Johannesburg - The Merchantec CEO Confidence Index released on Tuesday
indicated that the majority of CEOs would like to see the rand weakened
to help boost their businesses.
The survey was done in the fourth quarter, as the rand continued to strengthen against the dollar.
Merchantec is an independent corporate finance and research company. Its
CEO Confidence Index collates views from CEOs of top South African
companies, and provides a leading indicator into how business leaders
perceive local market conditions and the economy.
When asked what effect a weaker rand would have on their businesses in
2011, the index scored 62.22 out of a possible 100, with a score above
50 indicating a positive response.
South African CEOs are citing price competitiveness of imported products
and the struggling manufacturing and local mining sectors as the main
drivers of their sentiment.
"The strengthening of the rand and its ability to hold these gains has
had a negative effect in terms of the competitiveness of our exports and
from increasing imports into the local market, and this puts pressure
on corporate profits," said Allied Technologies (Altech) CEO Craig
Venter.
Contrasting views
However, he added that on the flip side, the strong rand has helped keep
inflation in check, allowing the Reserve Bank to reduce interest rates.
Across all the sectors, a majority of CEOs indicated a preference for a weaker rand.
One CEO noted that "the impact of the rand strength has significantly eroded competitiveness.
"South African manufacturing operations that are heavily reliant on
exports sales are starting to look at drastic measures to survive in the
market place. Labour and other input costs have been well above
inflation when compared to overseas counterparts."
The basic materials sector showed some noteworthy results, with the
highest proportion of respondents indicating a preference for a weaker
rand.
ABout 82% of CEOs in this sector indicated that a weaker rand will have a
moderate to significantly better effect on their business in the coming
year.
In contrast, the consumer services sector had the lowest proportion,
with only 38% of CEOs desiring a weaker currency. The diversity in
responses between the two sectors highlights their dependence on exports
versus imports.
Of particular interest is the proportion of CEOs that are indifferent to the relative rand strength.
This appears to be attributable to the counterbalancing effects of a
weaker rand, with the positive effects of lower interest rates and
inflation offset by lower sales demand arising from the higher cost of
inputs.
About 64% of CEOs indicated in the third-quarter Merchantec CEO
Confidence Index that growth in Africa will have a notably positive
influence on their businesses in the coming year.
There is a correlation to CEOs' confidence in expanding into Africa and the relative strength of the rand.
A CEO in the technology sector noted this quarter that a weaker currency
will result in his "expansion programme outside South Africa becoming
more expensive".
The majority of CEOs across all the different sectors feel that the
current strength of the rand is generally disadvantageous to their
business.
But there is always the risk with the uncertainty in financial markets -
particularly in Europe and America - that foreign investors might
retract foreign inflows from the South African market and the carry
trade could unravel.