A mixed bag for SA’s economy

Surviving economically has become an extreme sport, and now SA’s unemployment has hit another record high. 😱 Our unemployment rate increased to a dismal 35.3% during October – December 2021. That’s up slightly from 34.9% during the same period the previous year. Basically, we keep producing more adults entering the workforce but not enough jobs to absorb them. We’ve previously explained what SA needs to do to change our unemployment problem. 

We also told you last week that the South African Reserve Bank increased the repo rate by a quarter of a percentage point. It’s now 4.25%, bringing the prime rate to 7.75%. Expect lots more of these as the bank gets the rate back to where it used to be. We saw the bank dramatically drop the repo rate over the pandemic to try to put some cash in our pockets. It used to be as high as 7% in 2018 and it reached an all-time low of 3.5% in 2020. But the risk is that inflation gets out of control. Interest rate adjustments help maintain the value of the money in your pockets, but it also increases the payments on a loan. 😕 If you’re considering fixing your mortgage rate given further increases on the horizon, read this useful Business Tech article first. 

We’re not the only country going through this. Central banks in 23 countries have raised rates so far this month – even the US Federal Reserve. 

On the bright side, the rand is at its strongest level this year thanks to high commodity prices like gold, platinum and palladium. Higher commodity prices also lift other parts of our economy along with mining profits. This means mines pay more in tax which MIGHT mean tax revenues could exceed expectations again and bail us out. There’s talk the government will use that extra cash to give us some relief with fuel costs – driven partly by the Russian war. 

The rand’s strong performance is also due to SA strangely being seen as more stable globally – despite the local doom and gloom. As Izak Odendaal, investment strategist at Old Mutual Wealth, puts it: “The rand benefits from higher commodity prices, but perhaps also from the fact that South Africa suddenly looks like one of the more stable corners of the emerging markets universe,” for investors, adding: “Few would have expected that South Africa would end up as a safe haven during a global crisis, but here we are.” We hope that made a convincing argument for Ramaphosa to woo investors at the Dubai expo he attended this past week. 😬

This article appeared as part of The Wrap, 31 March  2022. Sign up to receive our weekly updates.