Volatility of the Rand and the High Cost of Tech in South Africa

The South African Rand's erratic performance against major currencies like the US dollar poses a long-term challenge for the reduction of tech and computer hardware prices in the country. Esquire Technologies leaders, managing director Asgar Mahomed and CEO Mahomed Cassim, have voiced that only sustained strength in the rand will lead to significant decreases in electronic goods' costs.

The local currency’s journey, marked by a steady devaluation from roughly R6.50 per USD in 2011 to around R19.92 by May last year, means that South Africans now cough up nearly triple for technology imports as opposed to over a decade ago, not accounting for the increase in VAT from 14% to 15% in 2018.

In the aftermath of unsettling global events such as the attack on former US President Donald Trump, the rand encountered further strain amid investment apprehension and speculation regarding American policy impacts, explains Bianca Botes, director of Citadel Global. Nevertheless, the rand saw a modest rebound to R17.95 recently, buoyed by indications from the US Federal Reserve approaching a 2% inflation benchmark which may set the stage for rate cuts and heightened risk appetite for investments, potentially benefiting the South African economy.

The recent stab at recovering rand rates, however, does not instantly translate to price reductions in imported tech goods, highlights Asgar. He points out that for businesses and consumers to reap the benefits, the rand should persistently remain at the stronger levels seen in previous years and should do so for at least a six to twelve-month stretch.

Asgar adds that Esquire has implemented a just-in-time inventory strategy which they've maintained for over 25 years. This cautious approach shelters them from potential losses linked to stock value fluctuations due to a volatile rand. CEO Cassim reiterated the sentiment that such volatility has made importers lever forward cover—a form of financial hedge that locks in presently favorable exchange rates against further weakening of the rand—to stabilize costings.

While Esquire reports having benefitted from these forward contracts in terms of pricing, the company makes it clear that the seismic movements of the rand mean there’s still a way to go before the real-world impact is felt by consumers. Experts argue that shoppers will only see material savings if the rand attains and maintains the sturdiness it exhibited several years ago.

Other distributors in the tech sphere, such as Rectron and SMD Technologies, have chosen to withhold commentary, while others like Pinnacle, Tarsus, Syntech, and Axiz had not given statements at the time of reporting.