Davos, Switzerland - The rand’s depreciation may help to boost South African manufactured exports while raising the government’s borrowing costs “slightly,” Finance Minister Pravin Gordhan said.
“We have always said a depreciated rand would boost the prospects for exports,” Gordhan said in an interview at the World Economic Forum in Davos yesterday.
“The test is for private sector firms to demonstrate their agility and responsiveness to what are favorable conditions.”
The rand weakened beyond 11 to the dollar this week for the first time since 2008, bringing its depreciation since the start of last year to 24 percent, the worst performance among 16 major currencies tracked by Bloomberg.
The rand’s slide is adding to pressure on inflation in Africa’s biggest economy and may raise the government’s borrowing costs.
“We borrow very little from international markets, most of our borrowing is in domestic market, so there is going to be slightly higher level of costs which we will talk about in the budget,” due to be released next month, Gordhan said.
A strike at the world’s three biggest platinum producers in South Africa has halted operations, undermining the rand.
The currency fell 0.9 percent to 11.0886 per dollar yesterday.
“Government is working very hard at mediating some of the differences between employers and labour unions” to end the strike, Gordhan said.
“The mining sector is crucial to the South African economy.”
South Africa has been hit by a series of mining strikes since 2012, with the trade gap for the first 11 months of last year almost doubling from the same period a year earlier as labour stoppages at mines and carmakers cut output.
Strikes “damage exports, which has implications for our trade account and for perceptions of the mining industry,” Gordhan said.
Gordhan said the ruling African National Congress is set to win this year’s election with a “significant margin” and the government plans to stick to its economic policies.
“There will be a great deal of policy continuity and predictability,” Gordhan said.
“There is actually no doubt in South Africa about who the next government is going to be constituted by.” - Bloomberg News