The volatile rand has a significant impact on the prices of tech products in South Africa, three tech retailers told MyBroadband.
South Africa’s rand traded at its strongest rate against the dollar this year on 25 March 2022, when it closed at R14.45.
It then fell to R16.16 on 14 May 2022, making it one of the worst-performing emerging market currencies.
At market close on Monday, 6 June 2022, it traded at R15.46.
The rand has been hammered by global investment uncertainty due to the Russia-Ukraine conflict and skyrocketing inflation in the US.
The US Federal Reserve has repeatedly hiked interest rates in recent months.
While it’s bad news for consumers with credit, higher interest rates generally strengthen a country’s currency.
Dreamware Tech founder Brent Raftopoulus told MyBroadband that the exchange rate played a massive role in his store’s pricing.
“The rand-dollar exchange rate is the most crucial aspect to factor in,” he stated.
“The dollar is the global currency used between different countries when dealing with purchases.”
Raftopoulus said other elements added to the price calculation, such as fees for shipping, importing, and customs.
“These combined are the biggest factors that influence the South African tech market’s pricing,” said Raftopoulus.
He explained that retailers like Dreamware Tech generally did not have a say in the final price charged to customers.
That is because most retailers rely on distributors to handle the buying and importing of products.
In most cases, these companies adjust the prices charged to retailers based on currency changes.
The retailer would then add a standard markup to products to ensure it makes a profit on a sale.
Raftopoulus said that Dreamware’s markup rarely fluctuated.
If a distributor charges more, Dreamware’s prices will go up, while the opposite will happen if the distributor’s prices decline.
“Unless a retailer is directly importing stock themselves, they have very little control over pricing,” Raftopoulus explained.
Impact on direct importers
Two retailers that import directly are the online store Raru and smartphone-focused Connected Devices.
Raru director Neil Smith and Connected Devices founder Blake Levitan agreed with Raftopoulus regarding the exchange rate’s impact on its prices.
With their items coming from the US and Europe, the stores’ prices are also subject to change based on the rand’s value to the euro.
Levitan said Connected Devices typically reviewed prices every two weeks, but ad-hoc adjustments might be required in extreme circumstances.
Smith said Raru updates prices on a daily or even more regular basis.
“If the rand, for some reason, really crashes badly, we may even update it a few times a day,” Smith said.
One way distributors or retailers could avoid paying potentially disastrously high prices on imports is to purchase forward cover from their bank.
In simple terms, forward cover locks in the currency at a particular exchange rate that the bank estimates it will be at a given time in the future.
For example, a company can purchase forward cover before the release of a highly-anticipated product — such as Apple’s iPhone series.
If the bank estimates the currency will be worth R15.50 when the distributor places its order, that will be the rate the distributor pays.
That would be very beneficial if the rand weakened significantly.
However, if the rand strengthens, the distributor could have paid less for the stock than it would when using the forward cover.
Forward cover is one of the reasons why South African tech prices don’t always directly reflect the latest exchange rate.
Smith and Levitan told MyBroadband that neither Raru nor Connected Devices purchased forward cover.
“Whilst we don’t ignore the benefit it can provide, we’ve found other ways to be agile in this regard,” Levitan said.
“We typically find that as the pricing in the import markets tends to fluctuate downward as the demand eases, it allows us to offer lower pricing more often than having to increase our pricing,” he explained.
“Where a locally-supplied product has its price fixed for two or three months, internationally, the price can often see three or four revisions in that same period.”
MyBroadband contacted Alviva Holdings — which owns major distributors Tarsus and Pinnacle — for comment, but did not receive feedback by the time of publication.