Positives to weak rand for locals – analysts

2013-05-31 15:16

Local manufacturers will benefit as the rand continues to fall against the United States dollar, analysts have said.

“The positive part is that it should help our manufacturing exports. It should help our mines survive a bit better because their pressure is that commodities are not earning enough money... which I think is the main driving force behind the weak rand,” said economist Mike Schussler.

The rand fell to around R10 against the US dollar yesterday, a few hours after President Jacob Zuma tried to assure the nation and investors that government was dealing with the instability in the mining sector.

The rand was at its lowest level in four years.

Schussler said labour issues partly drove the weak rand, but the main contributor was low commodities prices.

On the negative side, the weak rand would hurt ordinary people.

“The inflation rate is going to go up, and [so will] things like maize prices. While we do our own maize here, they are set in dollars. Also, 60% of the chicken is derived from the price of maize.”

The petrol price could also go up.

“If the rand does not improve, then next month it is quite clear that the petrol price could go up by about 40 to 50 cents a litre.”

The same would apply to diesel and paraffin, he said.

However, the positives could not be ignored.

“A weaker currency should help our GDP at least on the margin, on some of the exports... chicken farmers should be able to compete against imports with a weaker rand...” he said.

While the weak rand could yield some marginal growth, it would not help curb inflation.

Schussler had a different opinion on whether Zuma’s address had weakened the rand further.

“I would agree that it did not help. I don’t know if it made the situation worse... I blame a lot of things on our president, but not this one.”

He said it was clear that if the situation did not change, the rand could weaken further to R11 against the US dollar.

Riaan le Roux, head of economic research at Old Mutual Investment Group, said the rand had been weakening since August 2011, after going down to R11 against the US dollar in the 2008 financial crisis.

The rand recovered over the following three years, supported largely by massive purchases of government bonds by foreign investors.

He said factors putting pressure on the rand were the sharply widening current account deficit, which went over six percent of GDP, sluggish economic growth, failure to grow private sector employment, and an unstable mining sector, which also affected the country’s image for investors.

“All three rating agencies downgraded South Africa last year and unless the above situation improves dramatically, more downgrades are inevitable,” Le Roux said.

This would result in more capital leaving South Africa, he said.

However, Le Roux echoed Schussler’s view on the positives of a weak rand.

“It should lend support to companies exporting, and to companies competing with imports, as well as foreign tourism into South Africa.”

Join the conversation!

24.com encourages commentary submitted via MyNews24. Contributions of 200 words or more will be considered for publication.

We reserve editorial discretion to decide what will be published.
Read our comments policy for guidelines on contributions.

24.com publishes all comments posted on articles provided that they adhere to our Comments Policy. Should you wish to report a comment for editorial review, please do so by clicking the 'Report Comment' button to the right of each comment.

Comment on this story
Comments have been closed for this article.

Inside News24

Traffic Alerts
There are new stories on the homepage. Click here to see them.


Create Profile

Creating your profile will enable you to submit photos and stories to get published on News24.

Please provide a username for your profile page:

This username must be unique, cannot be edited and will be used in the URL to your profile page across the entire 24.com network.


Location Settings

News24 allows you to edit the display of certain components based on a location. If you wish to personalise the page based on your preferences, please select a location for each component and click "Submit" in order for the changes to take affect.

Facebook Sign-In

Hi News addict,

Join the News24 Community to be involved in breaking the news.

Log in with Facebook to comment and personalise news, weather and listings.