Manufacturers bleed as strong rand slashes margins

ED RICHARDSON THE DEVASTATING impact of the strong rand on exports comes across loud and clear in the results of a survey among 1100 manufacturers by the Bureau for Economic Research. Some 62% of the respondents reported that they had been active in exports over the past two years. The results reveal a “disturbing picture,” certainly as far as SA’s manufacturing export capacity is concerned, according to senior economist Pieter Laubscher. Only 14% of exporters have managed to “continue growing export volumes” over the past two years; 16% indicated that they had managed to maintain export markets, if not grow them; 28% responded that they had “suffered a decline in export volumes,” and “most worryingly” no less than 39% indicated that they had “closed down export capacity permanently”. “These results confirm that SA’s manufacturing exporters are in deep trouble at the exchange rate of below R6/$ and R7.80/euro. “It should be borne in mind that the global economy has been in a synchronised growth phase over the past 18 months, with growth being exceptionally strong during the second half of 2003 and the early part of 2004,” he says. Only 67% of manufacturers report satisfactory business conditions compared to 90%-plus in the retail, wholesale, motor trade and construction sectors. Manufacturers are also relatively pessimistic regarding general export prospects. Most of those surveyed said their companies were most competitive at R7.70/$. At below R6/$, manufacturing exporters “are bleeding and under serious pressure” from import competition. “Considering the fact that the manufacturing sector contributed more than 50% of export revenues in 2003, the implied loss of export capacity suggests a great economic cost tied to the strength of the currency,” says Laubscher.