Crypto: A Solution To South Africa’s Inflation Problem?

The African continent as a whole is no stranger to the rigours of low electricity supply. From the eastern borders of Kenya to South Africa’s burgeoning metropolis, millions of Africans experience low or no power supply, affecting the daily lives and activities of individuals and organisations alike.

South Africa, the 4th richest and one of the fastest-advancing countries in Africa, was relatively safe from these problems until 2007 when the country resorted to load-shedding. This was done to facilitate a fair distribution of power for citizens. The South African government seemed to have found a way to ensure an adequate electricity supply nationwide through the load-shedding model.

With 86 per cent of South African households connected to the grid, as compared with 40 per cent of Africa as a whole, electricity was one of the major areas in which the country established itself.

However, the collapse of this model and the country’s new power issues seem to be spiralling out of control in ways that could weaken the nation’s position economically and globally. There is no telling how much the power issues will generally affect the South African economy as a whole, but one thing is sure; there is a potential for relatively huge consequences for this problem.

For one, the rand has become weaker against the dollar, and a lot of foreign investment is leaving the country. This is resulting in nationwide inflation as the cost of running businesses has increased, and individuals need to find alternative sources of power for themselves. Changing from government-funded power to one’s own source is a capital-intensive endeavour many people cannot afford.

According to Mark Mbugua, the Regional Marketing Manager for SADC at Yellow Card, “The reduced supply of power is making the cost of doing business much higher, and this inflation is invariably passed on to the end consumer. With salaries not increasing at a similar rate, people feel a great deal more pressure on the money they do have. This has not been aided by the rand continuing to devalue against major currencies, which further erodes savings and makes the importing of any materials and goods more expensive. It really is a vicious cycle.”

So the question is, how does one escape this vicious cycle? In an uncertain economy with rising inflation, how does one protect themselves and keep their finances safe?

Finances In An Inflationary Economy

Although South Africa has an uncertain future in light of the recent load-shedding debacle, with people and private organisations looking at ways to invest privately in electricity and generate their own, there may yet be hope sooner than we think. Financial acumen is a must-have for the average individual in current climes while the economy goes through the inevitable rebound process, which will involve some more lows before recovery starts. There is a need for more innovative ways to secure financial stability and stay afloat.

This innovation would entail strategies around hedging funds against inflation for the foreseeable future. Since the major hallmark of inflation is a loss of purchasing power, especially when income fails to keep up, people must engage an investor’s mindset to protect their funds. This would involve moving money to assets that benefit from or can keep pace with inflation, such as stocks and bonds, commodities or digital currencies (like crypto).

Where crypto investments are concerned, the options are endless. With the availability of various tokens at different prices, people can invest according to their pockets and trade short-term for some profit. Another notable advantage of cryptocurrency as a hedge against inflation is stablecoins. Since stablecoins are backed by the dollar, owning them is equivalent to saving in dollars. Storing funds in dollars or earning in other stable tokens like USDC can help keep finances protected from devaluation.

According to Peter Mureu, Marketing Director at Yellow Card, “The rand has dramatically lost its value over the past decade. From ZAR10 for $1 in 2010 to almost ZAR20 for the same amount now, the purchasing ability of the rand has nearly been cut in half. Investing in crypto, especially USDT will allow for that risk to be halved and increase the ability to purchase alternative power sources to deal with the current power issues/load shedding. For those earning in USDT, even the lack of power is an easily surmountable problem because the USDT is constantly appreciating regardless of the state of the rand.”

This means there may also be a need for the working population to start marketing outwards, beyond the country’s borders, as a way to earn in foreign currency. Given that we are in an age of digital proliferation, there are endless opportunities for remote work across borders, with payments being made in more stable currencies like dollars or stablecoins. This point is especially crucial for the younger generation of workers who hope to survive the current economic state while improving their skills.

While South Africa takes time to heal and recover from its “largely self-inflicted wounds”, according to the Governor of the South African Reserve Bank, Lesetja Kganyago, citizens must sit tight and brace themselves for the very interesting days to come. In times like these, everyone, organisations and individuals alike, must continually take actionable steps to ensure they hold out just long enough for the tide to turn. And someday, hopefully, soon, the light will shine on South Africa again.