Wednesday, November 19

The big news in SA, if you can ignore the rugby and political scandals for a second, is the continued strength of the Rand in relation to the major currencies.

'Stronger rand better for GDP growth'

In December 2001, the rand reached a record worst level of 13.86 rand per dollar, 20.0866 rand per pound sterling and 12.4790 rand per euro. It finished 2002 at 8.59 rand per dollar, as the rand was the best performing currency against the US dollar in 2002. The average last year was 10.52 rand per dollar.

Currently the exchange rate is R6.50 to the dollar. Something not seen since 2000. The Rand is still not overvalued however.

Using the Big Mac measure of PPP it is estimated that 5.30 rand per dollar would equalise the cost of a Big Mac between the US and South Africa.

Using the Union Bank of Switzerland (UBS) measure of living costs in major centres, an even stronger level of 4.12 rand per dollar would equalise living standards between Johannesburg and major American cities.

The thought was that by lowering the prime lending rate, South African bonds would become less atractive leading to the weakening of the Rand. One reason given for the continued strength is the apparent weakness of the dollar, and the search of investors for alternative investment opportunities.

What is interesting for me is that South Africa is seen as an attractive investment alternative to the US at all.


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