Study reflects interesting findings in strong rand export dilemma

The negative impact of the strong rand is a recurring theme in this special feature. This article offers a different perspective. Alan Peat HAS THE strong rand blighted export margins as much as appears to be reported? Possibly not so, according to certain calculations by Credit Guarantee’s Luke Doig. “While SA exporters justifiably bemoan their lot in the face of the current strength of the rand,” he told FTW, “figures show that margins may not have been sacrificed to any great extent in the highly competitive international markets. His data shows that, while the rand appreciated by an effective 2.6% against the US dollar from 2000 to 2003, export prices (at 1995 constant prices) rose by 13.7% in 2000, 16.2% in 2001 and 24.9% in 2002. On the other hand, Doig saw export volumes trailing export price increases - rising only 8.9% in 2000, 2.7% in 2001, and actually declining by 0.8% in 2002. “It was only in 2003 that export prices fell 9.5% as export volumes declined 0.5%,” he said. He argued that market share – in terms of export volumes - may have been sacrificed to maintain margins during this period. “These figures support the view that too much reliance could have been placed on a weak rand to stay competitive,” Doig added. “Of course, the commodity traders will be adversely affected by a strong rand - as prices are dictated in foreign currency terms and those exporters will inevitably suffer the blight.” His forecast is that – not expecting the rand to revisit a double-digit rand/US dollar exchange rate in the short- to medium-term at least - aspirant and current exporters need to adapt their operations to the more competitive global markets. “SA exporters already have a reputation in some markets for being ‘fair weather’ players,” said Doig, “who drop out the moment the going gets rough. “I’m sure this perception is exaggerated, but we can’t afford it if we are to be taken seriously as long-term exporters.” His report points to several examples of experienced exporters – major industrial groups – who are aware of the need to take a long-term view of their respective export markets. “They have cut margins where necessary and focused on cost efficiencies to retain market share,” said Doig, “albeit at the expense of current profits. “They are mindful of the fact that when these markets pick up, or if the rand weakens down the line, they will be preferred suppliers.”