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SA buckling under currency heft

Johannesburg - The prospect of a stronger for longer rand is slowly dawning on South African industry with its prominent sectors, including mining, textile and automakers bracing themselves for a harder, colder time of it.

Automotive component manufacturers are saying that with a stronger rand they are facing lost contracts, further retrenchments and possible closures.

Roger Pitot, head of the National Association of Automotive Component and Allied Manufacturers (Naacam) said SA exports are in dollars, euros and pounds, which are weakening.

"The three currencies that are weak - the dollar, euro and pound - are what our exports are denominated in," he said.

Pitot said that the body has met with Trade and Industry Minister Rob Davies and voiced their concerns.

Davies told Naacam that the president had called a special meeting with the Cabinet and economic issues, including the strength of the rand, would be discussed.

He said Naacam's members are already running losses and some have started to lose contracts due to the strength of the rand.

The embattled textile industry which for years has had to compete with cheap Chinese imports, making local factories unviable, are also reeling from rand strength.

Seardel [JSE:SER] the largest clothing and textile manufacturer in Southern Africa says the strong rand is detrimental to the clothing and textile industry.

"We compete with imports so as the rand strengthens the imports become cheaper. Whilst its true that some of our input costs are dollar denominated and get cheaper with a strengthening rand, this benefit is offset by the fact that the finished article becomes cheaper to import, " said Stuart Queen, Seardel's CEO.

"In effect what happens is that all our rand denominated costs (staff costs, electricity, water, rent etc.) become more expensive in dollar terms and we compete in dollars. The effect on any exports we may have is obvious," he added.

But as the rand continues to gain strength some analysts argue that its rise against the dollar is good for the manufacturing sector as it lowers input costs. Manufacturers are able to import equipment at better prices as they are mostly priced in dollars, the argument goes.

For miners, rising commodity prices have largely shielded the sector from the downside effects of the stronger rand.

In dollar terms, the price of gold has gone up by 30% during the past 12 months, with platinum up 28%.

The rand price of gold over the same period increased by 20%, from around R250 000 per kg to R300 000.
 
However, according to Chamber of Mines senior economist Roger Baxter, South African miners' rand costs have spiked by approximately the same margin, largely on the back of Eskom's 25% power price hike.

He said miners couldn't even used the opportunity to get more out of their capital expenditure, as most of the heavy equipment are already made in South Africa.

"We are defenceless against the strengthening currency," he said. "The rand has eroded most of the upside we could've gained from pricier commodities."

- Fin24.com
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