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Writer's pictureMangaliso Lushaba

#31 Who is Manipulating The ZAR?



In April 2015 or thereabout (I wasn’t there), it came to the attention of the Competition Commission of South Africa that some banks had colluded to manipulate the value of the South African Rand. It is alleged that at least 28 local and international banks had in the past deliberately  fixed the USDZAR exchange rate in pursuit of selfish ends. The evidence in the possession of the South African authorities covers the six-year period 2007 to 2013. Reportedly, this evidence was  willingly volunteered to the authorities by a whistleblower who may have themselves participated in the currency manipulation kerfuffle. The evidence is compelling enough for the Commission to have instigated investigations that have dragged for the last eight years only to resurface again in 2023.


The Competition Commission’s mandate is to maintain equity and efficiencies in South Africa. This involves investigating and mitigating restrictive business practices and abuse of dominant positions by enterprises. It is a commission that exists to recognise that efficiencies in the economy can be achieved by allowing market forces to determine the price where supply meets demand. All businesses are hence subject to competition law to arrest behaviour that is anti-competitive that may engender economic woes that have to be borne by the citizenry. The currency cartel behaved in a manner that undermined these free market principles.


In an economy where there is only one bakery, the price for pastry will be as high as Wiz Khalifa. The sole dough proprietor will literally dictate at what price to sell with little risk of losing business. In an economy where the opposite is true, that is, where you have 100 or 1000 bakeries, it is improbable that a single bakery could price out of market and still retain market share. The nature of the pastry business is such that products are almost perfect substitutes. If Lushaba and Wives Bakery hikes the price of its famous carrot cake slice above the price that competitors are charging, clients may begin to explore the cheaper options. Woe to the promising family business if patrons should discover that Doughnut Bae offers a superior product at half the asking price; then arrivederchi to the Lushaba business. The Lushabas will have to suffer through lengthy conversations with court-appointed liquidators. God forbid! Yoh! But now that the Lushabas are gone, prices return to a sensible level fostered by healthy competition in the bakers market.


This is the most equitable and efficient set-up. Imagine if Lushaba and Wives hosted a private event for all bakery owners instead. At this event, pandering to greed, leveraging narcotics, using Jedi mind tricks or a combination of the foregoing, they manage to convince the bakeries to increase carrot cake prices gratuitously in lockstep. This profiteering stunt would raise the general market price and hit all consumers in the pocket. So, when the bakeries sit down around a table and arbitrarily impose thumb-sucked price points, we lose. Such a situation played out in 2007 but instead of carrot cake, the product was much more vital for livelihoods: bread.


The parent companies of the bread brands Blue Ribbon, Albany and Sasko, accounting for about 60% of the bread market in South Africa, were found to be colluding on bread selling prices. The Competition Commission instituted fines rising as high as E240 million against the cartel after proving  that the cartel had been guilty of artificially dividing the bread market between 1999 and 2001 and agreeing to hike bread prices in unison in 2004. The cartel went as far as agreeing between the members which company would compete in which areas in the Republic. Think of street gangs marking their territory. For example, Sasko’s parent company had agreed not to compete on price in the Vanderbijlpark area. Similar arrangements existed in the Free State, North West, Mpumalanga and Limpopo. Gauteng was of course a blood bath. The cartel increased the price of a loaf of bread across all the brands at the same time and by the same magnitude. By the end, Gauteng was showing the highest bread prices in the country. They still persist to this day.


🎶 Price is way too high you need to cut it! ✂


Manipulating a currency plays out similarly with perhaps much more dire outcomes. It means executing international payments at off market prices. Take the example of oil importing companies in South Africa. Between 2007 and 2013 at least, these companies were essentially buying oil at unwarrantedly high prices that would be passed on to the end consumer. It can be inferred then that the average South African paid over the odds for energy in this period. South Africa is a net importer of oil. The activities of the currency cartel were inflationary in their nature because oil prices are baked into everything. Everything we consume is downstream from oil pricing. From the primary sector that uses fossil fuels to extract raw materials; the secondary sector that processes raw materials to turn them into household goods; and, all the way to the tertiary sector that transports the goods to wherever you may be. Fuel is a major input cost for that whole chain. Now imagine that everything that is imported is paid for via this ZAR manipulating cartel. Describing the effects as catastrophic is not an exaggeration.


High general prices in the market could be interpreted by the central bank or whoever is in charge of monetary policy as a sign of an overheating economy, prompting them to raise interest rates. We don’t have to revisit how rising interest rates affect us because we all have first-hand experience with the pain of the 2022 to 2023 rate hike cycle. When money becomes more expensive, it threatens the investment activities of business and leads to job cuts. That’s why some politicians have accused the 28 banks of economic sabotage and have called for severe recourse. Some banks have come forward to negotiate settlements with the Competition Commission. Critics have voiced out that the settlements were not severe enough but the hands of the Commission are tied as thees penalties are guided by a formula enshrined in statute. However, this does not block other regulators who are competent to preside over the intentional devaluation of the Republic’s currency. The South African Reserve Bank (SARB), South African Revenue Services (SARS) and the Financial Sector Conduct Authority (FSCA) may yet choose to pursue further action against the cartel in accordance with their respective competences.



What I’m Reading



I was reading The Shining by Stephen King. It may appeal to the horror enthusiast but I recommend it to you as well. The main character is a haunted hotel called the Overlook. It’s located in the remote rocky mountains of fictional Colorado which happens to be just the perfect geographical setting for all the unsavoury activities that had taken place there over the years. There had been multiple suicides and recurring episodes of fatal gang violence.


The story takes place over this one winter where the hotel plays host to a family of a recovering drunk, his wife and their gifted son. The drunk is charged with caretaking the hotel over the winter period where it remains virtually closed to the public. The interaction between the ghost resort and the drunk’s son is interesting. The son’s gift is that he reads minds and kinda sees beyond the present moment. He has this sense about things that are yet to happen and even those that have already happened for which the book is named after. Why did I write it like that? I could’ve just said he’s psychic🤦🏾. Anyway, he doesn’t have much control of his spidey sense. Whimsically , it comes and goes. It’s supposed to be a horror novel but I can’t say I was frightened at all during any of my reading sessions notwithstanding they occur in quiet midnight. I think it boils down to the scary bit being blood-thirsty ghosts. You can’t scare me with ghosts anymore than you can sell a vegetarian diet to a lion. Ghosts, much like honest politicians, do not exist. You can read this one and watch the movie… in that order.


👋🏾


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