Some exporters benefit from weak rand

06 Weaker rand Dawie Roodt 198x300 Some exporters benefit from weak rand

Economist Dawie Roodt from the Efficient Group

WHILE the rand’s steady fall from R7 to a dollar in 2011 to R10 to a dollar in May, has made many of South Africa’s exports more competitive, not all exporters are rubbing their hands with glee.

Exporters whose goods are largely dependent on imports such as machinery and fuel as input costs won’t benefit as much from the devaluation of the rand as those whose goods that are wholly made in South Africa.

Exports rose three percent between April and May, while imports shot up 12% over the same period, according to the South African Revenue Services (Sars) trade figures released in May. Over this period exports were up 11% in both Asia and Africa, while falling elsewhere.

The export of animal products, mineral products, food and beverages, machinery and appliances and plastics and rubber products all experienced increases, while exports of transport equipment, textiles and vegetable products declined slightly.

Jac Duif, the chief executive of the SA Flower Export Council, noted that exporters in his sector were positive, while the chief executive of Wines of South Africa, Su Birch, said the wine sector had seen a big increase in exports in the last two years – with the sector last year experiencing a record year for exports.

Birch said the weaker rand, along with two good local harvests against smaller European harvests, had aided the growth in exports.

Wine exports continue to grow, with the 28 megalitres of sales recorded in April last year, growing 65% to 46.2 megalitres in April this year, according to figures from SA Wine Industry Information and Systems.

But Thembi Tobi, who owns Thembi & Co Wines which exports to the Netherlands and Belgium, said though she was excited when the rand fell to R10 to the dollar in May, she still faces stiff competition from the increase in bulk wine exports.

However Annalise Grobler, who exports a water purification solution to a number of countries, said the decline in the value of the rand to the dollar had given her a competitive edge. In particular Grobler noted that she had been able to capitalise on the weak rand because of her reliance on only local inputs to manufacture her product, Aqua Salveo.

Duncan Bonnet of export consultants Whitehouse and Associates said whether or not an exporter benefits from the weak rand or not is dependent on the kind of product one has and where ones export market is situated. The effect on exporters that served largely neighbouring African countries would be small, he pointed out, as these countries trade largely in the rand rather than the dollar.

International trade specialist and past president of the Johannesburg Chamber of Commerce and Industry (JCCI) Pat Corbin said with the rand recently falling to its weakest in four years, now was as good a time as ever for exporters to enter into forward cover agreements. However Corbin said in the long run the volatility in the rand would not be good for exporters as it meant less predictability.

Alberto Louw, business development manager at Technical Systems, which exports feedstock equipment to the agriculture sector, said it usually took about two months for orders from the company to pick up when the rand weakened.

However he said it wasn’t easy to quickly change prices as agents and customers often insisted on having prices stay unchanged for at least six months once negotiated, meaning one often had to play for time, watching the market, before opting to drop prices.

He added that because 55% of the company’s exports went to Europe, which is struggling economically, the company would not be able to benefit from a lot of extra volume with its more attractive pricing.

Businesses have long struggled with rand volatility. For many years when the rand weakened a Gauteng business owner, who sells pet accessories, would fire up his factory to export his pet bowls. When the rand strengthened he would return to importing from overseas to sell locally.

But when Small Business Connect spoke to him, he said he could no longer afford to take advantage of a weak rand by manufacturing locally – because rising labour costs had made it too expensive to do so.

Economist Dawie Roodt from the Efficient Group said the rand is likely stay weak for months to come, but believes that it will touch R9.50 to the dollar by year’s end.

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