South African Auto Parts Makers Call For Cheaper Rand

JOHANNESBURG, Oct 7, 2003; Lucia Mutikani wrting for Reuters reported that South Africa's auto parts manufacturers added their voices on Tuesday to a growing chorus of calls for official intervention to stem the rampant rand, as it rocketed to new 3-1/2 year peaks against the dollar.

This took gains this year in the volatile unit, which threatens to curb growth in South Africa's export-driven economy, to more than 26 percent. On a more important trade-weighted basis, it has appreciated by 18.5 percent.

The executive director of the National Association of Automotive Components and Allied Manufacturers (Naacam), Clive Williams, told Reuters he was drafting a letter to the Reserve Bank which he hoped to send by the end of the week.

"This is very serious. For the last seven years, exports grew by 40 percent. Over the past (three) quarters growth is down to five percent," he said.

"Manufacturers are losing export contracts and at the same time they have to compete with cheap imports at home." Car parts makers are linked to automobile production, which is South Africa's biggest manufacturing industry.

The official mandate of South Africa's independent central bank is to ensure price stability through achieving the government's three to six percent inflation target -- not to manage the exchange rate of the volatile rand.

But this has not yet filtered through to the general public, and various industry groups have recently urged the Reserve Bank to buy dollars in a bid to stem the rally in the rand, which is so far the best performing currency in 2003.

There has so far been no comment from the government on the unit's gains this year, which has started to erode the export earnings of top companies -- prompting howls of anguish -- and also hit official tax revenues.

Most of the rand's latest appreication has been driven by broad dollar weakness, although higher commodity prices and the appeal of South Africa's high interest rates to global investors have played a role, as appetite for emerging markets returns.

The currency's trend has held despite the central bank's decision to cut its key repo rate by 350 basis points to ten percent so far this year. More rate cuts are expected, with markets pricing in another 200 basis points this year.

"The Reserve Bank is the one driving the value of the rand through their high interest rate policy because they want to bring inflation down," Williams told Reuters.

South Africa's targeted CPIX inflation rate rose by 6.3 percent in August, down from a peak of 11.3 percent last year but still just outside its target range.

On foreign exchange markets, the rand surged to a new 3-1/2 year peak of 6.78 against the struggling dollar on Tuesday.

Williams said Naacam would like to see the rand between 9.30-9.60 against the euro compared with 8.05 now, and about nine to the dollar.

"We had started to make significant inroads into the United States. With such a weak dollar, it's difficult to compete with American manufacturers," he said.

Naacam's latest data show the value of component exports jumped by 47.6 percent to 18.6 billion rand ($2.73 billion) in 2001 from 12.6 billion rand in 2000, with a sharp plunge in the rand that year contributing to the jump.

Exports were forecast to rise to 24.5 billion rand in 2002, with figures due later this year.

Catalytic converters, which make up almost 50 percent of component exports, have attracted the world's major producers of the auto exhaust system to South Africa.

South Africa supplies about 30 percent of the EU's catalytic converters.