The rand has fallen to a new 13-year low against the dollar, after incurring losses triggered by a sell-off of emerging market currencies, based on expectations that US interests rates could rise by mid-year.
“Currently imports hold firm – but we are likely to see strain being taken if the rand doesn’t regain some ground in the next few weeks. There are a lot of forward import contracts in the pipeline – and with companies getting comfortable with the rand at the R9.00 – R10.00 levels, once those contracts run out – we are also, quite likely, going to see this negative effect trickle down to the consumer,” says Adam Orlin, CEO of Blue Strata.
The South African Chamber of Commerce and Industry’s Business Confidence Index (BCI) for February 2015 accelerated by 3,5 index points to 92,8, where higher import and export volumes were the main source for the latest overall rise of the BCI. While the weak rand has some benefits for many exporters, although it often skews volume figures, it impacts negatively on importers and exporters who have a large imported component in their products.
“South Africa is increasingly dependent on imported goods and even when products are manufactured locally, they often use imported components,” says Orlin. “Importers are also seldom able to pass on price increases immediately to their customers and with industrial action in different sectors, high operational costs including electricity – not to mention the uncertainly around power supply – margins are being affected. This becomes inflationary for South Africa as a whole – all which has a negative impact on the country’s ability to drive industrial growth.”
Imports in South Africa increased to R91,298-billion in January of 2015 from R80,603-billion in December of 2014. South Africa’s main imports include fuel (24% of total imports), nuclear reactors, boilers, machinery and mechanical appliances (14%), motor vehicles and car parts (9%), telephone sets (3%), pharmaceuticals (2%), vegetables (2%) and live animals and animal products (1%).
“The South African downgrading and the adverse impact on debt ratings and financing costs are causing significant concerns for business. The downgrade requires not only a critical response, but essentially we need to provide a stable environment in terms of labour, currency and the ability to provide jobs and that, ultimately, will lead to a stabilisation of the rand – which is critical to growth, trade and foreign direct investment,” Orlin adds.
