How the weak rand has hit tech prices in South Africa

MY BROADBAND

The rand’s weak performance in 2020 has heavily impacted the cost of importing tech from around the world into South Africa.

The currency’s value against the dollar has dropped by around 25% since the start of the year, when it was trading at just under R14 to $1.

Since then, it slumped to a record low of R19.35 on 6 April 2020. As of 14 May 2020, the rand was trading at around R18.50.

This has a substantial impact on the prices of imported goods, including items such as PC components, laptops, tablets, smartphones, and other gadgets.

Although South Africa’s coronavirus lockdown measures have played a role in the rand’s slump, one should take note that the currency was at just under R18 to the dollar even before the lockdown started.

South Africa’s economy was already in a technical recession before the pandemic hit, too, with the GDP shrinking 0.5% in the last quarter of 2019.

Bad economic performances and the downgrade of South Africa’s credit rating by Moody’s have also knocked the rand.

The exchange rate is further subject to a plethora of complex “market forces”, as explained by the South African Reserve Bank (SARB).

“For instance, buying and selling rates for dollars quoted by authorised foreign exchange dealers are based on the supply of and demand for dollars in the market at any given time,” the SARB stated.

An impending global recession as a result of the COVID-19 pandemic means buyers are putting their trust in currencies from established markets like the US, which is more capable of handling these types of crises.

Emerging markets like South Africa are not regarded as safe havens, which makes the rand less appealing.

South African tech prices

Because South Africa imports the majority of its tech, local prices are directly impacted by the value of the rand against foreign currencies.

Mustek, one of the leading distributors of tech products in South Africa, explained the importance of the rand-US dollar exchange rate for determining the prices of tech.

The company distributes a wide range of IT stock from leading brands, which include Samsung, Huawei, Acer, Lenovo, ASUS, and SanDisk.

Mustek Limited CEO David Kan told MyBroadband the majority of the IT industry trades in the US dollar, which means selling prices listed in rand are directly influenced by the exchange rate.

A portion of the industry trades in euros, another currency against which the rand has struggled in 2020.

“All imported products are priced and purchased in foreign currencies. Consequently, the rand selling price is impacted,” Kan stated.

Coronavirus impact

Kan said despite the impact of the coronavirus on global trade, the US dollar buying prices of goods have remained stable – although the price of raw materials has been creeping up.

“Most companies globally have had raw material issues, as well as production problems, resulting in a cost creep in prices of certain components,” Kan said.

He said the disruption of air travel has also dramatically pushed up the prices of transporting goods.

“Due to the cancellation of all passenger flights, the cost of air freight has increased by more than 300% and transit time has become unpredictable,” Kan said.

It has also resulted in lengthy delays of shipments.

“Usually, air freight takes two days. With limited space available, it can take two to three weeks,” Kan said.

He confirmed, however, that the weakening rand was the major cause of tech price increases in South Africa.

“Within the coming month, the selling price has been adjusted according to the ruling ROE (return on equity) since March,” he noted.

“Supply is also a concern, along with port congestion, transport restrictions, and shipping modes which have been changed from air to sea, further delaying stock.”

There is good news, though, with signs that the rand will recover some lost ground in the coming months – as claimed by analysts from Bloomberg.

Kan said if the rand recovers, South Africans can expect the selling price of tech to stabilise.

“The ZAR selling prices are dominated by ROE. Should ZAR appreciate against US dollar, the ZAR selling prices will be lowered,” Kan stated.

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