Strong rand could see PC hardware prices drop in South Africa

Rand exchange rates significantly impact the cost of distributing imported tech in South Africa and, ultimately, the prices end consumers pay.

According to Syntech CEO Craig Nowitz, the elections had a big impact on the exchange rate, and a positive Government of National Unity (GNU) could see prices drop for customers.

Following the conclusion of the national general elections, the rand had strengthened significantly, climbing to R17.91 to the dollar in mid-June 2024.

For reference, it had weakened to as low as R19.21 in February 2024.

However, despite the strengthening that occurred after the national general elections, the Democratic Alliance (DA) threatening to walk away from the GNU deal has caused the rand to tank again.

The DA’s threat came in late June 2024, and the rand had weakened to R18.43 to the dollar on Thursday, 27 June 2024.

As South African PC hardware wholesalers import many tech-related and other products, they are vulnerable to exchange rate volatility.

MyBroadband asked several prominent hardware distributors about the impact of the falling rand on their operations and how they mitigate these effects.

Nowitz said uncertainty surrounding the elections has caused the rand to fluctuate significantly.

“A positive GNU outcome could strengthen the rand, potentially leading to better pricing for consumers by the end of the year,” he added.

Syntech co-founder and sales and marketing director Ryan Matryn explained that rand volatility poses a greater challenge than a consistent strengthening or weakening of the currency.

“This unpredictability makes it difficult for distributors, resellers, and retailers to set stable pricing for consumers. At Syntech, we manage our stock with forward cover to help normalise these fluctuations,” said Martyn.

“For more price-sensitive volume deals, we work with resellers on back-to-back orders, agreeing on spot exchange rates linked to USD prices to ensure accurate customer quotations.”

Regarding the impact of rand volatility on operations, Mustek managing director Neels Coetzee previously told MyBroadband that the distributor’s cost management, pricing strategy, and forecast planning are significantly impacted by rand exchange rate fluctuations.

However, it has several mechanisms in place to help mitigate these effects.

Craig Nowitz, Syntech CEO.

“Mustek manages its margins by adjusting selling prices in line with exchange rate fluctuations, and thus, the net realisable value of the stock would increase if the Rand weakens in comparison to the rate at the time the stock was brought in,” said Coetzee.

“Prediction of exchange rates is a very tricky and risky game and Mustek rather focuses on elements within its control and has hedging processes in place to manage exchange rate exposures,” he added.

Mustek also uses currency options, or capped forwards, to mitigate the impact of exchange rate fluctuations.

A capped forward involves a firm buying a synthetic off-market currency forward and another option. This provides the benefit of favourable exchange rates.

When the asset closes at or beyond a specified price threshold, the option puts into effect the right to buy or sell the underlying asset.

MyBroadband also asked Rectron, Pinnacle, and Tarsus for comment, but they hadn’t answered our questions by publication.

Volatile exchange rates also impact South African PC hardware retailers. However, they observe different effects.

Dreamware Tech’s Brent Raftopoulos said the rand-dollar exchange rate will always impact hardware pricing, which directly affects consumer buying behaviour.

He explained that they often opt for budget-oriented purchases to save money.

“We often have customers enquiring as to why a specific item has increased in price,” said Raftopoulos.

“Naturally, when this occurs, we lose a sale due to the customer either being forced to save longer or abandoning the order entirely as they no longer deem the purchase worthwhile.”

Wootware founder Rory Magee said rand fluctuations have an effect on sales, but there are other factors that have a greater impact, like product release cycles.

He explained that it is difficult to pinpoint or quantify the impact on sales.