RISK MANAGEMENT | 21 February 2024

Elections, the Rand
and the Year Ahead


Chris Paizis

Managing Director and
Head of Client Foreign
Exchange, Absa CIB


What does 2024 hold in store for the rand? We examine the outlook for the currency and its emerging market peers

It’s the year of elections. In 2024 voters in more than 60 countries, including South Africa, will go to the polls. Add to that the ongoing conflicts in Ukraine and the Middle East, and it’s a recipe for volatility. What might that mean for emerging market (EM) currencies like the rand?

“The rand has been relatively weak for the past two years or so,” says Chris Paizis, Managing Director and Head of Client Foreign Exchange at Absa CIB. “Unfortunately, it looks like it’s going to be more of the same in 2024, with the rand being part of a group of EM currencies – which also includes the Brazilian real, Argentinian peso and Turkish lira – that are forecast to remain under pressure.”

International factors

The rand and its under-pressure EM peers are expected to see continued weakness against developed market currencies as well as major EM currencies. “The Chinese yuan, Mexican peso and even the Russian ruble are forecast to perform better in 2024,” says Paizis.

“The path of the rand is a function of both international and local factors,” he adds. “In 2024 we are forecasting [that] international factors [will] still be a dominant force. Factors like the elections in the United States, United Kingdom and elsewhere, together with the wars in Israel and Ukraine, are going to be significant. And it’s an election year in South Africa as well, so there’s going to be a lot of local noise, too.”

Risk-off sentiment

For the past few years, geopolitics and a general risk-off sentiment have been major issues for all EM currencies – especially weaker ones like the rand.

“This environment means that investors in general would require a significant risk premium to expose themselves to emerging markets,” says Paizis. “By the looks of it, the risk premiums that are offered in South Africa’s interest rates and in our local markets are not enough to make investors feel sufficiently safe. That’s going to be another cause of volatility and relative weakness in 2024.”

Internal factors

But the rand’s challenges don’t all come from the outside. Paizis highlights a range of internal factors that South Africa’s currency continues to grapple with. “Electricity, constrained Transnet port issues, the election and possible uncertainty around its results… But then after the elections, there is concern about, ‘Well, what comes next?’

“A lot of questions are being asked about South Africa,” Paizis says, “and when you combine them with the international forces at play, it’s really affecting the value of our currency. And all the factors combined mean it’s a recipe for rand volatility in 2024.”

How to navigate 2024

“We are definitely in for another year of ups and downs,” says Paizis. For corporate treasurers, the lingering question remains: what’s the best way to ride out that expected rand weakness and volatility?

“The advice to our clients remains, stay close to your banking partners,” says Paizis. “Keep close to your hedging policies and do not panic when the market moves significantly. Markets don’t generally move in a straight line.”

Importers, especially, can get their foreign exchange fingers burnt if they don’t achieve their budget rate. For them, Paizis offers a final piece of advice.

“Working closely with your bank allows you to develop a hedging strategy with the appropriate hedging instruments,” he says. “In markets like this, that allows you to hedge through the volatility and get close to your target rates.”

Chris Paizis

Managing Director and Head of Client Foreign Exchange, Absa CIB

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