A weak rand policy benefits companies operating in South Africa that serve foreign customers, but harms companies either overseas or in South Africa who aim to serve local South African customers. This is how profits and losses are initially being redistributed in the current phase of rand weakness (which I warned about on many occasions, most notably in this interview debate with Coenraad Bezuidenhout of the Manufacturing Circle who in June 2013 said a weak rand “helps manufacturers live to fight another day.”)
BDlive reports that costs for local companies who must import inputs to their production process are surging, and are as a result struggling to remain profitable:
The currency free fall has left a raft of companies — including mobile operator Vodacom and the local arm of Toyota Motor — scrambling to contain the damage.
The government says it may even need to step in to support pharmaceutical manufacturers.
Vodacom wants to build capital infrastructure to extend its network to more South Africans, but because its suppliers are international and price for their goods in dollars, the cost to roll out internet and mobile coverage to low income South Africans have surged. Vodacom is now negotiating with its global suppliers to try and lower prices. “It’s a pity, because obviously we could get more equipment if the rand was more stable,” Vodacom CE Shameel Joosub said on a conference call with analysts, reports BDlive.
Meanwhile, companies who take stuff out of the earth to sell to foreigners and that are focused on serving mostly foreign customers, are doing very well off the back of the weak rand:
For exporting mining companies such as AngloGold Ashanti, and firms with extensive overseas revenue, such as media group Naspers, the weaker currency appears to be an unequivocal positive, boosting profits when overseas earnings are brought home.
DTI minister Rob Davies has been urging for a weak rand for ages, and now that we’ve got it, it’s crushing the domestic economy.