The good and bad of a strong Pula
Boitshepo Majube | Wednesday March 5, 2014 10:01
He further stated that a stable Pula in relation to other currencies provides support for both exporters and importers, including those producing for the domestic market.
“Competitiveness of domestic producers depends on productivity, which is a matter to be addressed at the level of individual businesses,” he argued. As a result of the deliberate policy by the Bank of Botswana, the Pula has weakened against most major trading currencies, while appreciating against the Rand. On an annual basis (12 months to January 2013), the Pula depreciated against the US dollar (9.1 percent) while it appreciated against the Yen (8.3 percent) and the Rand (5.1 percent) respectively.
Recently, Botswana Exporters and Manufacturers Association (BEMA) revealed that the strength of the Pula against the Rand, Botswana’s major trading partner, has left some local manufacturers exporting to SA on the edge. So serious is it that some manufacturers have notified Botswana Exporters and Manufacturers Association (BEMA) of their looming relocation to SA. Botswana’s exports to SA stood at more than P6 billion by the end of November 2013.
An unnamed manufacturer exporting to SA and employing 100 people has already notified BEMA of his intention to relocate. “We cannot name them at the moment, even-though they have told us their intentions,” said Interim Executive Director at BEMA Gideon Phiri in a recent interview with this publication.
BEMA said manufacturing companies exporting to SA that produce their goods from locally sourced raw materials are the ones hard hit. The strength of the Pula against the SA weakening Rand has made locally produced goods from local raw materials more expensive in the SA market, rendering them uncompetitive.
Phiri said those companies sourcing raw materials locally are losing money due to the strength of the Pula against the Rand. “We may see plant relocation, especially those affected,” Phiri said. He said plant relocations mean more jobs are going to be lost.
On the other hand, Phiri said those that are sourcing their raw materials from SA to manufacture their goods are sitting pretty. “A lot of our members get their raw materials from SA, and a weaker Rand means they are buying raw materials cheaper,” he stated.
Meanwhile Khama said Bank of Botswana has supported economic growth principally by ensuring that the rate of price increases is benign, in line with its mandate of fighting inflation. “Inflation has, to a large extent, been kept at low and sustainable levels in response to monetary policy, which has been adjusted from time to time, as necessary,” he said.
He stated that the bank rate has been reduced by 2 percentage points since April 2013, such that market interest rates are supportive of domestic economic activity, as well as the Government’s objectives of economic diversification and job creation.
“These objectives are further supported by the exchange rate policy, the parameters of which were recently made public by the Minister of Finance and Development Planning, with a view to anchor public expectations of the Pula exchange rate,” Khama said.