What it will take to bring down tech prices in South Africa

While exchange rate fluctuations influence the price of computer hardware and other electronics, several other factors also have a significant impact.

“Disposable income, interest rates, seasonality, educational cycles, and budget releases during financial years have a more significant impact on purchasing patterns than the exchange rate,” Axiz executive Terence Barter has told MyBroadband.

“While a stronger rand can lead to lower prices, these additional economic and seasonal factors also heavily influence the overall demand and sales of electronics,” Barter said.

“For example, even if the rand strengthens, if disposable incomes are low or interest rates are high, the expected increase in sales might not materialise as anticipated.”

Barter said focusing solely on the exchange rate may not provide a complete picture of the factors affecting electronics prices and sales in South Africa.

The rand has been extremely volatile in recent months, swinging wildly based on sentiment around the May elections, the Government of National Unity deal, interest rate forecasts, and, most recently, developments in the United States.

“Political analysts believe the attempted assassination 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, temporarily 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.

Looking further back, 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 earlier this month before giving up some of its gains again.

This prompted questions about how rand volatility impacts electronics prices and how long the currency must trade at stronger levels before consumers notice improved pricing.

Considering just the rand-dollar exchange rate, Barter said it could take three to four months or even longer for the impact of a stronger rand to trickle down into the retail market.

“The effects of a stronger rand on electronics prices in South Africa are not immediately noticeable,” stated Barter.

“This delay occurs because vendors first need to deplete their existing stock before adjusting prices,” he continued.

“Additionally, various factors such as how the goods are stocked, and their arrival schedules play a role in this timeframe.”

For this reason, Barter said a quarter is generally a good estimate for when price adjustments might start to reflect the stronger rand.

Regarding what impact exchange rate volatility has, Barter said it primarily affects profitability rather than immediate price changes.

“Companies strive to maintain consistent pricing to avoid frequent fluctuations that could confuse consumers,” he explained.

“As a result, when volatility occurs, it often impacts the margins — either increasing or decreasing them depending on the exchange rate movements.”

To manage this, companies might absorb some of the costs to provide price stability while protecting their profit margins as much as possible.

“This approach generally leads to decreased margins due to the higher costs associated with managing the volatility,” he said.

Barter’s views on how long it would take for a stronger rand exchange rate to filter through to electronics prices are similar to those shared by Esquire Technologies managing director Asgar Mahomed and CEO Mahomed Cassim.

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,” Asgar said.