South African Manufacturers Struggle Despite Weaker Rand

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Written by Kevin Mwanza

With a quickly weakening local currency and dropping oil prices globally it’s easy to assume that South African manufacturer are raking in handsomely from these “misfortunes”. But other challenges at home have made it impossible for the countries factory owners to smile.

According to the Financial Times, manufacturers in the Africa’s second largest economy are facing serious huddles in rising cost of operations occasioned by labor unrest, an electricity crisis and subdued global demand for commodities.

Data from the country’s statistics agency showed that manufacturing production contracted in the first two month of the year.

“If the rand gets weaker our raw materials get more expensive so we don’t necessarily see the benefit,” Thomas Holtz, chief executive at Multotec, told the Financial Times.

The South African rand has depreciated to hit a 13-year low against the dollar in March as inflation, economic growth, and its labor market all weaken.

Typically, a weaker local currency benefits local exporters as they earn more for every product they sell in dollar terms.

South Africa, a country that largely depend on exporting its minerals to generate hard currency for its large economy, should by now be enjoying increased earnings for the first quarter of the year. Any gains from the weakening rand have been eroded by a difficult working environment at home.

Manufacturing contributes almost 12 percent to South Africa’s gross domestic product and also give employment to many minimum wage workers.

A five-month strike in the platinum sector followed by a weeks-long strike by metalworkers and then a power crisis occasioned by aging electricity generating plants ran by state owned Eskom slashed economic growth in the country to near zero.

“Labour and electricity are two very big negatives and we are not seeing productivity gains to match the labour costs,” Dennis Dykes, chief economist at Nedbank, told Financial Times.

“And because manufacturers are under pressure, they are not putting in huge amounts of investments so that also restricts any sort productivity gains you might expect.”