The rand’s strength had forced eight companies in KwaZulu-Natal to close shop, and many more could follow due to increasing export costs, the SA Chamber of Business (Sacob) said on Tuesday.
”It’s causing problems, not only for large corporations, but small businesses as well,” Sacob chief executive officer James Lennox told a press conference in Johannesburg.
Sacob economist Richard Downing said: ”The level we have at the moment is creating problems for certain business. Our export business is suffering because of the stronger rand.”
The rand dropped quite significantly in 2001, trading at its weakest point of R13,85 to the dollar in December 21, 2001. However, it rose sharply against the dollar in 2002, trading at R8,54 in December that year.
On April 29 this year the currency was trading at R7,03 to the dollar. Downing said the roller-coaster ride has caused a lot of confusion in international markets. The rand should fluctuate within a narrow range so that it was predictable, and that would make it easier for enterprises to plan.
”We need to get to an environment where the rand gets to fluctuate within a narrow range,” Lennox said, adding that the Reserve Bank should cut interest rates soon.
”It might have an impact.”
Downing said: ”They (the Reserve Bank) are being too cautious, a reduction in interest rates is …overdue. No economist (last year) expected the rand to be at this level.”
Econometrix economist Tony Twine said the rand’s strength was ”uncomfortable to all sorts of companies”, big or small.
Twine said: ”The larger your exposure to export revenue, the worse the situation is for any given enterprise.”
Talks with consumers and producers revealed the feeling that the rand should be trading between R8,50 and R9 to the dollar to be fair to consumers and producers.
”The lack of predictability is creating problems,” he said, adding that smaller companies were the ones mostly affected by that.
Lennox said the problem came from the rand’s instability, expectations and decisions that were made while the rand was still struggling.
Sacob’s statement issued at the press conference read: ”This also fuelled inflation and inflationary expectations, while the rand’s previous demise and subsequent recovery caused price instability with devastating effects on a broader economic front.
”Although the rand’s sharp appreciation to current levels was unexpected, many believe that the prevailing high interest rates in South Africa have merely attracted short term money into the economy, which did not assist real fixed investment in
wealth-creating economic activities such as gold mining.” – Sapa