The Rand recovered from R8,35 to the US dollar to levels in the low R8,00 region in recent weeks , but further weakening against the major currencies is expected, said Brigid Taylor, currency strategist at Rand Merchant Bank (RMB). “We expect the rand to gradually weaken towards the end of the year, and R9,00 to the US dollar will be a realistic exchange by December 2008.” Lindie Botha, economist at the Business Chamber, agrees. “Many economists are currently predicting the rand to trade somewhere in the R8,40 to R8,75 ballpark by the year’s end.
I think R9,00 is more realistic given the macroeconomic environment we’re currently experiencing,” she said. Taylor ascribes the rand’s weakening to a strengthening of the US dollar, a decline in commodity prices, a lessening of investment risk appetite for emerging markets and the lack of funding for South Africa’s current account. “Until now, it was predominantly the first three factors that pushed the rand down. We believe that the current account deficit will start playing a more prominent role in the depreciation of the rand over the next few months,” Taylor said.
Botha added, “SA’s trade deficit stands at historic high levels. With our dependence on imported goods and oil, this deficit will only increase. The effect of this is a depreciating currency and rising inflation.” A gricultural business confidence is up 0,4% from last year. Confidence was boosted by high commodity prices that were realised with relatively low input costs. High commodity prices pushed turnovers up and higher profits were realised, positively influencing investment and job creation, Botha said. But 2007 was a bad year, with business confidence in agriculture low, mainly due to adverse climatic conditions.
Surely, with the excellent weather and bumper crops of 2008, the confidence barometers should reflect with more than a paltry 0,4% increase, Botha said. She ascribes this to our current macroeconomic situation and political uncertainties before the 2009 election.
On the positive side, exporters are favoured by a weaker currency and the agricultural balance of trade will improve with a weakening rand. The citrus and table grape industries are labour-intensive, so this will also have a positive impact on employment, Botha said. But input costs increase as the rand weakens, reducing profit margins. Crucial industry support functions such as research and development will be affected as a depreciating currency weakens the economy. – Wouter Kriel
