How might South Africa’s recent unrest impact your finances?

South Africa continues to reel from the worst violence since the apartheid, which has left over 300 dead and looks to have significantly disrupted the country’s economic recovery from the coronavirus pandemic.

While much of the unrest has now calmed, many are rightly worried about the lasting impact the riots could have on their finances.

What impact has the unrest had on South Africa’s economy and ZAR exchange rates?

President Cyril Ramaphosa branded July’s rioting and looting as ‘economic sabotage’ and it is clear that the unrest will have undermined what is already a fragile economic recovery.

In response to the rioting and concerns over the economic impact, we saw a sharp drop off in the South African rand in July, with the ZAR/USD exchange rate plummeting from a two-year high to its worst levels since the first quarter of 2021.

The rand has subsequently recovered as it’s hoped the short-term economic impact of the riots will be smaller than first feared. 

However, the long-term implications could be more severe and this risks a potential depreciation of ZAR exchange rates through the second half of 2021, particularly if the unrest results in South Africa’s economic recovery stalling in Q3.

This is not to mention how recent events have deepened divisions within the ruling ANC party, which may result in fresh political uncertainty.

How might this impact your finances?

If you have any exposure to the currency market, perhaps through international business dealings or if you are considering emigrating, then a potential deprecation of the rand could have a negative impact on your finances.

A weaker rand means that you will see lower returns when moving funds abroad. Even a small drop in ZAR exchange rates result in significant losses depending on the size of your transfer.

To avoid this, you will want to time your transfer so that exchange rates are most favourable to you, however in a highly volatile environment, this is easier said than done. Particularly when banks generally only allow you to transfer your money you will at the current exchange rate, narrowing your chances of getting the best possible deal for your situation.

Fortunately, there are steps you can take to shore up your finances by minimising your exposure to risk and maximising your potential returns.

Protecting your transfers from potential volatility

In addition to helping you secure a more competitive exchange rate, currency specialists also offer a range of services to help you to protect your transfers from volatility. 

One such service is the Forward Contract, which allows you to fix an exchange rate for up to a year. This is ideal if you are planning a future transfer, as it will protect you from unfavourable shifts in the currency market.

Alternatively, if you don’t need to make a transfer immediately and have time to hold out for a better exchange rate you can set up a Limit Order. This will allow you to set the desired exchange rate for your trade and will be automatically executed upon reaching your target rate.

If you are interested in finding out more about how you can protect your finances from currency volatility, then you might want to explore your currency options.