2 February 2014

Zimbabwe: Rand Depreciation Takes Toll On Industry

Photo: Flickr
South African twenty rand note.

ZIMBABWE's manufacturing and tourism sectors face daunting challenges as the value of the rand against the United States dollar continues on a downward spiral, a local trade body has warned.

The South African rand early last week hit a renewed five-year low as the currency came under sustained pressure since the US Federal Reserve announced it would trim back stimulus spending.

Compounding the situation is the fact that more shops in the country are not accepting the rand, preferring the United States dollar instead.

Zimbabwe National Chamber of Commerce (ZNCC) vice-president, David Norupiri commended government's decision to scrap duty on raw materials, but added that the depreciating value of the rand against the dollar was a cause for concern.

"The move [scrapping duty on raw materials] was positive as this allows manufacturers to compete more effectively. If the duty is effectively levied on incoming products, certainly this will work out," he said. "But the weakening of the rand has a diluting effect. Although certain products become cheaper to manufacture, the same product which local industry manufactures comes in cheaper from South Africa."

The decline in the value of the rand means it will be cheaper for South African manufacturers to produce their goods.

South Africa remains Zimbabwe's largest trading partner with imports worth US$7,15 billion and exports worth US$3,25 billion, according to Zimstat.

Norupiri said although it could be a short-term trend, if the scenario was to continue then the tourism sector would feel the immediate effects as it will become more expensive for tourists from the South African market to visit Zimbabwe.

In the central bank's monetary policy statement last week, an additional four currencies were introduced, namely the Australian dollar, Chinese yuan, Indian rupee and Japanese yen.

This was in line with government's acknowledgement of trade and investment ties between Zimbabwe, China, India, Japan and Australia having grown appreciably.

Throughout most of 2013, the manufacturing sector largely remained subdued with average capacity utilisation estimated at around 39,6% in 2013, down from 44,9% in 2012.

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