South African exports soared by 29,6% in US dollar terms in the first quarter of 2003 to $8,4-billion, while last year, exports rose by only 1,5% to $29,9-billion.
This export performance is contrary to the common perception that the strong rand will hurt South African exports.
Exports had been on a declining trend in rand terms since they hit a record high of R32,13-billion in October 2002 — 11 months after the rand reached a record worst level of R13,86/$ on December 20 2001.
The government and South African Reserve Bank (SARB) have repeatedly warned that exporters should expect no relief from intervention or official comments to weaken the rand.
To the contrary, the Budget Review released on February 26 specifically notes that, “Despite strengthening by about 22% over the year, the real effective exchange rate remains competitive, which bodes well for further expansion of domestic economic activity, especially in the export sectors and import-replacing manufacturing”.
The graph which accompanied the statement showed that the real effective rand exchange rate is still more than 30% below its 1995 average.
On April 23, SARB governor Tito Mboweni said the rand was still under-valued at a time when it was trading at R7,50/$. He expected the rand’s “recovery” to continue and it has subsequently strengthened to the R7/$ level.
Last year, South African exports declined by a real 1,4% despite the weak rand, while in 1995, when the rand was stable, exports grew by 10,3%.
This shows once again that what happens to overseas markets is far more important than what happens to the rand.
In 2002, the nominal effective exchange rate depreciated by 20,9% after a 14,6% depreciation in 2001.
In 2002 merchandise export volumes actually declined by 4% after rising by only 2,3% in 2001.
In 2000, merchandise export volumes had grown by 11,3%, even though there had been only a 5,1% depreciation in the nominal effective exchange rate.
Volume and real export growth will only be published in the SARB’s June Quarterly Bulletin, but they will no doubt show a rise in both real and volume terms on a year-on-year basis. – I-Net Bridge