As South Africa gears up for its national elections on May 29, 2024, market participants are closely monitoring the potential impact on various financial instruments. The political landscape in South Africa has historically influenced the country’s economic outlook, affecting everything from currency pairs like USD/ZAR to commodities such as oil and gold, as well as digital assets like Bitcoin. Additionally, the election results could have significant implications for South Africa’s import and export activities. This article delves into the expected impact of the upcoming elections on these key areas, supported by insights from reputable sources.
Currency Pairs: USD/ZAR
The USD/ZAR currency pair is one of the most closely watched by traders and investors in relation to South African political events. The South African Rand (ZAR) is highly sensitive to political stability and economic policies.
Historical Context
Historically, South African elections have led to increased volatility in the USD/ZAR pair. For instance, during the 2019 elections, the ZAR experienced significant fluctuations due to uncertainties surrounding economic reforms and governance issues . Investors typically react to election outcomes by either gaining confidence in the stability of the country’s economy or by seeking safer assets if the results are perceived negatively.
Current Expectations
For the 2024 elections, several factors are at play:
– Economic Policies: The economic policies proposed by the leading political parties could impact investor sentiment. Policies aimed at fiscal discipline and economic reforms are likely to bolster the ZAR, while populist measures may lead to depreciation.
– Political Stability: The level of political stability post-elections will be crucial. A stable government with clear policy directions is likely to enhance investor confidence, thereby strengthening the ZAR.
– Global Economic Environment: The performance of the USD/ZAR will also be influenced by global economic conditions, including the strength of the US dollar and interest rate decisions by the Federal Reserve.
According to a report by head financial markets analyst, Luhan Oosthuizen, the ZAR is expected to experience heightened volatility in the lead-up to and aftermath of the elections, with potential for both sharp appreciation and depreciation depending on the election outcome .
Commodities and Bitcoin:
South Africa’s economy is heavily influenced by commodity prices, particularly oil and gold. The election results could have a direct impact on these commodities through changes in economic policy and investor sentiment.
Oil:
South Africa is a net importer of oil, and its economy is sensitive to changes in oil prices. Political stability and favourable economic policies could strengthen the ZAR, making oil imports cheaper. Conversely, political uncertainty or unfavourable policies could lead to a weaker ZAR, increasing the cost of oil imports.
A recent analysis by Luhan Oosthuizen highlights that geopolitical stability in South Africa could lead to a more favourable exchange rate, reducing the cost of oil imports and potentially lowering inflation . This, in turn, could positively impact sectors reliant on oil, such as transportation and manufacturing.
Gold:
Gold is another critical commodity for South Africa, both as a major export and as a safe-haven asset. Political uncertainty typically boosts demand for gold as investors seek refuge in safer assets. Conversely, political stability and positive economic reforms could reduce the safe-haven demand for gold, impacting its price.
According to Luhan Oosthuizen, the price of gold could experience upward pressure if the elections lead to increased political and economic uncertainty . However, if the outcome is perceived positively, gold prices might stabilize or even decrease slightly as investor risk appetite improves.
Bitcoin:
Bitcoin and other cryptocurrencies have gained traction in South Africa as alternative investment assets. The regulatory stance of the incoming government will play a significant role in shaping the future of cryptocurrencies in the country.
Regulatory Environment
South Africa’s regulatory approach to cryptocurrencies has been relatively cautious, with authorities expressing concerns over fraud and financial stability. The election results could influence the regulatory landscape, either fostering a more supportive environment for cryptocurrencies or imposing stricter regulations.
A study by Chainalysis, indicates that countries with clear and supportive regulatory frameworks for cryptocurrencies tend to see higher adoption rates and increased investment in digital assets . A favourable regulatory environment post-election could boost Bitcoin trading and investment in South Africa.
Market Sentiment
Market sentiment towards Bitcoin is also influenced by macroeconomic factors such as inflation and currency stability. In times of economic uncertainty, Bitcoin is often viewed as a hedge against inflation and currency depreciation.
According to Luhan Oosthuizen, Bitcoin could see increased demand if the election results lead to economic instability or inflationary pressures in South Africa . On the other hand, political stability and strong economic policies could temper Bitcoin’s appeal as a safe-haven asset.
Import and Export Activities
South Africa’s import and export activities are crucial to its economy, and the election outcomes could have significant implications for trade.
Imports:
The cost and volume of imports are influenced by the strength of the ZAR and the country’s trade policies. Political stability and pro-business economic policies could strengthen the ZAR, making imports cheaper and boosting economic growth. Conversely, political uncertainty or protectionist policies could weaken the ZAR, making imports more expensive and potentially leading to higher inflation.
According to the World Bank, political stability and favourable economic policies are essential for maintaining a strong currency and ensuring affordable imports .
Exports:
South Africa is a major exporter of minerals, agricultural products, and manufactured goods. The election results could impact export activities through changes in economic policy and international trade relations.
A stable and business-friendly government is likely to enhance South Africa’s export competitiveness by improving infrastructure, reducing trade barriers, and fostering better international relations. On the other hand, political instability or adverse economic policies could hinder export growth.
The International Trade Centre, emphasizes the importance of political stability and supportive economic policies in promoting export growth and attracting foreign investment .
Unemployment Status: Current vs. Expected Impacts
Unemployment is one of South Africa’s most pressing issues, with the country experiencing one of the highest unemployment rates globally. The upcoming elections could significantly impact unemployment through changes in economic policies and investor confidence.
Current Unemployment Status:
As of early 2024, South Africa’s unemployment rate stands at approximately 32.6%, with youth unemployment particularly severe at over 60%. The high unemployment rate is attributed to several factors, including slow economic growth, structural issues in the labour market, and the impact of the COVID-19 pandemic.
Expected Impacts Post-Elections:
The election results could influence unemployment in several ways:
- Economic Reforms: If the elected government implements effective economic reforms aimed at boosting growth and creating jobs, the unemployment rate could decrease. Policies focusing on skills development, small and medium enterprise (SME) support, and infrastructure investment are particularly crucial.
- Investor Confidence: Political stability and clear economic policies can enhance investor confidence, leading to increased foreign direct investment (FDI) and job creation. Conversely, political uncertainty or populist policies could deter investment, exacerbating unemployment.
- Industry-Specific Policies: Policies targeting key industries such as mining, manufacturing, and technology can have a direct impact on job creation. For example, supporting the mining sector through favourable regulations and investment incentives could boost employment in this critical industry.
According to a report by the International Labour Organization (ILO), political stability and pro-growth economic policies are essential for reducing unemployment and fostering inclusive economic development. The new government’s approach to these issues will be crucial in shaping South Africa’s employment landscape.
Conclusion
The upcoming South African elections on May 29, 2024, are poised to have a significant impact on various financial instruments, including the USD/ZAR currency pair, commodities like oil and gold, Bitcoin, and the country’s import and export activities. While political stability and favourable economic policies could strengthen the ZAR, reduce import costs, and enhance export competitiveness, political uncertainty or adverse policies could lead to increased volatility and economic challenges.
As traders and investors navigate the potential impacts of the elections, it is essential to stay informed and consider the broader macroeconomic environment. The insights provided in this article highlight the importance of political stability and sound economic policies in shaping South Africa’s economic outlook and the performance of key financial instruments.
Disclaimer
The content of this article is the personal opinion of the author, Francois Oosthuizen, and is not intended as investment advice. Readers should conduct their own research and consult with a regulated and licensed Financial Services Advisor and or Economists before making any investment decisions.
