Factories may gain from rand

Comment on this story


NewRandMoney

Reuters.

Manufacturers are set to benefit from a depreciation in the rand, last year’s worst-performing major currency, if labour relations remain stable, according to analysts.

“The weaker exchange rate should boost domestic manufacturing production at the expense of imports, but it’s going to happen very slowly,” Peter Worthington, an economist at Absa Capital, said last week.

“You need a weak exchange rate, the proper regulatory environment, appropriate labour relations, appropriately skilled labour and access to markets.”

Factory output in the first 10 months of last year was curtailed by a temporary shutdown at an ArcelorMittal South Africa steel mill after a fire. A six-week strike at manufacturers of vehicles and automotive parts in August and September followed, halting vehicle production.

That restrained growth to the slowest pace since the 2009 recession, with manufacturing accounting for about 15 percent of economic output, according to Statistics SA.

While the rand slumped 20 percent against the dollar last year, the benefits for South African manufacturers and exporters has been limited because of the stoppages.

Manufacturing production probably rose 0.3 percent in November from a 1.5 percent increase in October, according to the median estimate of six economists in a Bloomberg survey. The data will be released on Thursday.

Economists expect the economy to expand 2.8 percent this year, compared with an outlook of 1.95 percent for last year.

Manufacturing confidence was little changed at 36 in the last three months of last year from 37 in the previous quarter, according to the Bureau for Economic Research. Improved prospects for the global economy and the sustained weaker rand contributed to the outlook, the bureau said.

While the past year’s labour unrest with companies was largely resolved, conflict between unions and the government in an election year might yet affect manufacturers, Azar Jammine, Econometrix’s chief economist, said.

“Much will depend on the political environment and specifically industrial relations between manufacturers and workers,” he said.

“Last year was very bad from that point of view. If it continues it would neutralise much of the benefit of the increased competitiveness that might arise as a result of the depreciation of the rand.”

The National Union of Metalworkers of SA (Numsa), the largest labour union in Cosatu, has called on President Jacob Zuma to resign over the cost of improvements to Nkandla.

In addition, Numsa has called for a national strike on February 26 to protest against the government’s youth wage incentive.

“A weaker rand alone cannot benefit the manufacturers,” Isaac Matshego, an economist at Nedbank Group, said.

“There has to be favourable global conditions and domestic factors, like the stability of supply and production.”

Jammine said: “There will be plenty of opportunity for manufacturers to be able to export more than they were able to do this past year.

“A combination of that and the weak rand should be of assistance to the manufacturing sector so long as all these benefits are not scuppered by industrial action.” - Bloomberg


sign up
 
 

Comment Guidelines



  1. Please read our comment guidelines.
  2. Login and register, if you haven’ t already.
  3. Write your comment in the block below and click (Post As)
  4. Has a comment offended you? Hover your mouse over the comment and wait until a small triangle appears on the right-hand side. Click triangle () and select "Flag as inappropriate". Our moderators will take action if need be.

     

Join us on

IOL-Social networks IOL-Social networks IOL-Social networks IOL-Social networks
Sudoku