CURRENCY
Productivity
While this deteriorating trend flattened out in the
mid-2000s, note the stark contrast since 2009, where on
average our trading partners’ labour cost has decreased,
while South Africa’s has increased substantially.
These two economic fundamentals determine the
long-term trend of the market, and as can be seen,
they both show a deteriorating trend.
T he productiv it y pict u re for South A fr ica,
especially in recent decades, is not pretty. As
Figure 2 illustrates, South Africa’s productivity has
deteriorated from 32% of our trading partners in
1971 down to just 10% in 2002. Since then it has
recovered, but still remains at under 20% of the
productivity of our trading partners based on output
(GDP) per capita.
Labour costs
Impact on the Rand
Because of the above decreasing productivit y
a nd inc rea sing labou r cost, compa red w it h
our trading partners, the Rand had to adjust
on average by 5% per annum since 1990 on a
trendline basis (actual depreciation to date is
6% per annum) as represented by the blue and
red lines in Figure 1, with this trend expected
to continue while the economic fundamentals
remain intact.
However, t h is does not e x pla in t he major
swings in trend around fair value, as highlighted
by green arrows in Figure 1. And that is because
sentiment is the major driver of the markets in
the short to medium term and is the cause of
these massive swings in price.
Understa nd ing t h is is c r it ica l to you r
investment decisions and timing, because while
you can be right fundamentally, you could lose a
lot of value on your Rands all along the way.
Figure 3 shows that the Unit Labour Cost in South
Africa has increased from 53% of our trading
partners in 1991 to 147% in 2011.
RESOURCES
Dynamic Outcomes
To better understand the impact of sentiment, download a free copy of the eBook Why the Rand
is Critical to Your Investing Offshore at www.ForexForecasts.co.za/go/InvestingOffshoreEbook,
where we expose the hidden element that can either ruin your investment decision, or catapult it
into your best decision ever.
10
Offshore Handbook 2014
www.reimag.co.za