Finance Minister Nene’s unexpected dismissal by President Jacob Zuma is talk of the town… and the country. And while the Rand has hardly been performing well of late, this sudden move has seen it plunging to record lows. Since the announcement on Wednesday, the Rand has continued its downwards journey and as I am typing, it is exchanging at:
- R15.83 against the US Dollar
- R24.01 against the British Pound
- R17.33 against the Euro
Although it is never healthy to have your currency in such poor form, there usually are some positives to a weak Rand. But economic matters are never straightforward and it seems that even these ‘positives’ are currently challenged.
1. Export Benefits
Exporters selling in foreign currency are getting the currency benefit, but it seems that export gains have not been as phenomenal as one would have expected. According to Reuters: “South Africa’s exporters have failed to take full advantage of the rand currency’s nearly 15 percent drop this year, hamstrung by electricity constraints, labour tensions and an over-reliance on commodity trade with China.” Read the whole article. And even when exporting companies do benefit, imported materials are more expensive and can easily cancel the advantage. Read the article: Weak rand fails to ease South African manufacturers’ woes.
2. Tourist Appeal
With a weak Rand, South Africa should be a much desired holiday destination for those earning in Dollar, Pound or Euro. After the negative impact of Ebola and then the new Visa regulations had on the industry, we do need some positive energy in tourism. News24.com quotes Alan Winde, Minister of Economic Opportunities: “We know that for every 12 tourists who visit us, one job is created in South Africa. In the Western Cape the tourism sector currently employs 204 000 people,” said Winde. (Read the article: Weak Rand impact finally lifting SA tourism)
The week Rand alone does however not seem to be the solution in getting tourists to South Africa. City Press reports: “The Tourism Business Council of SA estimates that the country will lose in the following ways: 100 000 tourists will stay away in 2015 because of the visa regulations and the R1.4bn total net loss will result in 9 300 jobs being lost.”
Some industries might however really benefit from the weak Rand. It would be much less expensive to use a South African location to shoot a film at the moment and the already booming film industry is sure to benefit. Earlier this year the Wall Street Journal reported: “The productions are being lured by a combination of jaw-dropping scenery, favorable exchange rates and government rebates. Film-industry groups say the result is a 30% expansion in productions in each of the past three years, a bright spot for South Africa’s otherwise listless economy.” Read the article.
While I enjoy focusing on the positives, there is no denying the challenges the current weakness of the Rand has for the country and its people.
The holiday season in South Africa is just about to start and fuel, food and all those little holiday treats might just be more of a challenge to the wallet than usual. If you have however planned a White Christmas, I hope you have saved up or have ample facility on your credit card…
Also read: An upside to a weaker Rand