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Rand Decline Bolsters South African Manufacturers, Davies Says

Dec. 16 (Bloomberg) -- The weaker rand may provide some relief for South African manufacturers struggling to compete with cheap imports and a slump in global demand, Trade and Industry Minister Rob Davies said.

“The rand is sitting in a more competitive space at the moment,” Davies said in a speech to business people at a ruling party conference in the central city of Bloemfontein today. “We were facing a huge amount of imports in areas where we had never seen these things before.”

The rand has slumped 19 percent against the dollar since the start of 2011, after gaining 44 percent over the previous two years. Manufacturing output rose 2.5 percent in October, compared with a revised contraction of 1.7 percent the month before, the government statistics agency said on Dec. 7.

South Africa posted a record 21.2 billion rand ($2.5 billion) trade deficit in October as mining strikes cut output and machinery and chemical imports surged.

“We cannot sustain a balance of trade deficit like we’ve got,” Davies said. “We’ve got to boost our productive sectors.”

Surging power prices could undermine efforts to grow manufacturing and the government is weighing other measures to support production, including ensuring factories gain access to competitively priced raw materials, such as iron ore, platinum and chrome, the minister said.

Eskom Holdings SOC Ltd., the state-owned supplier of about 95 percent of South Africa’s power, is seeking a 16 percent increase in average electricity prices each year until 2018 to avoid a repeat of energy shortages that halted mines in 2008.

Energy Balance

“We are well aware that the scale of increases that are being sought is going to meet a reaction from manufacturing,” Davies said. “We have got to balance that against the fact that the creation of new facilities to produce more energy is a positive for the economy.”

Davies ruled out a revamp of labor laws to make it easier for companies to hire and fire workers.

“The sweatshops of the world, where wages are the lowest, are out of our league,” he said. “We don’t want to go there. We want to occupy a different niche.”

To contact the reporters on this story: Mike Cohen in Cape Town at mcohen21@bloomberg.net

To contact the editor responsible for this story: Nasreen Seria at nseria@bloomberg.net

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