Capitalising on


Mike Keenan

Head of Fixed Income and
Currency Research


High commodity prices typically spell good news for currencies like the rand. What’s driving the current boom, and how can African economies seize the opportunity?

The rand was riding a commodities boom in early 2022, as post-pandemic demand, combined with supply chain disruptions and market tightness, drove up the prices of coal and iron ore. That spelled good news for South African exports and for the South African currency, but as Mike Keenan, Head of Fixed Income and Currency Research at Absa CIB, warns, the opportunity is only as good as the economy’s ability to take advantage of it.

“Commodity prices were moving up even before the war in Ukraine,” he says. “That speaks to supply squeezes, which South Africa – as a commodity exporter – is well positioned to benefit from.” And while the rand took a hit in late April amid disastrous flooding in KwaZulu-Natal and increased load shedding nationwide, the formula still holds true: the currency typically strengthens when commodity prices are up.

Africa’s competitive advantage

Even though Russia’s war in Ukraine  caused a global spike in oil prices, South Africa’s balance of trade remained positive. “What’s nice for the rand is that commodities tend to move in unison,” Keenan explains. “Oil prices shot up in March, but over the past year or two all commodities have moved up. Sometimes metal prices outperform oil prices, and vice versa.”

What’s key is that more than 60% of South Africa’s exports are commodity-oriented, while oil makes up about 20% of the import basket. “That ratio favours the rand,” he says. “Although we import a lot of oil, we export a lot of metals, like platinum, gold, iron ore and coal. If commodity prices move up in parallel, the 60% weighting of our export basket is greater than the 20% weighting of our import basket. Unless oil prices screech ahead much faster than metal prices, and maintain that lead over a sustained period, commodity prices will remain supportive of the rand.”

The same is true for many African currencies. “It’s fair to say that for the continent as a whole, high commodity prices are good news,” says Keenan. “Countries like Nigeria and Angola, which are big exporters of oil, are very happy with oil prices being up where they are. At the end of the day, this is what we do. We produce a lot of commodities – that’s our competitive advantage.”

Capitalising on the boon

How long will the boon – and that advantage – last? “That’s very difficult for us to say,” says Keenan. “Absa is not a commodity house, so we don’t have strong views on commodities going forward; but as long as commodities are moving up, the rand is probably not going to sell off. Where South Africa is vulnerable is on the growth side. We have to make sure that we capitalise on these high commodity prices.”

That means encouraging producers to invest in their businesses, sinking new mine shafts and growing their capacity. “That’s what generates longer-term growth from a short-term commodities boon,” says Keenan. “The environment is right; we just have to ensure there are no bottlenecks in the system.”

The Minerals Council South Africa recently warned that the country is failing to fully capitalise on the commodities boon, with mineral companies missing out on USD2.4 billion (about R37 billion) from contracted volumes that couldn’t reach ports in 2021. While coal and iron ore prices were hitting historical highs, miners were forced to stockpile their supplies as Transnet’s rail network suffered breakdowns and cable theft.

“When you see reports that guys can’t get their stuff onto ships and out of our ports for logistical reasons, that is not ideal,” Keenan concludes. “We need to make hay while the sun shines, and make sure our logistics are in place to get materials out of the ground, onto the ships and offshore.”

To access pan-African foreign exchange expertise for your business, corporate and institutional needs.

Mike Keenan

Head of Fixed Income and Currency Research

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