The following is a guest post by forextraders.com.
A country rich in natural resources and one of the world economy’s most important emerging regions is the Republic of South Africa, usually called South Africa. South Africa is located at the southern tip of the African continent, and it features over 1,700 miles of coastline on the Atlantic and Indian Oceans.
Historically a former Dutch and British colony, South Africa is an especially ethnically diverse country, with just under 80% of its population of black African descent. The country also has European and Asian sub-populations of significant size.
South Africa’s Recent Political History
Since the end of the racial segregation ensconced in its former apartheid policies in 1994, politics in South African have been led by the African National Congress or ANC which tends to receive 60 to 70% of the popular vote. The ANC’s primary political challenge comes from the Democratic Alliance party that received 16.7% of the popular vote in the 2009 election, up from 14.8% in 2006.
South Africa’s current president Jacob Zuma is still in the first half of his term, and his ANC administration has been challenged by difficulties in uniting his diverse support factions. Such a situation tends to create political inaction, and so the major social problems of unemployment, corruption and racial inequality in South Africa will likely continue uncorrected.
South African municipal elections are due in mid-2011. A poor result could leave Mr. Zuma’s government weakened and increase the odds that he will not serve another term.
Economic Overview of South Africa
South Africa currently has a market-based economy that ranked 32nd globally in 2009 in terms of its nominal GDP of $277.4 billion. The country also ranked 25th worldwide in 2009 in terms of purchasing power parity or PPP that was then at $488.6 billion, and it showed an annual GDP growth of 4.6% in the first quarter of 2010.
Almost 80% of the country’s GDP is produced by its services sector, with just over 20% coming from industry and less than 1% from agriculture. Mining, automobile and chemical manufacturing, and ship repair are particularly important areas of industrial activity within the South African economy.
Nevertheless, the country’s economy is still predominated by sales of natural resources since South Africa is the world’s top producer of metals like gold, platinum and chromium, and diamonds are also especially plentiful. This factor has resulted in a boost to the South African economy as the price of gold has made all time highs in recent years.
Inflation in South Africa comes in slightly above that seen in most other industrialized nations and it was running at the 4.6% level in mid-2010. On the other hand, the unemployment rate among the population of just under 50 million people is relatively very high, running at 24% in 2010.
In comparison with other emerging market countries, South Africa has an edge when it comes to affordability and the availability of capital, financial sophistication, corporate tax rates and infrastructure. Nevertheless, it has a relatively expensive work force that often lacks education on the use of modern technology.
South Africa’s Currency – The Rand
The currency currently used in South African is known as the South African Rand, and its ISO 4217 code is ZAR. Each Rand is further divided into 100 cents, and the currency has been in use as legal tender since 1961 when it replaced the South African Pound.
The South African Rand weakened considerably along with other emerging market currencies when the sub-prime mortgage crisis began, reaching a low at over the 11.0 Rand to the U.S. Dollar level in late 2008. Nevertheless, the currency has since recovered on the back of higher gold prices to where it currently trades just under 7.0 Rand/Dollar.
In terms of the currency’s availability to retail forex traders, many online forex brokers do not yet offer forex market trading in the South African Rand. Nevertheless, the Rand is rather actively traded among the exotic currencies in the Interbank market.
This guest post was written by forextraders.com.
[Kevin] So, reader, what are your own thoughts on South Africa and foreign exchange in general? South Africa is known for the production of platinum and other precious metals, but it’s also made the news for other reasons, such as a high incidence of stolen cars or due to bursts of violence, and even cases of people going there in order to take advantage of cheap hitmen!
Like Russia or other countries with a healthy endowment of natural resources but shaky legal and social foundations, a lot will depend on the investment climate and the stability and honesty of government.
currency trading is a zero sum game and is the closest to gambling. Study it carefully before you step in. The latest statistics indicate less than 30% of accounts are profitable in one of the biggest brokerage houses….
Good point Mich, and I agree. If someone wants to try it, I would not recommend putting more than a little bit in and only what one could afford to lose.
Btw I tried out one of those practice accounts and went long gold when it was at $750 or so — too bad it was only play money 😉
Currency trading is not my cup of tea but I noted an ETF for the South Africa currency
at http://seekingalpha.com/symbol/szr
I have no idea if this is a way to approach it. I agree to go small and with what you can afford to lose.
If you try it I’d be interested in knowing your progress.
Africa is definitely stepping it up in the investing realm. There’s lots of talk about replacing Russia in the “BRIC” and opting for an African country.
I agree with the two previous posts, FOREX can be volatile especially concerning currencies of an emerging market nation such as South Africa. Perhaps there are other ways to invest in South Africa?The Rand will just most likely react to negative political news in SA instead of news regarding the nation’s growing economy.
South Africa might have held the World Cup recently, but it’s not a place to invest money, in my book. In JoBerg you run the risk of getting shot in some areas if you stop at a red light at night. Driving through this civilized area, you will see bodies, shot dead by policemen, after some fella tried stealing something (they shoot to kill there) and the mayhem is getting worse and spreading. In Soweto, everyone cheers and runs circles around a stolen BMW that is then either trashed publically and left, or “erased” and sent across the border for re-sale. Nobody moves to SA. Everybody tries to escape it. The situation is creeping towards CapeTown, a previous haven. SA is a mess. It’s a lovely country. And I will go back. But man…it’s a mess.
Some people use the Rand as a way of investing in gold. Personally, I am not a fan of gold investing, but this has nothing to do with South Africa.
One of the challenges South Africa is currently facing is an acute power shortage. Eskom (the monopoly utility) is steeply raising tariffs until 2012, when its planned expanded capacity is supposed to come online. This has impacted its exports of ferrochrome, a key ingredient in stainless steel. One possible consequence might be that Chinese investments will be fast tracking some chromium mines up in Canada to make up for the shortfall.
i commented before on this article, but while I was scrolling through Bloomberg I found and interesting article which supports why the rand or any investment in an emerging market right now is a bad idea.
http://www.bloomberg.com/news/2011-01-30/egypt-spurs-jump-in-developing-money-market-rates.html
the emerging economicis are good places to invest.south africa is also following the economic policies of india but there are to be more flexible for attracting the more investments.the emerging economices have low production costs and can attract the major industries for their growth
Interesting post but I agree with some other commenters, SA has too much unrest right now (for me) to make it a viable long-term investment spot.
Alright, thoughts on South Africa and Forex. Starting with the latter, Forex is definitely a risky form of investing (I’ve seen it grouped in with speculation quite often, myself), where one half of every transaction is certain to lose money. (Every dollar you make means someone else lose a dollar betting on the opposite outcome.) Furthermore, the use of high amounts of leverage and the resulting possibility to lose more than you actually invested makes me nervous. Not saying it’s a bad place to put your money, but it makes me a bit too nervous…
On South Africa, I have fewer opinions. If the comments above are accurate, it seems a bit too dangerous to visit, and I would shy away from investing anyway I wouldn’t dare to set foot. Of course, if I was serious about single country investing, I’d have to do a lot more research in order to feel comfortable with it.
@DIY Investor
Agreed, and one could start out with practice accounts.
@JT McGee
Indeed, they could go for BRICA!
@Jeff, @Andrew Hallam
I remember reading in National Geographic about the policemen who would patrol at night with rifles, chasing stolen cars and shooting down their drivers. It sounded very brutal. Didn’t a company over there become notorious for installing flamethrowers and other various attachments to people’s cars? They still got a ways to go, it seems.
@krantcents
Krugerrands are pretty popular for this as well.
@101 Centavos
A similar issue impacted platinum/rhodium prices in the past, no? I wonder if it’s part of a scheme to keep prices high. 😉
@entrepreneurs startup, @My Own Advisor
Like with China, I think I’d prefer to go for a more indirect style of investing in things that rise as world prosperity rises, such as energy consumption and transnational companies in more developed markets like the US markets.
@Roger, the Amateur Financier
The only forex move I’ve done which was in a practice account turned out pretty well, but I personally would not put much money in this due to the reasons you mentioned. Forex is legitimate, honor finance programs even expect you to practice making trades, but it’s not the same as investing in stocks or bonds for sure.