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Weaken the rand? Yes, please
Thursday, 05 August 2010
President Zuma recently announced that government was actively in discussions to weaken the South African rand, which has increased in value between 20% and 30% against the US dollar, the euro and the pound sterling over the past year. At a press conference in Pretoria, the president said: “We have not taken any decision but those are the matters we are looking at.” He continued to say that discussions on the currency were difficult as “even economists don’t have one view on the matter”.
The tourism industry is welcoming any move to weaken the South African currency as the country has become increasingly expensive for tourists from Europe and the US, where the euro and US dollar are steadily losing value and the pound is at a historic low. President of US-based Premier Tours, Julian Harrison, says South Africa is no longer the value-for-money destination it once claimed to be. Louise de Waal, MD Baobab Travel in the UK, agrees. “At the moment, South Africa still offers decent value for money, but with the strong rand it is becoming more expensive. It won’t be long until South Africa will no longer be know as a value for money destination.”
Peermont CCO Mark Jakins says the strong Rand has influenced to a certain degree, but the industry has fought back to retain its clients. He says: “As volumes and sales of room nights from international markets has softened due to the global recession as well as a strong Rand, tour operators have also put pressure on hotel groups to keep negotiated contract rates very competitive and flexible.”

The weakening of the rand would have a great impact on tourism, according to Martin Wiest, CEO Tourvest Inbound, as it would change price value propositions and global competitiveness. Wiest says: “South Africa has definitely become an expensive destination due to the strong rand, even though one has to see it in the context of our global competitors Australia, New Zealand, Brazil and Argentina, whose currencies have also strengthened against the euro and the USD.

Nicholas Barenblatt, Protea Hotels Group Marketing and Advertising Manager, agrees a weaker rand would make the country more attractive from a pricing and overall value perspective. “South Africa is a long-haul destination, therefore the costs associated with such a holiday are high as it involves long-haul flights, generally minimum seven nights’ stay due to the distance of travel and lastly the ground transport. Due to the current global economic crisis, inbound travel is down on previous years as consumers have less disposable income and as a result South Africa as a leisure destination is competing with short-haul destinations that are being marketed at far cheaper prices.”
Opponents of the plan to weaken the rand argue that it will have major implications for inflation, which will counter any effect of a weaker rand. According to a report published by the Rand Merchant Bank, the rand is stronger than historic averages but not as strong as in 2005. The report argues that the problem is not the strength of the rand but its volatility. It states: “Any weakness in the rand is meaningless unless inflation is also controlled.” An example of this problem is Turkey where the lira has weakened by more than 7% against the pound in the past year but there’s also been a price hike of almost 44% for meals, drinks and other holiday items.
Jakins says even when weighing up pros and cons, he is still in favour of a weaker Rand. He says: “On balance, and to improve South Africa’s GDP contribution generated by the tourism sector, my personal view is that a weaker Rand is preferred. A weaker Rand means a cheaper long-haul destination as well as a more competitive destination for international tourists. A stronger Rand means cheaper import pricing for materials and services going into cost structures for tourism-related companies.”

Mmatsatsi Marobe, CEO Tourism Business Council South Africa, is wary of the ripple effects the weakening of the rand may have. She says: “I’m not an economist but when you interfere in a process you are bound to have disadvantages.” She agrees South Africa has become more expensive as people can buy less for their dollars and euros and she is therefore definitely in favour of a weaker rand. She says: “By all means, let the rand be weakened but it also has to be sustained. Don’t let it be a short-term solution.”

Dorine Reinstein

By : Tourism Update
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