Effect of falling rand could spread

The South African rand's continued slide against the US dollar and other major currencies could impact negatively on the southern African region, analysts told IRIN on Wednesday.

"It could be negative for the region in that if South Africa goes through this badly: if interest rates go up and there is reduced growth, then you could expect the same in the region," said South African-based Nedcor chief economist Dennis Dykes.

University of Zimbabwe economist, Tony Hawkins, said: "It (the depreciating rand) will for the most part be negative in the sense that the perception that is doing the rounds internationally is that the rand is a very weak currency, and this has a contagion effect across the whole region."

The rand broke the "psychological barrier" of 10 to the US dollar last month. It hit a record low of R12.58 against the greenback on Wednesday, after opening at R12.20. The rand has lost about 40 percent of its value against the dollar so far this year, and 33 percent against a trade-weighted basket of currencies.

Jitters by currency dealers over emerging markets, and the perceived impact of neighbouring Zimbabwe's crisis, are among the factors believed to have propelled the slide of the rand.

The rand's plunge has not yet reflected in a significant rise in inflation, Reuters reported this week. But there are fears that the costs of imports would soar, pushing domestic inflation higher and making an interest rate rise inevitable in the first quarter of 2002.

South Africa's gold industry, however, has benefited from the weakening currency. According to a senior journalist, some jobs may even have been saved in the industry by the rand's sharp decline. Regionally too, according to Dykes and Hawkins, South Africa's exporters could benefit as their goods become cheaper and their neighbours become less competitive.

"The first point is that the falling rand is bound to have an adverse impact on the trade flow between South Africa and other countries in the region. For example, if you are a Zambian importer and you have a choice of buying a particular product from Zimbabwe or from South Africa, in all probability South Africa will be cheaper," Hawkins said.

The thousands of African traders who buy their wares in bulk in South Africa for sale back home are set to benefit if the rand continues to slide because they will get more for their money. In the same way, South African exporters can expect greater demand for their goods in the region.

The Namibian reported this week that the falling rand was already boosting Namibian exports as the Namibian and South African currencies are pegged at one-to-one.