French bemoan rand volatility

Wild swings in the rand, one of the most volatile currencies in the world, over the past year is major concern for French firms operating in South Africa.

“It creates uncertainty. In the last year, there has been good news and bad news but [in this case] companies would prefer to have no news,” said Muriel Pénicuad, CEO of Business France and the French Ambassador for International Investments.

A paper by the International Monetary Fund reveals that changes in the rand/dollar exchange rate are largely driven by global economic shocks and commodity price volatility, with domestic political uncertainty playing a lesser role.

According to Pénicuad, who is in South Africa meeting with French companies, currency risk more pressuring an issue than political risk.

“In Africa, South Africa is one of the more stable, more robust and more mature countries…The level of trust and confidence is much higher than the level of concern,” she said.

Data from the French Embassy shows that 366 French companies operate South Africa, 29 of which are listed on France’s benchmark CAC 40 index. Investment in the country amounts to €1.4 billion or 1% of France’s total foreign investment spend, which is still more than it invests in neighbouring Italy and Spain.

French businesses in South Africa also raised concerns over a lack of skilled candidates available to fill employment quotas.

“They understand the labour market requirements, especially the conditions to hire [certain] people. French companies are used to a culture where social conditions are regulated, they don’t come from a country where they can do whatever they want. But sometimes it is difficult to find the right talent in the right categories…South Africa investing in knowledge is key,” Pénicuad said.

The French are optimistic about South Africa’s long term economic growth trajectory and consider investing in the country and region a priority.

“We see it as a strategic investment as sub-Saharan Africa and Asia are the two leading zones for growth. We can tackle sub-Saharan Africa from both France and from South Africa, most of the French companies settled in South Africa re-export to the rest of the region,” she said.

In the wake of the United Kingdom’s vote to leave the European Union, Business France is also lobbying South African companies – both at home and in the UK – to invest in France. According to Pénicuad, 30 South African companies operate in France – Steinhoff and Aspen being the largest of the group – while around 200 South African companies have units in London.

She said foreign companies, particularly those in financial services, are unlikely to leave the UK entirely but will rather set up other offices elsewhere in Europe to facilitate managing euro denominated assets, retain passport privileges and to mitigate uncertainty.

“We have to be conscious that we don’t know the extent of Brexit yet. But business people don’t like uncertainty – uncertainty is for the markets, not regulation – so by default a lot of companies will have another foot on the continent. The size of the second foot will depend on the Brexit negotiations,” she said.

Pénicuad listed France’s strong logistics network, low cost of manufacturing – the cost of labour in the country’s manufacturing sector is lower than that of Germany – and 25% tax credit for research and development among the country’s drawcards.

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