On Monday, the Turkish lira reached a historic low of 7.24 against the dollar — a dramatic decline in value that, accompanied by inflation of 15.6%, could tip the Turkish economy into a recession.
For South African observers, the panicked scenes in Ankara and Istanbul brought back grim memories of December 2015 when former president Jacob Zuma fired the finance minister, Nhlanhla Nene, sending the rand on a similarly precipitous plunge against the dollar.
Then the damage was largely limited to South Africa.
But Turkey is a larger and more influential economy and the shock waves from its collapse have disrupted markets around the world.
These were felt most acutely in South Africa, where the rand suddenly lost 4% of its value, trading at more than R15 to the dollar for the first time in more than two years.
Analysts expect more pain for the rand as foreign investors move their money into investments that are perceived to carry less risk. It does not matter that South Africa is more than 7 000km from Turkey, that trade between the two countries is limited or that South Africa’s policymakers had no role in precipitating Turkey’s economic troubles.
But, for nervous investors, it is enough that both countries are emerging markets. For better or worse, our economy is umbilically linked to the major economies in the same asset class — Turkey, yes, but also the likes of Brazil, Russia, India and China. And as one of the smallest economies in that class, and with the most heavily traded currency, South Africa is always liable to be hit hardest in the event of a crisis, even when, for once, we were not the architects of our own misfortune.
This is a harsh but necessary lesson for Cyril Ramaphosa’s new administration, which has put attracting foreign investment at the centre of its plans for economic growth.
How stable can these plans be if they can be derailed at any moment by the poor decisions and questionable policy of other governments?
This is a globalised economy and South Africa can never be an island — it will always be affected by the rest of the world. But the negative effects of this can and must be mitigated.
Although the timing of the Turkish crisis was unpredictable, the warning signs have been there for months and we could have taken steps to insulate ourselves better against the lira’s collapse.
Second, South Africa’s foreign policy needs to be more vocal and muscular about our so-called allies. We have a long history of treading softly-softly around our middle-income world partners, especially the other Brics (Brazil, Russia, India and China) countries, when we should be doing more to exert a positive influence on their decisions.
Sure, a strongly worded condemnation from South Africa of Tayyip Recep Erdogan’s authoritarian governance styleor his decision to appoint his underqualified son-in-law as finance ministermay not have changed the Turkish president’s mind.
But it would have strongly signalled to investors that South Africa is different, insulating our currency at the same time as allowing us to uphold our constitutional values proudly abroad.