forecast growth of 1.7% for 2019. When it met in November, that was down to an even more paltry 0.5%. With the return of load-shedding in December, which came shortly after the release of data showing an economic contraction in the third quarter, even that outcome looks optimistic. A recession is the more likely outcome.

So this would not be a context for a rand rally. The main driver has been growing market optimism that China and the US will finally clinch a trade deal, removing a cloud over the world economy that has had a disproportionately negative effect on emerging markets.

Perhaps the best place to look for investor perceptions of SA is the bond market, which is where you look if you want to analyse what potential lenders to the country think of its ability to repay its debt. And that shows a still elevated risk premium attached to SA assets.

Yes, SA’s 10-year yield, which moves inversely to the price, has been dropping in recent days. It was at about 9.1% on Thursday, from 9.3% in the middle of January. That is still relatively expensive, considering an inflation rate of just 3.6% in November, meaning the real yield that investors demand for holding our paper is 5.5%.

Then look at Brazil, which is already rated junk by all three major companies. Its 10-year yield is just under 7%, while the latest inflation reading was 3.3%, leaving it with a real yield of 2.7%.  

Which all means we have a long way to go before we convince foreign bondholders of our prospects of doing the things needed to stabilise the economy and finances, and avoid losing our last remaining investment grade.

The good thing is that we know what we need to do. As we head off on our holidays, the question is whether Ramaphosa and Mboweni can start the new year with some easy wins and boost confidence. For the good of the country, and potentially Ramaphosa’s own immediate future, let’s hope he starts 2020 on a strong footing.