Currency watchers will have observed the freefall of the South African rand against the world’s major currencies, particularly over the last four months.
Editor’s Memo with Itai Masuku
While this might be a cause for celebration by the South Africans as their exports become cheaper, it’s a cause of concern for Zimbabwe, a major export market of that huge neighbouring economy.
The implication is that our imports from the country are most likely to rise and along with that, our trade deficit with our southern neighbour.
This stood at R15 billion (nearly US$2 billion) as at 2012 according to the Trade centre. As the bulk of our imports are from South Africa, this will have a major impact on the overall trade balance of our nation. In fact, Zimbabwe is still South Africa’s biggest trading partner in Africa.
For South Africans, the fall of the rand itself is most likely a deliberate policy to stimulate exports, particularly to overseas markets.
It is a reverse of the period towards the 2010 soccer world cup where the unit firmed to about ZAR7 versus the US dollar. This allowed SA to mop up a lot of foreign currency in the period during, before and after the games owing to the strong rand.
Of course, this made the rand more expensive and would have impacted negatively on SA’s exports. In its current southward movement the rand is only retracing its steps to the nine-year period before the World Cup. The rand was trading at almost 12 to the US dollar then.
Currently quoted at 11 to the greenback buying, the unit is not too far from its all-time lows of 13,84. When it will bottom out is just a question of time. A weak rand will help South Africa recover some of the ground for manufactured goods it had lost to cheaper imports from China, not only in Africa as whole but particularly in Zimbabwe.
This is important to note because while South Africa’s exports are sizeable, when it comes to exporting to Europe and the Americas, it is just like any other developing country. The bulk of its exports to the West are primary commodities such as minerals and agricultural produce.
So, given the decline in commodity prices over the past year or so, this should keep the rainbow nation’s commodities cheaper and help it maintain exports.
But as outlined earler it is the impact of increased exports of manufactured goods to Zimbabwe that is of major concern. This will exacerbate the already unsustainably huge trade gap between the two countries in SA’s favour.
Historically, the trade gap has increased from US$300 million annually in the 1980s to about US$1 billion in the 1990s to early 2000s to the current US$2 billion plus. As Zimbabwe’s manufacturing sector has failed to hold its ground against South Africa, it is clearly going to be further affected by a weak rand and its cheaper exports. Because the US dollar is our base currency in the basket of multicurrencies, Zimbabwe has in a sense become a US state, its 54th, hence it is incentivised to import and not to export to South Africa.
But because of a weak export base, we are likely to export our biggest export resource to South Africa, the human resource, as Zimbabweans will continue treks south in search of the jobs that they can only find in the vibrant south African manufacturing industry.
Forget the brain drain, it is a brain and brawn drain. That there there is an estimated three million Zimbabweans in South Africa’s 50 million-odd population may not be a thumbsuck, as Shona, Zimbabwe’s most distinguishable language has become the rainbow nation’s 12th language.