Good news for tech prices in South Africa – MyBroadband

According to several major local ICT distributors, the continued strengthening of the rand could spell better tech prices in South Africa in the coming months.

The rand recently came off its longest rally in 13 years, with nine consecutive days of gains against the US dollar in mid-August 2024.

The currency has been bolstered by positive sentiment around South Africa’s near-term economic outlook, particularly in light of the formation of the multi-party Government of National Unity (GNU) and its perceived business-friendly character.

As of Tuesday, 3 September 2024, buying one US dollar would cost R17.96, compared with R18.83 a year ago.

In her most recent Rand Note, Investec’s chief economist Annabel Bishop said that the dollar to rand exchange rate should average around R18 in the third quarter, down from the R18.15 average since the

That is based on Investec’s latest most likely base case scenario for the rand’s value against the dollar up to the end of 2025.

Based on this forecast, the dollar-to-rand exchange rate should stablise to around R17.70 by the fourth quarter of 2024 and gradually strengthen further to R17.20 by the end of 2025.

This scenario assumes modest but steady economic growth, climbing to about 3% over the next five years.

This level of growth will be driven by several factors, including inflation, particularly food price inflation, which will remain volatile due to unpredictable weather patterns.

The table below shows Investec’s projections for the dollar-to-rand exchange rate over the next six quarters.

Better rand will bring lower prices and boost tech sales

The expected continued strength of the rand will be good news for consumers interested in buying goods made overseas.

That includes tech, the vast majority of which comes from other countries, bought by suppliers and distributors in foreign currency, including the dollar, euro, and pound.

ICT distributors Mustek, Esquire, and Frontosa told MyBroadband they expect the strengthened rand and interest rate cuts will boost tech sales in South Africa.

“With the elections now past, a strengthening rand and the prospect of interest rate cuts, it is inevitable that general economic activity will be stimulated in South Africa,” Mustek brand executive Michael Kan said.

“These factors have a significant impact on the spending capabilities of small businesses and consumers, which are two segments where we’ve seen significant decline in sales in comparison to periods preceding the interest rate hikes,” said Kan.

Frontosa general manager Eddie Pio shared this sentiment and believes that the GNU’s positive approach and subdued load-shedding will benefit tech sales.

Esquire told MyBroadband that the recent strengthening of the rand had already helped reduce hardware prices in recent months.

“For the first time, high-spec branded laptops could be found in South African stores for less than R10,000, making them accessible to a broader segment of consumers,” the company said.

“This price reduction was a significant driver of increased sales, particularly in the laptop segment.”

Esquire was cautiously optimistic about this trend continuing with the rand at its current trajectory.

“The strong rand could continue to boost sales by keeping prices attractive, particularly if the currency maintains its current strength,” said Esquire.

Potential negative impact on distributors

While the rand’s strength could be good news for consumers, it could deal a financial blow to suppliers and distributors, even if their sales increased.

To protect against the rand’s volatility, tech product suppliers and distributors often purchase currency forward contracts to effectively fix the price of stock at a certain exchange rate.

That shields them in the event that the rand’s value declines significantly and they have to pay much more than they planned for sought-after products.

However, it could also have a negative impact if the rand strengthened, and the distributor could have bought more stock or got its goods at a better price than they would under the currency forward contract.

Similar to bulk buying at an earlier date, this mechanism can also stagger tech price cuts, as a distributor or reseller might first want to clear stock bought at a higher price and will be hesitant to cut into their profit margin.