Plot thickens for rand as Eskom crisis escalate

The GBP/ZAR exchange rate soared to the highest point since September 2020 after Eskom fired its CEO. It jumped to a high of 22.22 as the South African rand continued plunging across the boad. The closely-watched USD/ZAR pair rose to a high of 18.3, the highest point since November last year.

Eskom CEO fired

Power has become the biggest challenge facing the South African economy. While the country is endowed with vast natural resources, it continues to experience rampant power outages on a daily basis. The reason for this is that, unlike in most western countries, South Africa relies on one company, Eskom, which has a monopoly.

The crisis in Eskom escalated on Wednesday when the board fired the CEO for delivering an interview in which he blamed the ruling party for the woes. He also accused a certain government minister, who was interfering with the company. André De Ruyter, the outgoing CEO, was even poisoned in 2022.

Therefore, the power crisis will likely continue in the coming years since there is no political will by the government to save the company. The government has pledged to backstop the company’s $22 billion debt load. 

The impact of the crisis, as I wrote in this article, will be dire. In the past few years, the number of companies leaving the country has increased. Other companies, including Pan Africa Resources, are investing in diesel generators and solar panels. In a recent note to FT, an economist said:

“When you’re running a business, you have to consider not just your stock, but the diesel you have to purchase. It’s very difficult for these businesses to survive.”

Therefore, while the South African president seems to have some goodwill, the situation will likely get worse. More companies, especially manufacturers will likely continue moving to other countries like India and China.

GBP/ZAR forecast

GBP/ZAR chart by TradingView

The daily chart shows that the GBP/ZAR price has been in a strong bullish trend in the past few months. It managed to move above the upper side of the ascending channel. It remains significantly above the 25-day and 50-day moving averages. The pair also rose slightly above the key resistance point at 21.94, the highest point on December 1.

Therefore, the pair will likely continue soaring in the coming months as the Eskom crisis escalates. The key level to watch will be at 23.