SA COUNT THE COST OF GLOBAL CURRENCY SHIFTS

| Monday June 10, 2013 00:00

Valeria, who runs a stall in Johannesburg's bustling Randburg area, naturally rejoiced at the rand's misfortune last week as it increased the value of her illicit stash of dollars.The problem is that overnight the Chinese wholesaler joined fellow sellers of imported goods in jacking up his prices in rand, reacting to the plunging local currency.'I'm back to square one,' Valeria, who did not want to give her surname, told Reuters. 'In fact, I'm worse off because trading forex is only a small part of what I do. The clothes are my main source of income.'Valeria is not alone. In emerging markets as diverse as Brazil, Poland and Indonesia, millions of people and businesses from street hawkers to luxury retailers face turbulent times.

This is all because far away in Washington, the Federal Reserve is starting to think about scaling back its 'quantitative easing' programme for boosting the US economy.The scheme, an $85 billion-a-month bond-buying programme, has pushed US interest rates close to zero, encouraging investors to divert trillions of dollars into high-yielding debt denominated in currencies such as the rand.Even before the US central bank unwinds the programme, huge sums are flooding back into dollars as investors anticipate higher US rates and flee the emerging market currencies that they themselves helped to push up, and are now undermining.

All this is affecting lives and livelihoods around the world. Central bank governors such as South Africa's Gill Marcus describe the gyrations in technical terms such as 'currency overshoot' or 'disorderly markets'. For Kenny Dzimba, a Zimbabwean living in South Africa, the problem is clearer. Zimbabwe has ditched its worthless currency for the US dollar and Dzimba lost five percent on one transfer because he delayed sending the money home for just two days.

Under exchange control rules, such transfers have to be made in dollars. Rand also circulate in neighbouring Zimbabwe but retailers there are raising their prices in the South Afican currency as it slides against the dollar.'I guess, you snooze, you lose,' Dzimba said with a shrug after reading his transaction slip at a Johannesburg branch of the Western Union money transfer company.South Africa has a number of home-grown problems also undermining the currency, such as unrest in its vital mining industry. But while the rand is fluctuating, its overall weakness is putting pressure on everybody from flea-market traders selling wigs imported from China to up-market retailers in the malls of Johannesburg's Sandton financial district.

'The rand is making a huge impact on our business,' said Aimee Sadie, the 28-year-old manager of Desche, a family-owned luxury shoe and clothing store where sales are down 80 percent from this time last year.'This month we have hit a record low and had to actually get rid of staff members,' she said. 'Everybody is having a tough time. You can see it just in the mall - there are a lot less people shopping and spending.'Even exporters - who two years ago were lobbying the South African Reserve Bank to weaken the then strong rand - are groaning at the cost of imports such as heavy machinery.

'Be careful what you wish for,' financial columnist David Gleason wrote in the Business Day newspaper.'Manufacturers kept on bleating that what those in the export game needed was a much weaker currency ... they wanted the rand to march to their rescue. Well, it has, and now they're moaning.'Manufacturing accounts for about 15 percent of South African output, but it is struggling to recover after weak domestic and global demand pushed Africa's economic powerhouse into a recession in 2009, the first since the end of apartheid in 1994.

Factory output fell 2.2 percent in March on top of a slightly larger contraction in February.The problems are starting to show up in company accounts. South Africa's second-largest drugs firm, Adcock Ingram , reported a 5 percent drop in first-half profit this week, hit by the weaker rand and consumers saving money by opting for cheaper medicines. Producers are pessimistic about prospects this year, with the South African Chamber of Commerce and Industry reporting a dip in business confidence last month amid fears of more turbulence in the mining sector.

'We have got a series of very negative issues impacting simultaneously and sending a very strong message that all is not well in our economy,' the chamber's chief executive Neren Rau told Reuters. 'I'm sceptical about the capacity of exporters to take advantage of the weaker rand right now because they are under too much cost pressure.'Food distributor Tacoma Foods, which imports confectionary, beverages and dairy products for supermarkets, is trying to hold onto its remaining 30 workers after being forced to cut jobs in April - bad news in a country with 25 percent unemployment.

'Where we were costing products in October last year at 11.50 (rand) to the euro, we are now having to import at 13.00 or 13.20 and that's a huge jump,' said chief executive Greg Balfour, adding that the firm was bracing for higher transport costs with fuel prices expected to soar in the next few months.'Nobody should be happy about a weaker exchange rate; that's just very shortsighted given that we are a net importing country. A weaker rand is not good for anybody in the longer term.' -(Reuters)