South African Rand Falls in Risk-off Markets after Trump Weighs in on Land Expropriation Programme

- ZAR under pressure in risk-off markets as Trump hits out at ANC.

- US State Department to study ANC's land expropriations policy.

- ZAR losses limited so far, although analysts urge clarity from ANC.

© Comugnero Silvana, Adobe Stock

The Rand fell in "risk-off" markets Thursday as US and China talks on trade relations resumed and as traders responded to President Donald Trump having waded into the now-international debate around a controversial land reform programme of the South African government. 

South Africa's Rand is an emerging market currency so, like many others, came under pressure throughout Thursday as investors shunned assets that could suffer if the trade talks in Washington turn sour.

Losses were in line with those experienced by other emerging market units like the Turkish Lira and Brazilian Real, suggesting the extent of the damage done by President Trump's intervention may be limited thus-far. 

I have asked Secretary of State @SecPompeo to closely study the South Africa land and farm seizures and expropriations and the large scale killing of farmers. “South African Government is now seizing land from white farmers.” @TuckerCarlson @FoxNews

— Donald J. Trump (@realDonaldTrump) August 23, 2018

The ruling African National Congress and a majority in South Africa's parliament passed a resolution in South Africa's parliament on February 28 that, in part, reads; "With the concurrence of the National Council of Provinces (NCOP) instruct the Constitutional Review Committee to review section 25 of the Constitution and other clauses where necessary to make it possible for the state to expropriate land in the public interest without compensation.”

The Expropriation Act was designed to placate the radical Economic Freedom Fighters grouping of the parliament but will require wholesale constitutional change that not only casts Ramaphosa's grip on power in a much weaker light, but also places a question mark directly over South Africa's commitment to private property rights. President Ramaphosa confirmed earlier in August that the government will push ahead with the reforms. 

Trump's tweet came hard on the heels of a Cato Institute blog calling for US intervention. Cato is a Washington-based "think tank" with a Libertarian policy bias, although the issue may not have come to the White House's attention until it was picked up by Tucker Carlson at Fox News.

"The United States was heavily involved in negotiating the transfer of power from the ruling National Party to the current government, which is composed of the African National Congress and the South African Communist Party. As such, the United States bears some responsibility for ensuring that South Africa’s post-apartheid political settlement, including protection of minorities and private property, endures," Cato says in its blog.

Cato was founded by Charles Koch, among others, who is known as a Republican donor and critic of President Trump. He is also CEO of Koch Industries, a multinational conglomerate that is America's second largest privately owned company. 

"Land grabs were never ANC policy," says Mpho Tsebe, an analyst at Rand Merchant Bank. "The party’s conference resolution also states that the land reform policy should prioritise the redistribution of vacant, unused and under-utilised state land. However, it is becoming more important than ever, that the ANC and government move to clarify how the land reform programme will be carried out."

Advocates of the land expropriations say it is necessary to provide enough opportunity to black would-be farmers, often suggesting there is a severe racial disparity in the ownership of farming land that they claim is the result of South Africa's time as an imperial possession and of the apartheid system.

Critics say it has negative implications for human and private property rights, while also claiming it could deter investment from South Africa's struggling economy. There is local precedent for such adverse outcomes, established most recently in neighbouring Zimbabwe. 

The USD/ZAR rate was quoted 1.68% higher at 14.41 around the London close Thursday while the Pound-to-Rand rate was 0.92% higher at 18.45. Meanwhile, the USD/BRL rate was 1.65% higher at 4.10 and the USD/TRY rate was 0.84% higher at 6.07. 

"USD/ZAR continues to show good momentum to the downside, largely on the back of the dollar giving up some of its recent gains," says Gordon Kerr, a rates strategist at Rand Merchant Bank. "We are now approaching critical levels for the dollar, with the bounce higher in Asian trading this morning showing that the bulls haven’t gone away just yet."

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