Economic and currency analyst Matthias Krieger has condemned President Zuma’s adoption of populist policy, saying it will only relegate the Rand to nothing and eventually destroy investor’s confidence in the nation’s economy.
The Landesbank Baden-Wuerttemberg analyst Krieger said Zuma’s penchant for adopting populist policy will finally make investors look elsewhere, especially as the policy will be sending the Rand toward R17 to the dollar.
The currency’s best forecaster for the past four quarters, Krieger, said that the rand is overvalued and has little chance of strengthening in the next year due to Zuma’s “populist” government.
The currency may instead weaken to R17 against the dollar by at the close of 2016, and Kreiger says he remains “pretty pessimistic” about the political cost of South Africa.
“I am pretty pessimistic about the political cost of SA.”
“The deteriorating competitiveness of SA and the populist government of Jacob Zuma is the reason why I’m convinced we’ll see a weaker rand over the year.”
South Africa’s economy has no doubt been hit by a number of internal and external factors in the past few months. These include a slowing global economy and drought conditions brought on by El Niño
However, President Zuma’s numerous political and economic policy has also had a profound effect on the markets. Krieger said it’s the Zuma government’s long-term policy of taking the populist road that will ultimately do the most harm.
The government “shows an overall bias” to act more populist, Krieger said.
“This is the basic balance of the government and I’m afraid this will go on because unemployment is pretty high in SA and should remain so.”
Kreiger Echoes Rating Agencies warning
Kreiger’s comment echoes warning of the ratings agencies who have reprieved the country from a cut to junk status, and further warned the government to review its policies to help economic growth.
Fitch in particular, specifically warned the SA government to avoid populist “quick fixes” ahead of the 2016 municipal elections that would put the country’s economy at risk.
The agency said the government may be tempted to “react to the discontent about insufficient improvement to living standards by pushing costly social programmes” ahead of the elections.