I plotted the last Ten years worth of Exchange Rates, one below the other to see how they influenced each other over time:Top: Rand per US Dollar
Center: Rand per Euro
Bottom: US Dollar per Euro
Do you remember when the US$ cost almost R14.00 in Dec/Jan 2001/2? See the top chart. At that time, the US$ to Euro was almost at unity (equal value).
At the time I was exporting paramotors, pricing in US$ so we made a mint in Rands... in fact, we were subsidising our local sales into South Africa with the profits from exports... we were in fact selling our locally manufactured paramotors BELOW COST OF MANUFACTURE into our local market, as we exported most of our production.
Then in 2005 the economics changed and we received less than R6.00 per US$, making it impossible to export profitably, hence impossible to subsidise local sales.
We reverted to importing paramotors for our local market which were attractively priced at the time, then the Rand went to about R7.00 to R7.85 per US$ in 2007 making imports a bit pricey, then in 2008 we suddenly face R9.00 to R10.00 per US$ making imported paramotors, paragliders and emergency chutes, far too expensive.
Actually we are importing mostly (85%) from Euro based economies (Italy and Spain), but the situation looks much the same. Notice how the top two graphs (US$ & Euro vs Rand) moved in similar rhythms in terms of timing. Around R8.00 per Euro is a well balanced rate (facilitating both imports as well as exports), however at the current R14.00 per Euro, imported products are absolutely way overpriced in south Africa and no-one is buying! (though exporters are smiling)
I just do not have the courage to start manufacturing again. The stresses of staff and labour unions, as well as dealing with so many local sub-contractors whose workmanship and quality-control impacts on our quality and reputation, is just too much to cope with. Even if we overcome these problems, how long will it be before the economy again swings towards an importers market, causing staff layoffs and requiring another whole change in business structure again?
Working under such a volatile economy with such a widely swinging currency sure makes for interesting (read "difficult") trading conditions.
Even if we do manufacture paramotors locally, I do not think anyone will start manufacturing paragliders or reserves in SA anytime soon and, without affordable wings, few people start flying in our country, so there will not be a ready local market to purchase our locally manufactured paramotors.
Now we have an interesting phenomena... While the Rand weakened in the last few months compared to BOTH the US$ as well as the Euro (top two graphs), notice how the US$ first weakened against the Euro (bottom graph), and recently regained some strength again, but both movements (down and up) caused the Rand to weaken even further against both currencies!
What gives? Can anyone explain this?
Where to from here? I guess it is anyone's guess... my Crystal Ball has trails of smoke pouring out of it...
Keith
ReplyDeleteYou said:
"........both movements (down and up) caused the Rand to weaken even further against both currencies!
What gives? Can anyone explain this?
Where to from here? I guess it is anyone's guess... my Crystal Ball has trails of smoke pouring out of it..."
Well, there may be no correlation between the the Euro/Dollar's movements in unison with one another, whilst the Rand weakens against both, because; In Europe and the US, when any self respecting politician is merely exposed, even without trial, of having been implicated in sexual or fraudulent deviations, then he/she immediately resigns from public office. Such is the code and the moral ethic of civilised nations. Here in Southern Africa and in the recent past (read - during this Rand decline), our president elect is either in court for rape, or dodging other corruption charges, so much so that even Fred Astaire would be impressed with such deft footwork. This whilst our apprentice politicians, like Mr.Julius Motormouth are openly inciting violence. The President is relieved of his post, with 24Hrs notice in a political coup. Our neighbouring dictator is beaten 'hands down' in an election, a loss which he summarily dismisses and then goes on to belligerently defy brokered power sharing deals.
I could go on all day, but let me suffice to say, that there's no fiscal rocket science required here. The Rand will continue to slip disproportionately to other world currencies, as long as our African 'leaders' continue to jump from one banana skin to the next.
Then Keith, as for your smoking crystal ball. Over time I have had several electronic gadgets suddenly 'go up' in smoke and then abruptly cease to function. Well despite extensive searching, I am yet to find a re-smoking agent. I am told that they do exist, but are more elusive than an honest African politician, but if found, these fellas can apparently get the smoke back into the gadgets. Should my search bear fruit, then I will certainly bear you in mind, so that you can get your crystal ball re-smoked.
Bye for now,
Steve