President Ramaphosa’s first State of the Nation Address as the leader of the GNU highlighted the urgent need to address local government failures, which directly impact service delivery and place additional pressure on Eskom and South Africa’s water infrastructure. He emphasized that effective local governance is essential for national stability, yet reversing years of mismanagement and corruption will be an immense challenge. While Ramaphosa pointed to municipal structures and geospatial factors as contributing issues, the deeper problem lies in the ANC’s longstanding practices of cadre deployment and patronage-driven hiring, which have eroded efficiency and accountability at the local level.
As expected, opposition parties criticized the address for offering broad promises without concrete implementation plans. The government, however, has introduced a new medium-term development plan (MTDP), aiming for GDP growth of 2% to 5.4% by 2029. Notably, the plan excludes the contentious National Health Insurance (NHI) scheme, signalling a shift toward more pragmatic reforms amid fiscal constraints. While the MTDP has generated cautious optimism in the markets, doubts remain about the government’s ability to execute the necessary structural reforms and infrastructure improvements to unlock the targeted growth rates. The upcoming national budget will be a key test of whether this vision translates into actionable policies or if political realities will hinder meaningful progress.
ZAR Markets
The ZAR recovered well from an early-session selloff yesterday, and looks set to end the week in the green as it trades around R18.4500/$. After US Secretary of State Marco Rubio indicated that he would not attend the G20 Summit in Johannesburg later this year over the South African government’s land laws, sentiment towards the ZAR took a hit. However, the currency has recovered, and this against a broadly-firmer USD. Ahead of the weekend, the spotlight will be on US labour market data, which always hold some market-moving potential given the Fed’s focus on employment outcomes. However, the market seems somewhat content with the amount of rate-cut risk priced in at current levels, meaning only a major shock print will have a sustainable impact on the USD-ZAR.
Global FX Markets
The yen strengthened against the dollar amid expectations that the Bank of Japan (BOJ) will continue raising rates. The currency dipped below 151 per dollar for the first time since December, with strong wage growth data fueling rate-hike expectations. BOJ board member Naoki Tamura reinforced this sentiment by suggesting rates could reach at least 1% in the latter half of fiscal 2025. Analysts predict Japan’s upcoming wage negotiations will result in another solid 5% increase, maintaining the BOJ’s hawkish stance. Meanwhile, Trump’s suspension of tariffs on Mexico and Canada contrasted with new 10% levies on Chinese imports, keeping investors on edge. The offshore yuan remained stable but faced downside risks. After a volatile week dominated by concerns over U.S. tariffs, investors were cautious, focusing on economic data and geopolitical developments. The U.S. labour market has shown resilience, with economists forecasting that January’s unemployment rate will hold at 4.1% and 170,000 jobs will be added. However, analysts warn that employment data may be hard to interpret due to population growth revisions by the U.S. Census Bureau, which could lead to significant adjustments in job figures. Dallas Fed President Lorie Logan suggested keeping rates steady for an extended period, even if inflation nears the Fed’s 2% target, provided the labour market remains stable. The U.S. dollar index held at 107.71, after reaching 109.88 earlier in the week due to tariff concerns.