Given the furore around allegations of massive manipulation of the Rand by financial institutions, we’ve received numerous requests for more information from members of the tribe. Today, Financial Mail editor Rob Rose penned a quite brilliant analysis that deserves the widest possible audience. He has kindly allowed us to reproduce it on BizNews. Click here for the original article and to subscribe to the FM’s Premium offering.
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By Rob Rose, editor of the Financial Mail*
Jacob Zuma, South Africa’s former president and no great natural when it came to arithmetic, would pause and admonish people to “listen properly” as he lumbered, face first, over the minefield of some critical figure or other. Today’s ANC, sans Zuma, may have sold itself as a reversion to rationality, but it is clearly equally mystified by numbers.
This was evident in the sound and fury after the R42.7m settlement paid by the British bank Standard Chartered to the Competition Commission for its role in manipulating foreign exchange deals. In all, 28 banks were charged locally by the commission in a case that has now dragged on for eight years.
Now, while there was a conspiracy between cowboy traders at various banks — like Barclays’ Jason Katz and Citigroup’s Chris Cummins, who pleaded guilty in deals with the US department of justice — there has been no evidence that this was condoned by any of the banks, much less that executives knew of this. Rather, the evidence points to a laddish group of “rogue traders”, making small profits by ripping off individual customers.
Yet the facts have been so heavily manhandled by our public figures that The Star newspaper last Friday blared from its front page: “Trillions lost in rand fixing”. This bawdy fiction followed a report from the public broadcaster, the SABC, which said “it is believed that the 2013 cartel made R1-trillion a day due to price fixing and market allocation”.
It’s a catchy sum, and you can almost imagine a Dr Evil-styled banker cackling maniacally, pinky raised to his lips, as he repeats the figure. But as analyst Khaya Sithole points out, it’s nonsense.
While it’s true that in foreign exchange markets, an estimated $7.5-trillion is traded across the globe every day, Sithole points out that currency traders “can only claim a fraction of the trade value, based on the difference between forex rates and whatever other costs they’re allowed to claim”.
Extrapolate this to, say, a 0.5% commission on a forex trade, and you’ll realise that all the traders across the globe could make a total of about R700bn per day. And, since fewer than 1% of global trades take place in South Africa, you’re looking at R6.5bn of that being local — of which all but a fraction would be legitimate.
The reality is, the combined revenue last year of South Africa’s big four banks — Standard Bank, FirstRand, Nedbank, and Absa — was R451.7bn, less than half the sum they supposedly made per day, while their combined profit was R106bn.
“The Competition Commission itself acknowledges that it is impossible to calculate the actual damages caused by the practices,” says Sithole. The data, he says, “does not exist”.
The Star, maybe you could understand. But it seems the governing party has just as much trouble with numbers.
On Monday, minister in the presidency Khumbudzo Ntshavheni exposed her paucity of dexterity on this score when she told journalists that “the performance of the rand and sometimes the performance of the economy has been manipulated by [the] private sector, [which] has no interest in the development of this country.”
It’s a tried-and-tested ANC trope, implying a conspiracy at the highest levels of business to “ensure that the government collapses”. Ntshavheni said business feeds the narrative of a “collapsing economy, because that’s what they wish for”.
It’s a deeply disturbing sentiment from the minister closest to President Cyril Ramaphosa, who should know that it’s the private sector — through Business Unity South Africa — which has given skills (and money) to fix a logistics disaster wrought by the government, to fix a crime-fighting apparatus that is flailing, and to alleviate a power crisis that wiped hundreds of billions from our GDP last year.
As one senior banker tells the FM: “Were these forex traders part of a grander scheme to collapse the economy? No. But were they incentivised, through bonuses, to grow profits for their bank? Of course — but that doesn’t mean the banks sanctioned this.”
Yet Ntshavheni is far from being an outlier in her party.
Last Friday, ANC spokesperson Mahlengi Bhengu-Motsiri said these banks had “sabotaged” our economy. “During this period, the ANC-led government was wrongly blamed for the depreciation of the rand. Meanwhile, our economy was under attack through messaging platforms like Bloomberg and Reuters,” she said.
Yet the ANC’s argument, and now the government’s, is that the rand weakened not because of a fundamentally weaker economy, headlined by a GDP growth rate that averaged about 2% over a decade, but because the banks conspired to force it down.
So the ANC says it has been “wrongly blamed” for the 86% plunge from R10.20 to the dollar to R19 at last count.
It’s a remarkably ignorant view, since even a conspiracy of rand traders would have only been able to shift the rand’s value by a tiny fraction, which would have soon corrected.
Back in 2019, former finance minister Tito Mboweni told parliament the currency market is deep and liquid, so it’s difficult to find any “material or long-lasting impact” on the rand.
“Cases before the Competition Commission appear to be related more to the conduct of bank traders towards clients, rather than providing evidence of affecting the actual value of the rand, but let us await the outcome of that investigation,” he said.
But then maybe this week’s deflection is the internal dialogue the ANC needs to convince itself as to why its efforts to “pick up the rand” after its fall, as Nomvula Mokonyane famously said in 2017, have amounted to zilch.
As clueless as Ntshavheni seems, it was nonetheless deeply illuminating — first of her party’s dangerous belief that the private sector is locking in some Faustian conspiracy to destroy the very economy on which it relies, but also of how economically illiterate those with serious positions of responsibility in government truly are.
This, you’d have to say, is far more worrying than any fractional shift in the rand.
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*Rob Rose is the editor of the Financial Mail