The main factor driving the rand is not the local political transition, but Wall Street, says director and chief economist of Econometrix Dr Azar Jammine.

"The rand is going up and down depending on what happens on Wall Street. It is quite uncanny to see how the rand follows the Dow Jones," he says.

Jammine explains why this is so: "The rand is the primary vehicle through which international investors express their risk aversion to emerging markets. For example, when they are pessimistic, they sell the rand."

But why is the rand being used as the vehicle for such nefarious purposes?

Jammine explains that this is due to the high current account deficit – and the consequent heavy reliance on inflows to prop it up; a low level of foreign exchange reserves relative to the size of the economy; and the fact that it is one of the most highly traded currencies in the world.

"Just think that our reserves equal less than two days' worth of trade in the rand," Jammine points out.

Volatile rand

"This all makes the rand more volatile," he explains.

"But that doesn't mean it is a one-way street downwards," he adds.

Jammine feels that Africa is being seen as the last place in which advantage can be taken in extracting key materials, with for example, just three percent of its land being cultivated at a time when other countries are worrying about running out of food.

"South Africa is increasingly being seen as a base to penetrate the continent," he says, adding that this means further direct investments into the country could be seen. This investment will see rands being bought and help improve the currency.

"But on the whole there will be more depreciation than appreciation [on the rand]," says Jammine, who feels the rand could hit over 15 to the euro by 2011. It is currently at 11.75 to the euro.

Jammine also feels the dollar — the key vehicle against which the rand is depreciating at the moment — is not going to be on its high road forever.

More dollars than euros

"They will need to print more dollars than euros," he says.

Jammine notes on a real effective exchange rate basis that the rand has not declined as much as expected i.e. the rand relative to its main trading partners and taking inflation into account.

"It is not so much the rand falling as the dollar appreciating," he explains when noting the rand had sailed over 8.50 to the dollar this morning.

But the weak rand does have its beneficial side.

"The volatility helps insulate the real economy from global gyrations," notes Jammine.

"When the rand plunges it acts as a shock absorber as it boosts exports, and we can weather the storm better than most," he says.

Jammine concludes that while the political environment is very uncertain, he is hopeful pragmatism will prevail.

"Unbridled arena"

He feels, however, that a split in the ANC could cause some problems — like violence — and may become unpopular with the rest of the world if it creates an "unbridled arena" for leftist policies.

However, he also notes that it was not just the left who got Zuma into power as a lot of businessman also supported him in a vote to get rid of Mbeki.

Jammine, though, notes that the new regime is coming into power during a time of huge global economic challenges, and it remains to be seen how history will judge them.

He notes that Thabo Mbeki's administration enjoyed the tailwind of a strong period of global growth.

Jammine was speaking on Monday morning at a French South African Chamber of Commerce and Industry business breakfast.

I-Net Bridge