Bad news for tech and computer hardware prices in South Africa

While the South African rand has been trading stronger against the US dollar, euro, and British pound, it will take more than a few days of good exchange rates for tech prices to come down.

That’s the word from Esquire Technologies managing director Asgar Mahomed and CEO Mahomed Cassim.

“The rand must trade at stronger levels consistently for several months before consumers see any noticeable changes in electronics prices,” Asgar told MyBroadband.

“Increased volatility in the rand’s value necessitates cautious purchasing strategies, especially for items sourced from the US, Europe and the Far East.”

The rand has consistently weakened against major international currencies since 2011, diminishing from levels of around R6.50 per dollar to R19.92 last May.

This means South Africans are paying almost triple for imported electronics than 13 years ago just due to the exchange rate. That’s not counting VAT, which increased from 14% to 15% in 2018.

South Africa’s currency has recovered slightly in recent months, reaching R17.95 this week before giving up some of its gains again.

The volatility is due to several factors, including uncertainty over interest rates, and the recent attempt to assassinate former US president Donald Trump.

“Political analysts believe the events from this weekend pretty much secured a Trump victory, and therefore, Trump policy needs to be priced in — including larger deficits and import tariffs,” said Citadel Global director Bianca Botes.

Botes believes that while volatility will increase, the rand will continue to strengthen as the US Federal Reserve closes in on its 2% inflation target, bringing with it the prospect of interest rate cuts.

This should increase investor risk appetite, benefiting the rand amid greater optimism around South Africa’s current economic trajectory.

Investec chief economist Annabel Bishop also argued that the attempted assassination of Trump likely increased risk aversion among investors, negatively impacting the rand.

However, with positive signs from the US FBI that the shooter appeared to have acted alone and there being no further safety threat, this risk aversion will work its way out of the system.

As markets go risk-on, the rand should benefit.

However, Asgar said that for consumers to see a real impact on electronics prices, the rand needs to strengthen to levels last seen in 2012, 2015, and 2018.

This was when it traded at around R13 to R16 to the dollar.

“It has to remain at those levels for at least six to 12 months to make any significant impact in the longer term,” he said.

Mahomed Cassim, Esquire CEO (left) and Asgar Mahomed, Esquire managing director (right)

Due to the rand’s volatility, Asgar said they have a just-in-time inventory system that has been in place for 25 years, which mitigates the risk of holding overpriced stock when the rand strengthens.

Esquire CEO Mahomed Cassim explained that the rand’s volatility means all importers have needed to be extremely cautious.

“Most importers, including Esquire, due to the increased volatility of the Rand, have been forced to take out forward cover to cost goods, which has impacted the selling price,” Cassim told MyBroadband.

Cassim said the main reason most importers have come to rely on forward cover is to hedge against the rand’s volatility.

“Forward cover helps lock in exchange rates to cost goods, providing a buffer against sudden currency fluctuations,” he explained.

“Luckily for Esquire, it has worked in our favour. For example, if we took out forward cover at R18.20 to the dollar, and when the rand was at R18.60 or R18.90, there has been a price advantage.”

Asgar said that although the recent strengthening of the rand is a positive sign, its volatility means that any benefits to electronics prices will take time to materialise.

“For consumers, a more stable and stronger Rand over an extended period will be necessary to see notable savings on tech and electronics products,” he said.

“It must also be noted that since Esquire has become a fulfilment company to e-commerce online stores, the same trend has been noted on other products such as consumer home lifestyle products, small home appliances, and home electric items as well.”

MyBroadband also asked several other distributors for their views on the volatility of the rand.

Rectron and SMD Technologies declined to comment. Pinnacle, Tarsus, Syntech, and Axiz did not respond by publication.