Weaker rand ‘does not help exporters’

THE prevailing view that a weaker rand automatically gives locally produced goods an edge in overseas markets doesn’t hold water, according to a survey by global banking group HSBC.

The survey found that the rand’s sharp slide this year had failed to support the demand for exports.

Finance Minister Pravin Gordhan, Reserve Bank governor Gill Marcus, and Trade and Industry Minister Rob Davies have all extolled the virtues of the rand’s depreciation, urging manufacturers to take advantage of the opportunities which it offers for their exports.

But a new Purchasing Managers’ Index (PMI) sponsored by banking group HSBC indicates that new export orders contracted in six of the past 10 months of this year. This was despite the fact that the rand has depreciated by about 17% against a trade-weighted basket of currencies.

“It is a surprising finding from the PMI,” said HSBC economist David Faulkner. “I think this possibly reflects the fact that growth in our major trade partners is more important in determining overall exports than the currency.”

A PMI is a monthly survey of private-sector companies carried out across the world and is considered one of the most important leading indicators of business activity.

Hugo Pienaar, senior economist at the Bureau for Economic Research (BER), said it was clear that prolonged industrial action, as well as the slowdown in Asian markets and recession in Europe, had undermined local exports this year.

“You could argue that the weaker currency hasn’t been a real benefit, but in the absence of that, the export picture might be worse than it is,” he said.

Sean McClagan, market analyst at ETM Analytics, disputed the widely held view that a weaker currency helps local manufacturing companies by curbing demand for imports, which it makes more costly.

“It’s a long-standing fallacy that a weaker rand would aid exports — it seems to be a difficult, entrenched view although the evidence [that it is wrong] is there,” he said.

During the first nine months of this year, South Africa’s cumulative trade deficit ballooned to R126.37-billion, well above the R83.6-billion recorded in last year’s corresponding period.

Although exports have been rising, imports have been increasing at a much faster pace.

Nonetheless, the HSBC PMI for South Africa, carried out by global survey provider Markit and launched on Tuesday, nudged up to 51.5 in October from 49.8 in September — its strongest level so far this year. It includes the service, construction, mining and retail sectors.

Faulkner said that South Africa’s composite PMI suggested that economic growth would show a “modest acceleration” in the fourth quarter.

A PMI reading above 50 indicates an expansion in economic activity while a reading below points to a contraction.

Faulkner expected the economy to expand by 2% this year — in line with official forecasts — but believed the pace would quicken to 2.7% only next year, because of sluggish demand.

This is well below forecasts from the Treasury, which expects the economy to expand by 3% next year, and the Reserve Bank, which predicts an increase of 3.3%.

However, manufacturing figures released on Thursday showed that the sector was likely to have detracted from economic growth in the third quarter, after expanding strongly in the second.

Production fell 3.3% year on year in September, the sharpest contraction in more than two years, according to Statistics SA.

During the month itself, the sector shrank by 4.7%, worse than expected, after a 3.8% decline in August.

A prolonged strike in the automotive sector was mainly to blame, with production of vehicles, parts and accessories as well as transport equipment plunging by about 50%, Statistics SA said.