South Africa is seeing massive capital flight right now: economist

The rand and other international currencies have weakened in recent months due to the strength of the US/dollar, but this moderation is not surprising, says John Cairns, global markets strategist at Rand Merchant Bank.

He said that of greater concern is the drop in commodity prices and a massive capital flight from the country.

Cairns told radio station 702 that while it is true that the rand is at the weakest point in a year, this was a fairer valuation of the local currency as it touched R14/dollar at one point.

“In the past four months, it’s weakened from ‘over’ levels to more moderate territory. There’s nothing surprising about the levels where we are now.”

While this rand moderation is not overly negative, Cairns said the decline in South African commodity prices since July is taking away a major positive for both the local currency and the economy.

“We should put that in context of an economy that is experiencing massive capital flight. It is not well acknowledged, but we are seeing huge capital flight from South Africa which has been disguised by this record run in the commodity market.”

“Really, what I mean is that a lot of financial investment capital is leaving South Africa. So foreign investors that have been holding local assets continue to sell moderate amounts, and then a lot of locals (are) taking cash offshore through legal means.”

Cairns said that part of this capital flight is due to global fundamentals, with the developed markets offering better returns and South African-specific issues.

While the local issues should not be overplayed, in general, there is a clear shift of foreigners and locals taking money out of the country, he said.

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