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Weakening Rand drives import prices low

Weakening Rand drives import prices low

The Coronavirus causes the ZAR to plummet

The weakening of the South African Rand (ZAR) in recent days is expected to see local importers enjoying great business deals from South Africa.

The South African currency suffered a setback last week as investors in that country were reportedly fleeing riskier assets following the rapid spread of coronavirus, a deadly virus which has killed thousands and continues to spread across the world after it was first discovered in China.

While the South African currency performance is driven by macro factors, its latest slump against the US Dollar along with other emerging markets is linked to increasing cases of the Coronavirus which has since been named COVID-19.

Speaking to Voice Money this week, a renowned economist and also former Bank of Botswana Deputy Governor, Dr Keith Jefferis said the weakening of the ZAR means the Pula effectively strengthens against the South African currency but weakens against the USD.

“To that extent, it gets cheaper to import from South Africa and also gets a bit expensive for those who sell their goods to South Africa,” said Jefferis, a Managing Director at Econsult firm.

Jefferis emphasized that the impact will vary depending on what goods are traded between the two countries.

This week, the Pula was equivalent to R1.39646 and experts say this will work in favour of those who source goods from SA.

South Africa is a major trading partner in the Southern African Customs Union (SACU) region as it supplies Botswana with the majority of its imports.

Another local economist, Moatlhodi Sebabole who is a Chief Economist at FNB Botswana agrees with Jefferis.

“If you are a Botswana based importer, you will enjoy the benefits, but if you import from the US Dollar based markets you will certainly take a knock,” said Sebabole.

He, however, said they will have a cushion as the Rand is pegged to the Rand by five percent and the effects would not be felt as in countries like Lesotho and Nambia.

Sebabole said two factors have caused the rand to plummet, the cause being the COVID-19 which is making investors flee their assets to safe havens.

He explained that the Rand as a floating currency remains volatile.

The other factor which he says has caused the rand to weaken is the budget speech which was delivered by the Finance Ministry of that country which he says did not convince international rating agencies such as Moody’s.

Latest figures from Statistics Botswana indicate that during the month of December last year, South Africa was the largest source of imports for Botswana within the SACU region, accounting for 64.4 percent of total imports during the month.

Fuel, food and beverages and tobacco topped the list of the most imported goods from South Africa.

While the above goods top the list, a majority of other commodities used locally are also sourced from the neighbouring country.

According to research, although the two countries remain key to each other, there is however trade imbalance between the two as Botswana remains a major importer in the relationship.

It is reported that in 2018, Botswana imported goods worth 43.87 billion from South Africa.

While Botswana source most of its goods from South Africa, on the hand exports to South Africa remain low with the mot exported goods to South Africa being diamonds.

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