2½ Cents – South Africa

In 2013, South Africa's currency, the rand, experienced a period of significant volatility and depreciation, marking one of its most challenging years since the end of apartheid. The primary catalyst was the "taper tantrum" in global markets, triggered by the US Federal Reserve's announcement that it would begin winding down its quantitative easing program. This led to a sharp outflow of capital from emerging markets like South Africa, as investors sought safer, dollar-denominated assets. The rand, which had already been under pressure, plummeted from around R8.50 to the US dollar at the start of the year to briefly breach R11.00 in late December, a loss of nearly 30% of its value.

Domestic economic woes compounded these external shocks. Growth was stagnant, hovering around 2%, while the current account deficit widened to a worrying 5.8% of GDP, making the economy heavily reliant on fickle foreign investment to bridge the gap. Simultaneously, the country faced severe labour unrest, most notably in the mining sector, which disrupted key exports and damaged investor confidence in the government's ability to manage the economy and social tensions. Rising public sector wage bills and concerns over fiscal policy added to the negative sentiment.

The currency's dramatic fall presented a major policy dilemma for the South African Reserve Bank (SARB). While a weaker rand benefited exporters, it sharply increased the cost of imports, fueling inflation and putting pressure on household budgets. The SARB, with its primary mandate to target inflation, was forced into a difficult position, having to consider interest rate hikes in a low-growth environment. Thus, 2013 set the stage for a prolonged period of economic strain, characterized by the conflicting pressures of currency weakness, rising inflation, and subdued growth, challenges that would persist for years to come.