IT industry leaders in South Africa have expressed serious concern about the collapse in the value of the rand this week.
The rand fell to as low as R19.47/US$ this morning – below its previous record low in 2020 – following an accusation by US ambassador to South Africa Reuben Brigety that South Africa was supplying weapons and ammunition to Russia. The arms were allegedly loaded onto a Russian ship docked at the Simon’s Town naval base in Cape Town in December last year.
Hein Engelbrecht, CEO of Mustek, said the plummeting rand will mean a big adjustment in the pricing of imported goods, including technology products. “Imports will be coming in at a higher exchange rate and that will affect our pricing. We will have to watch what happens at the weekend and see how things pan out,” he said. “We’ll make a call on Monday.”
Anything imported will rise in price, and quickly, said Craig Brunsden, CEO at Axiz, the IT distribution business in the Alviva Holdings stable.
“This is the challenge with IT,” Brunsden said. “The price of corporate software will go up immediately because it’s a dollar price transaction. There’s no buffer in the IT supply chain to sustain this kind of shock. In the end, it’s consumers who will pay the price.
“Severe shocks like this are very challenging to manage for distributors and it’s inevitable we will absorb some of that shock – honouring our deals, for instance – but unless the currency improves very soon it will translate to higher prices. Although we price in rand, almost everything is originally priced in US dollars and vendors have little ability to absorb by lowering dollar prices. It’s the last thing we need but we’ve weathered these storms before – and will do so again.”
Economist Dawie Roodt said that while a weak rand is bad for all imports, in the case of technology at least many of the imports take place in the cloud or online, so it doesn’t matter geographically where you are.
‘The real problem’
“But this weak rand is bad for all of us, for all imports,” Roodt told TechCentral by phone. “Obviously it will make everything more expensive but it’s not only that. When a currency is so volatile, it means the country is unattractive to investors, and that’s the real problem.”
Ashton Roberts, head of business development at ETM Group, said the ANC now faces a dilemma: if it placates the US, it could lose alleged Russian party funding ahead of next year’s election. If it sides with Russia, the US will surely follow through with penalties of various sorts, including reviewing the African Growth and Opportunity Act (Agoa) trade agreement or, in the worst-case scenario, sanctions. Agoa allows eligible African countries to export products to the US duty-free and has been particularly beneficial to South African car, wine and fruit exporters.
“This morning, the rand is on the defensive,” Roberts told TechCentral on Friday. “At the very least, it appears as though some calm has returned, and some of the trading action in rand derivative markets yesterday were more tilted towards a rand recovery.
“While the near-term outlook is cloudy, we remain of the view that the dollar/rand is in store for a correction lower in the months ahead. Therefore, exporters should make the most of the current conditions while importers should hold off, where possible, from taking forward cover,” said Roberts.
The currency had already been under pressure, breaching the R19/$ level earlier on Thursday due to concerns about load shedding and fears of further interest rate hikes.
“For many, the fortunes of the rand are becoming more overtly entwined with the political prospects of the ANC,” Robert Hoodless, an analyst at InTouch Capital Markets, told Bloomberg News yesterday.
And Reuters reported that JPMorgan has cut its GDP forecast for South Africa on expectations of more severe power cuts. The bank said on Friday it now forecasts a 0.2% decline in South Africa’s 2023 GDP versus a previous forecast of 0.3% growth.
“The JPMorgan forecast is a big negative for the rand, but I think the market is still fretting about the sale of weapons to Russia as this could cause sanctions against South Africa,” Greg Davies, head of wealth at Cratos Capital, was quoted by Reuters as saying.
There is a growing concern in the US about South Africa’s failure to condemn Russia’s invasion of Ukraine, and the perception that South Africa is drifting further into the Russia-China camp at a time when Washington’s relations with the two countries are becoming more tense.
These concerns were crystallising around South Africa’s participation in Agoa, which facilitated an extra US$3-billion of exports to the US last year, much of it in manufacturing and other value-added goods, which has helped create jobs. – © 2023 NewsCentral Media