How South Africa’s Tech Woes are Impacting on the Rand

The performance of South Africa’s economy has fluctuated wildly over the course of the last decade, but at present it appears to be trapped in a state of enduring decline. Domestic growth certainly languished during the first quarter of 2019, as the economy shrank by a whopping 3.2% and more than double the market forecast of 1.5%.

Whilst manufacturing and mining were significant detractors to the economic performance, local market conditions and a decline in consumer confidence are also key areas for concern. The domestic technology market in South Africa is a particular worry, and one that continues to weigh heavily on a struggling economy.

The performance of the local sector is also impacting on the value of the South African rand, which has continued to decline against the U.S. Dollar in recent time. But why is this the case, and is the trend likely to reverse any time soon?

The (TMT) Sector in South Africa – An Overview

At first glance, it would appear that the Technology, Media and Telecommunications (TMT) sector is buoyant in South Africa, with the headline figures hinting at significant growth in 2019.

For example, the cumulative value of mergers and acquisitions (M&As) in this market is expected to exceed the forecasted amount of $5.9 billion this year. This data has been gathered by Baker McKenzie’s Global Transaction Forecast, and it hints at a growth market that should be boosting the wider economy.

However, this growth is largely being driven by overseas investment, which is in turn is based on the growing reliance of South African residents on technology across multiple platforms.

The marked decline of consumer confidence in the region has begun to impact on demand, however, with sentiment taking a two-point hit to 88 during the final quarter of 2018. This continues a trend that began earlier last year, and it’s likely to have a long-term impact on South Africa’s TMT sector.

The growth of this market is also being undermined by the challenges facing the domestic TMT sector, including the sustained failure to evolve and implement fourth industrial (41R) revolution technology.

This technology refers to the blurring of the boundaries between the physical, digital and biological worlds, whilst it takes in a number of burgeoning technologies such as artificial intelligence, 3D printing, the Internet of Things and even genetic engineering.

Because of this, it’s emerging as the collective force behind a growing number of products and services in the South African market, and the failure to successfully harness this technology is having a sustained impact on the economy.

There’s also significant ambiguity surrounding the regulation of 41R technology in South Africa, which is undermining the market’s infrastructure and causing significant barriers to entry.

How is this Impacting on the Value of the Rand?

Given the issues facing the domestic TNT market and declining customer sentiment, it’s little wonder that the South African rand has declined markedly since last autumn.

This trend came to a head last week, when the rand slumped against the U.S. Dollar. According to the online trading platform Oanda, the South African currency weakened past 15 per dollar for the first time since October, against the backdrop of what was the worst quarterly economic decline in more than a decade.

With the rand also declining sharply against the Pound and the Euro, it’s likely that the currency will continue to reflect the struggles facing the national economy.

The decline of the rand will also continue in the near-term too, meaning that forex traders should hedge against the currency as part of their strategy.