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The South African economy is the largest economy in Africa after Nigeria. Its upper middle-income economy is largely based on highly advanced industrialization, a rarity in the region. After some international sanctions were lifted in the mid 1990’s, the country’s gross domestic product rapidly expanded to almost $400 billion US dollars. Since then, South Africa has seen slight decline while the diversification of its economy has given birth to a new, but large middle class. This also came about with the end of a long-term political struggle known as the apartheid. While the region is still politically unstable, the lesser known problems of restrictive labor regulations, corruption, and a shortage of knowledgeable workforce participants also hold back economic growth. The financial services sector of the economy appears to be one of the only pillars supporting the country.
South Africa began as a Dutch colony in the mid-17thcentury. The formidable Dutch East India Company made an investment in the region by sending settlers to establish a colony with the intention of forming a commercial shipping hub as well as an agriculture center for the region. Along with German expatriates and French immigrants, the area grew to become an epicenter for farming, and in particular, wine.
Today, vineyards and farms alike can trace their origins back to the original Dutch plantations. Unfortunately, this area would also become a center for violence and political struggle. Natives, along with competing countries, fought for power and land for several decades, even stretching into the current political climate of the South African state. A key point to this struggle was the geography and fertility of the area’s farmland, but also the discovery of precious metals including diamonds and gold, which added fuel to the already hot fire. This article will cover the financial system of South Africa, as well as a range of market information covering currency, futures, and stocks.
show moreSouth Africa’s stock exchange is known as the JSE Limited, previously known as the Johannesburg Stock Exchange or JSE. The exchange is the oldest stock exchange in Africa but also the largest by volume on the continent. JSE Limited lists approximately 500 companies with a total market capitalization of around $1 trillion US dollars, dividing into an average of more than $8 billion dollars in volume, traded monthly.
Similar to many financial exchanges, the JSE Limited originated with the discovery of gold mines, particularly in the South African region. As mining and financial companies flocked to the region, demand for a financial exchange became apparent. Despite its humble origins in the rustic South African wilderness, the exchange has grown to become a formidable financial entity.
As a commodity correlated currency, the value of the South Africa rand (denoted as ZAR) is bound to be somewhat volatile. When the uncertainty of the political landscape is added into the mix, the worth of the South African rand is all but certain. Within the past few decades this uncertainty has accompanied South Africa’s currency to all-time lows. More recently during the reforms in domestic land regulation and global financial crisis, the currency tested previous low records.
The global financial crisis of 2008 also saw a major dip in the rand’s value, as it did with most currencies, the exception being safe-haven currencies such as the Swiss franc (CHF) and the Japanese yen (JPY). However, the rand recovered fairly well after this turbulent period and has somewhat stabilized, despite its tumultuous history. Most forex traders who invest in the rand know to be wary of volatility and to watch the corresponding gold market, as well as the political landscape. The most popular rand pairs include the euro (EUR/ZAR) and the American dollar (USD/ZAR), however the exotic cross is not a favorite among investors.
The South African rand is named for the white water that runs just outside of the nation’s capital city. As the country was spurred to growth with the discovery of gold, it’s not surprising that this white water is found alongside the deep veins of the precious malleable metal. Previous to the rand, the currency of the state was the South African pound, and as such, its value was pegged to Great Britain’s currency of the same name. As South Africa emerged as an independent republic, the rand was birthed to life alongside it. The currency is circulated in 10, 20, 50, 100, and 200-rand banknotes alongside 5, 10, 20 ,50 denominations for its coinage.
South Africa stocks are known to be unpredictably volatile. The economy gets its strength from its mining and manufacturing sectors, but also from its agriculture. Despite this volatility, South Africa’s economy is reasonably well-diversified. Outside of the obvious investment opportunities in manufacturing and mining, other strengths include financial services, tourism, and energy companies.
