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Other Articles from The Villager

No immediate impact on tourists as rand plummets

01/11/2017
by Kelvin Chiringa
Business

The marked weaknesses in the rand which tittered into negative territory this past week may not have an immediate positive impact on Namibian visitors bound for South Africa or those flocking into Namibia this festive season, experts have cautioned.

The rand weakened against the US dollar following the South African midyear budget review where it was revealed that government revenue has fallen quite short of the mark and will result in higher budget deficits.

This has also turned out to be a fulfilled prediction by the June Reuters poll of currency analysts which forecast a rand weakness by over 5 percent against the dollar in the run-up to the ANC party conference that will pick a successor to beleaguered President Jacob Zuma.

While Namibia-bound tourists capitalise on the N$/Rand weaknesses, IJG head of research and analyst Dylan van, Wyk says, “I doubt whether the effect of a weaker currency will have an immediate impact. Exchange rate effects may take months or even years to have a real effect on an economy.”

“A weaker currency has benefits for countries which are net exporters or have a lot of tourism, as goods are relatively cheaper for foreigners.”

“The negative effects of a weaker currency are higher prices of imported goods, which might result in higher inflation and lower productivity as capital goods such as machinery are more expensive. On top of this the amount of foreign currency denominated debt the country has to repay becomes more in local currency terms,” he says.

SMEs Compete director Danny Meyer concurs: “Unlikely to have a marked impact. After all the SA Rand has steadily weakened, and inbound tourists have for some time now discovered this part of the world an attractive holiday destination, regarding cost.”

As for Namibian travellers to South Africa, it is a neutral situation, as the cost associated with holidaying are not dissimilar, he says. 

He, however, speculates sustained weaknesses of the Rand ahead of the SA December marked congress.

"As South Africa’s ruling party heads towards its Congress, where the new line-up of leaders form part of the agenda, there will be increased campaigning and de-campaigning as people jockey for positions. That is how things work in the world of politics,” he says.

Van Wyk underscores that these factors have increased the chances of a South African local currency denominated credit downgrade.

“Should South Africa be downgraded to junk on local currency terms, the country will be ejected from world government bond indices. This will trigger a large amount of foreign selling, which would put pressure on the currency. Estimates point to outflows more than R140 billion,” he says.

What are the chances of adverse spill over effects into Namibia?

“As part of the CMA when South Africa sneezes, figuratively speaking, Namibia will not be spared catching a cold,” Meyer warns.

Additionally, forecasts are for SA’s debt to GDP to reach the 60% mark by 2022 and growth has also been revised downward.

“The speculation of another cabinet reshuffle has also reinforced the idea that the country is politically unstable,” Van Wyk says.

It has been proven over and over again that political shenanigans have a marked impact on the value of a country’s currency, Meyer tells The Villager. 

“So what politicians do or don’t do in neighbouring South Africa will have a domino effect on the currency values of Lesotho, Swaziland and Namibia. All three are linked to South Africa in a monetary union, the Common Monetary Area (CMA),” he concludes.