Stronger rand takes its toll on grape industry

There's been mixed reaction from exporters to the strongest South African rand in more than two and a half years following the election of President Cyril Ramaphosa in February. One of the biggest challenges in the past two years for many exporters has been the exchange rate volatility – while many benefited from a weaker currency, a stronger rand was not necessarily good news. In the fruit industry the stronger exchange rate was taking its toll, said Louw Pienaar, an agricultural economist with the Western Cape department of agriculture. He said grape exporters had been particularly hard hit. The stronger rand was impacting at a time when farmers in the droughtstricken provinces like the Western Cape were already exporting less due to the restricted water supply, he added. “Not only is there a drop in the output, but also a drop in the price of that product on the international market.” According to Catherine Grant Makokera, trade specialist and director at Tutwa Consulting Group, ongoing volatility has resulted in many exporters setting tariffs for a specific period of time. “A large part of the export market will not feel the strengthening of the rand immediately due to the set tariff approach,” she said. “Also, one must remember the benefit of a stronger rand to importers – and that will see some production costs decrease for exporters and mitigate some of the loss they could experience.” Professor Robert Lawrence of Harvard University Kennedy School of Government Trade and Investment told FTW exchange rate volatility would always be a challenge. “There are some who believe a currency should be weakened intentionally,” he said. “But given what has happened in the past few weeks in the country one could argue that from the standpoint of manufacturing and export the stronger rand is not such good news; but from the perspective of a country as a whole it is very hopeful indeed.” He said his general outlook was that it would always remain difficult to control fluctuation – especially for commodity-dependent economies like South Africa and many of its neighbours. “The real exchange rate in the long run is driven by the country’s savings and having a good investment balance,” he said. “The secret is to have both the government and the private sector saving more. That then sets the basis for a solid process of investment.” He said central banks intervening to stabilise currencies had resulted in some expensive lessons for several countries. “A conservative fiscal policy and stable political environment are key ingredients for a stable currency,” he said.