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Rand slides amid fresh political uncertainty in South Africa

South Africa faces a period of political and economic uncertainty which will only be aggravated by policy moves from the U.S. Federal Reserve, according to Martina Bozadzhieva, managing director of EMEA research at advisory firm Frontier Strategy Group.

"There is a political struggle there for sure, and there is also a struggle over government policy," she told CNBC Friday.

Earlier this week it was announced that South Africa's Finance Minister Pravin Gordhan had been called to appear in front of investigative police in the country, concerning allegations of a connection to a spy unit during his time as head of South Africa's tax authority. The rand fell sharply against the dollar on the news.

Many suspect that the arrest is politically motivated following his disagreements with President Jacob Zuma. Gordhan's management is thought to be soothing South Africa's volatile economy, and he is committed to cutting the country's budget deficit.

But, in light of Gordhan's recent troubles, a Reuters poll conducted just days after news of his summoning indicated that South Africa's credit rating is likely to be cut to "junk" status this year. Added to this, Bozadzhieva said that a U.S. interest rate hike would exacerbate the rand's volatility.


Finance Minister Pravin Gordhan speaks during the Cape Chamber of Commerce and Industry debate at the Westin Hotel on August 24, 2016 in Cape Town, South Africa.
David Harrison/The Times | Gallo Images | Getty Images
Finance Minister Pravin Gordhan speaks during the Cape Chamber of Commerce and Industry debate at the Westin Hotel on August 24, 2016 in Cape Town, South Africa.

"Very smart investment"

Following the ruling African National Congress' (ANC) disappointing local election results earlier in August, Bozadzhieva acknowledged that the ANC is under "pressure to implement more populist policies, and more government spending."

Yet, Bozadzhieva said that multinational companies are not pulling out of the country. Instead, she explained that, "if anything, they are actually putting very smart investment in, and trying to implement policies that can help them do better even though the macro environment is very unstable."

Investors "want to see very clear policy that is consistently being implemented, rather than the inside battles within the ANC that you're seeing right now," explained Bozadzhieva.

She said that a better functioning democracy for the country was crucial, as well as acknowledgement from Zuma that his actions genuinely impact the country's volatility, particularly where its currency is concerned.

The rand was boosted earlier this month following the ANC's lackluster local election result, which revealed a strengthening opposition to Zuma's leadership.

But, when asked if South Africa's economic and political troubles would be solved by removing the current president, Bozadzhieva suggested: "You also have to remember, who is going to come to replace him? … Is it really just about Zuma?"

Bozadzhieva points to other parties' involvement in current troubles, citing the example of the left-wing Economic Freedom Fighters – led by former Zuma supporter Julius Malema – who are "pushing the ANC towards more populist policies." She said: "Whether it is Zuma at the helm of power or not, that pressure is going to stay there."

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