A challenging year ahead

We all like to start off a new year with a positive disposition, full of fresh ideas and high energy levels. Time off over the holiday period was certainly welcome, and now that we are experiencing some respite in certain parts of the country from the hot weather and drought conditions that we have experienced over the last few months, albeit a small amount of rain, we should all be smiling.

However, for the majority that only returned to work on the 11th January 2016 you would have been greeted with the news that overnight the South African rand had plunged as much as 9%, the most since October 2008, to R17.9169 per US dollar. It did recover later but this was still the biggest decline among 31 emerging-market and major currencies. The South African currency, which dropped 25% last year, had losses accelerated in December 2015 after President Jacob Zuma unexpectedly fired his finance minister only to alter the decision days later. One wonders why he has not been recalled especially on the back of his remarks that the reaction to his decision to sack Nhlanhla Nene as finance minister in December had been an exaggeration.

When one also considers that when he took office in 2009 the exchange rate was more or less between R8.20 and R8.40 to the US Dollar (R3.55 in 1994) it is not surprising that you could easily slip into depression. The President himself is not the sole reason for this decline, but during his watch the Rand has seen the biggest devaluation ever. One does not want to get into a political debate because there are many different viewpoints, but this is a sad legacy to leave behind and we assume that President Zuma will hand over the reigns after his second term. Although South Africa’s Constitution limits the president to a maximum of two terms, the ANC’s constitution has no term limits for its president.

Nevertheless there are still several positive stories in this issue. The Cover Story shows how we, as South Africans, can be players when it comes to major sporting events inspired by creative engineering in the automotive field.

This is followed by the proposed R1,8 billion investment in the ‘greenfield’ forged train wheel manufacturing plant. The project will also create the opportunity to export forged wheels out of South Africa, and with the current exchange rate this should make the manufacturer’s product very competitive, as it will do for most exporters.

There is also the story on ‘New contracts to boost Denel’s armoured vehicle business’, which is very encouraging considering where the SOE was five or so years ago. The not so encouraging story is about the Paramount Group entering into a R1 billion deal with the Kazakhstan government for the manufacture of armoured vehicles in that country. As the Group’s executive chairman Ivor Ichikowitz said “it was very difficult to raise capital in South Africa for these kind of investments. Paramount was therefore raising finance internationally because South Africa had no structures that allowed the sector to raise capital for the industry in the domestic market.”

The year ahead could be both very interesting and challenging, especially if you believe the analysts who are predicting that the Rand could be 19 and maybe even 20 to the US dollar by the end of 2016.