Farmers, miners and tourism operators are some of the sectors gaining from extreme rand weakness. Commodities are usually best placed to benefit from a weak currency because they are exported in extracted form, so producers receive the dollar price with little to detract from it in the way of processing costs.
For instance, the prices of South African wool have surged to record levels, gaining more than 14 percent in the past week alone, thanks in part to the weak rand. This is the largest recorded increase between consecutive auctions in the past five years, according to Cape Wools.
As wool is traded in US dollars but farmers are paid in rand, there is an almost perfect correlation between the drop in the rand-dollar exchange rate and farmers’ revenue.
The same should hold for mining. However, Chamber of Mines CEO Roger Baxter counters that while rand weakness has provided relief to some miners, especially in the gold sector, it hasn’t compensated fully for the collapse in the commodity prices of other chief South African exports such as iron ore and coal.
“The weak rand is not a boon for mining,” Mr Baxter says. “There are just too many domestic factors challenging the industry — from Eskom’s demand for further tariff hikes to the planned introduction of a carbon tax.”
Tourism should be another clear winner from the weak rand. However, while Statistics SA data show the number of foreigners visiting SA grew by 3 percent in October 2015 year on year, the number of overseas arrivals was down 0,3 percent in the same period.
“The exchange rate will play a big role in 2016,” says Southern African Tourism Services Association CEO David Frost. “If we can get rid of the last shackles imposed by home affairs on unabridged birth certificates, this would help. We have the opportunity to claw back lost markets and open up new segments.”
Mr Frost finds it “unfortunate”, therefore, that some luxury lodges have reportedly attempted to push up prices by 10 percent -20 percent to capitalise on the weak rand.
“My sense is that we should be using the exchange rate to our benefit and our growth rates (for overseas arrivals) should be (in) double digits,” he says.
The manufacturing sector should also be humming. Not only does rand weakness make exports more competitive, but pushing up the prices of imported goods should aid domestic substitution of these products.
However, manufacturing production has declined in five of the last 12 months and the sector is on the brink of a recession.
Manufacturing Circle executive director Philippa Rodseth believes the rand’s depreciation will result in increased exports in the coming quarters, noting that it can take six months or more for customer supply chain obligations to be unwound.
Unfortunately, the sector is hamstrung by low demand from export destinations, rand cost increases for imported inputs and exchange rate volatility, which affects planning.
Tru-Cape Fruit Marketing, the largest apple and pear marketing company in SA, is a case in point. While the weaker rand has increased its export revenue, it has also caused the cost of imported inputs to soar.
In the coming year, the company expects packhouse and farm costs to rise by almost 30%, driven by packing material and post-harvest chemicals, both of which are priced in dollars.
The company has also invested in the latest imported technology including flow-wrap machines and internal defect cameras, at a total cost of more than R20m to stay globally competitive.
“If our industry doesn’t get the break from a weak exchange rate, we won’t survive,” says Tru-Cape chairman Pieter Graaff.-BDLive