The emerging-market sell-off may have already battered South Africa’s rand, but it could get worse as traders fret about a push for land reform that may have far-reaching economic consequences and is catching the attention of world leaders.
The currency plunged almost 10% against the dollar in August, its worst month in more than five years. Derivatives markets are signaling more pain to come as the economy teeters on the brink of recession and contagion from crises in Argentina and Turkey spreads. Traders are also increasingly nervous about the ANC’s plans for a constitutional amendment around expropriation of land without compensation.
Most investors agree land redistribution is crucial to address lingering inequalities between white South Africans — who own 72% of commercial agricultural land, according to a state audit – and black citizens, almost 25 years after the end of apartheid. But they’re concerned about a lack of details and say it could undermine property rights, deter foreign investment and lead to penalties from other countries, according to Morgan Stanley and Standard Chartered.
“Land reform is emerging as one of the key issues and it’s clear markets remain nervous,” said Razia Khan, London-based head of African research at Standard Chartered.