Weak rand not all positive for local manufacturers

As the Rand continues its weakening trend against the US dollar, economists have predicted greater potential for local manufacturers to compete positively with imports.

“While the weak Rand may present certain advantages for exporters, the reality is that local manufacturers still lack the capacity to take full advantage of this opportunity.

Manufacturing capacity in South Africa has been eroded for some years and it will take time to build up,” said Lance Rabbie, financial director at Blue Strata, an end-to-end import and working capital specialist.

The advantages that manufacturing exporters may derive from the weak Rand are certainly not significant enough to make a major impact on the economy, he says.

Furthermore, the weak Rand presents inflationary pressure to the country by raising the price of imports.

“Local manufacturers are still finding it difficult to take advantage of the weakening Rand, due to continued fuel price increases, industrial action in different sectors, high input costs such as electricity and a lack of skills, which are all having a negative impact on the country’s ability to drive industrial growth,” he added.

As South Africa’s current account deficit continues to widen, Rabbie says it is crucial for the government to identify and support key growth sectors in order to stimulate the expansion of local production. For example, the automotive industry, which contributes between six and seven percent to the country’s Gross Domestic Product (GDP).

Rabbie highlights the significance of placing a greater emphasis on skills development and creating jobs within these targeted industries.

“The challenge, however, is that some products are simply not being made, or are not able to be made, in South Africa. Globalisation and the cheaper production of certain products is a reality and we need to incorporate this into our industrial objectives.”

“If we want to stimulate economic growth in South Africa, it is critical that Government strikes the correct balance between imports and exports, by considering both the needs of local retailers who rely on cheaper imports as well as local manufacturers that need to drive exports of products and raw materials,” Rabbie said.

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Weak rand not all positive for local manufacturers