Short-sighted importers take a pounding

... as they try to save on forward cover WITH THE plummeting rand exchange rate there is no doubt that importers have been suffering from a financial body blow over the past months - with some of the currency's downward plunges catching many of them between order and receipt of goods, and costing them whacking amounts in extra cost. One of the FTW queries was: "Do importers take forward cover as a matter of course, or do they just sit back and suffer?" This is something that Mike Truter, executive director of Credit Guarantee Insurance Corporation (CGIC) - the country's main source of forward cover apart from the banks - has monitored over a number of periods when there has been a drop in the rand. "But we never seem to learn from our mistakes," he told FTW. This uncorrected error, he added, involves businesses trying to save cash, and keep margins up, by not protecting themselves against currency fluctuations. "All too often businesses don't cover forward. But they have committed themselves to their suppliers in hard currency. "They therefore end up paying more than they expected in rand terms when the bottom falls out of the currency." In the latest currency collapse, it has not been so much the depreciation of the rand which has really hurt, Truter added, but the speed at which it has taken its nosedive. "A rapid drop like this," he said, "is bound to cause business difficulties." This he has witnessed from past occasions. "Where you do have rapidly moving exchange rates, it does encourage a spate of business failures some months afterwards," said Truter. "With this latest depreciation trend, I think we'll see a spurt of business failures in about six months."