Zimbabwe experts divided over strong Rand

Zimbabwe experts divided over strong Rand
Published: 25 January 2018
A RESURGENT South African rand has divided opinion among the country's financial analysts, a survey released by the Investments Professionals Association of Zimbabwe (IPAZ) last week showed.

It said 45 percent of 20 analysts polled predicted that an appreciating rand would spell doom for Zimbabwe, while an equal number projected sharp falls in imports from South Africa that would work in Zimbabwe's favour. As at Friday, the South African rand had gained 0,4 percent against the greenback so far this year, after appreciating 9,87 percent in 2017.

The US dollar is the dominant unit in a basket of foreign currencies adopted by Zimbabwe in 2009 following the crash of the domestic currency in 2008. A strong rand has been sending shivers among industrialists, who say the upward trajectory would make raw material imports expensive. This is seen inflicting fresh pain to Zimbabwe's frail industry, which imports 55 percent of its inputs from South Africa, in addition to 30 percent of equipment running factories, according to Confederation of Zimbabwe Industries statistics.

However, a strong rand discourages imports, and can help the country address trade imbalances with its economically strong southern neighbour, which exports US$3,5 billion worth of products to Zimbabwe per annum, and enjoys a healthy balance of trade, estimated at about US$98 million during the first eight months of last year, according to official figures.

The IPAZ survey, which said availability of the greenback would improve in 2018 after more than US$1 billion stashed offshore by jittery citizens was said to have been returned, said investment professionals were still not in agreement over the impact of a resurgent rand. "Opinion was divided on whether the strengthening rand is good or bad for Zimbabwe's economy in 2018 with 45 percent saying it will have a positive impact while 45 percent think otherwise," IPAZ said.

"Meanwhile, 10 percent think that this will not have any impact on the economy because the country has bigger structural issues to deal with besides currencies. Some analysts said the strengthening (rand) should result in reduced imports from that country and more exports thereby improving the country's foreign currency reserves," added the survey.

"We are currently net importers of price-sensitive imports from SA, so a strengthening rand will make our local exports more attractive and reduce the competitiveness of SA imports," it quoted one respondent saying. South Africa is Zimbabwe's major trading partner. And any changes in its currency in relation to the US dollar is quickly felt in Zimbabwe, a net importer of South Africa products, A strengthening rand will make local exports more attractive and reduce the competitiveness of South African imports.

A weak rand reverses these effects. One of the areas where Zimbabwe would feel the pain of a depreciating rand is on remittances from the millions of its citizens who have fled political and economic turmoil to settle in South African cities. When the US dollar posted major gains against regional currencies in 2016, remittances from South Africa plummeted by 13 percent from US$457,9 million between January and June 2015 to US$397,3 million in the corresponding period in 2016, according to the Reserve Bank of Zimbabwe.

IPAZ says 70 percent of analysts said US dollar cash availability including nostro accounts, would improve this year, riding on improved confidence on the country, which has been rebuilding its image. 
- fingaz
Tags: Rand,


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