Weakening rand will weaken Zim

Zimbabwe’s sustainable economic growth in the medium-term is partially anchored on a strong South African rand. CLEMENCE MACHADU explains why a weak rand could spell bad news for Zimbabwe.

South Africa is our biggest trading partner and exports are currently our major source of liquidity. A weakening rand simply makes our exports expensive and imports cheaper, and that would be a huge blow to what the economy is trying to achieve.

The rand has plunged to a five-year record low, trading at US$1 to R11. The plunge is largely as a result of a strike by the Association of Mineworkers and Construction Union (AMCU). AMCU is pushing for a 100 per cent wage increase in the platinum sector, giving workers a minimum wage of R12,500. It’s a figure the three platinum giants say they cannot afford.

The companies have temporarily shut down, which aggravates the situation, as, between them, they produce about half of the world’s platinum.

Zimbabwe’s tourism industry has already started to feel the adverse effects of the weakening rand, with the number of tourists from South Africa falling because Zimbabwe is becoming an expensive destination for them.

In fact, the weakening rand is actually attracting more tourists to South Africa, where fewer US dollars are needed to enjoy South African hospitality.

The weakening rand is going to provoke Zimbabwean traders and consumers to import more finished goods from South Africa, as they now need fewer dollars to buy the same amount of goods from South Africa. These cheap imports will heavily compete with our locally manufactured goods and result in low domestic demand for them.

Conversely, Zimbabwean exporters will now get less revenue for the same amount of goods they were exporting to South Africa. This will create a disincentive for exporting and might result in them ceasing to export and streamlining their operations.

Zimbabwe also faces an exchange rate risk, which means policy-makers need to act quickly to ensure that optimal decisions are made before it’s too late.

Post published in: Business

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