x Abu Dhabi, UAEFriday 21 July 2017

Rand's loss has silver lining for South Africa

What's Down: The weaker rand may provide some relief for South African manufacturers struggling to compete with cheap imports and a slump in global demand.

The weaker rand may provide some relief for South African manufacturers struggling to compete with cheap imports and a slump in global demand, the country's trade and industry minister said yesterday.

"The rand is sitting in a more competitive space at the moment," said Rob Davies, in a speech to business people at a ruling party conference in the central city of Bloemfontein today. "We were facing a huge amount of imports in areas where we had never seen these things before."

The rand has slumped 19 per cent against the dollar since the start of last year, after gaining 44 per cent over the previous two years. Manufacturing output rose 2.5 per cent in October, compared with a revised contraction of 1.7 per cent the month before, the government statistics agency said on December 7.

South Africa posted a record 21.2 billion rand trade deficit in October as mining strikes cut output and machinery and chemical imports surged.

"We cannot sustain a balance of trade deficit like we've got," Mr Davies said. "We've got to boost our productive sectors."

Surging power prices could undermine efforts to grow manufacturing, and the government is weighing other measures to support production, including ensuring factories gain access to competitively priced raw materials, such as iron ore, platinum and chrome, the minister said.

Eskom Holdings, the state-owned supplier of about 95 per cent of South Africa's power, is seeking a 16 per cent increase in average electricity prices each year until 2018 to avoid a repeat of energy shortages that halted mines in 2008.

"We are well aware that the scale of increases that are being sought is going to meet a reaction from manufacturing," Mr Davies said. "We have got to balance that against the fact that the creation of new facilities to produce more energy is a positive for the economy."

Mr Davies ruled out a revamp of labour laws to make it easier for companies to hire and fire workers.

"The sweatshops of the world, where wages are the lowest, are out of our league," he said. "We don't want to go there. We want to occupy a different niche."

* Bloomberg News