The rapidly increasing strength of South Africa's currency against the dollar is leading to job cuts in the country's mining and textile industries. The rand is at a three-year high against the dollar, having gained 26 percent against the U.S. currency in the last year. But analysts warn that the rand's strength is crippling South Africa's export sector. Two of the hardest hit industries are the mines and textile manufacturers. They have both seen major layoffs already, and more are predicted.
For the mining industry, one of the largest sectors of the South African economy, the problem with the rand's strength comes because their products, such as gold and platinum, are sold on the international market at prices set in dollars.
But the mines have to pay their workers in rand, along with many of their other operating costs. So even though prices for some of the commodities have gone up, they have not risen as fast as the value of the rand has and that means the mines are losing money.
On Thursday, the diamond mining giant DeBeers warned it will have to cut jobs, if the rand keeps gaining strength, although the company would not say how many people could be affected.
Last week, another mining company, Durban Roodepoort Deep, started laying off about 2,000 workers, and also blamed the rand.
Roger Baxter is the chief economist for the South African Chamber of Mines. He says more than half of the mines in the country are currently operating at a loss.
"If I could just say for the entire South African mining industry, we've done a calculation estimating that about 120,000 jobs are at risk in the current situation, which is very significant, because you must just bear in mind that, for every mineworker in South Africa, there's approximately 10 people who are directly dependent on each mineworker for their daily subsistence," he said. "So that means basically 1.2 million people could be exposed, if those 120,000 mineworkers were to lose their jobs."
The potential job losses could have dire implications for the entire region, because the South African mines employ many people from neighboring countries. For example, Mr. Baxter says, fully one-quarter of South Africa's mineworkers come from Mozambique or Lesotho.
And several regional currencies, including the Namibian dollar, are pegged to the rand. So Namibian mines can expect to see the same problems as their South African counterparts.
The South African mining industry, however, has been contracting for more than 10 years. The rand's strength has also hit the clothing and textile business, which is supposed to be one of the country's growth industries. Clothing and textile manufacturers employ some 65,000 people, and they are also warning of job cuts.
Helena Claasens, the chief economist for the South African Textile Federation, says local producers are losing business because of cheaper imported clothing and fabrics.
"Imports are coming into the country at much lower prices, and that has the effect that less are produced locally," explained Ms. Claasens. "The rand has also an effect on the exports, because they don't make a profit on exports… and that has the effect that exports are lower, more are being imported, less are produced locally."
Industry leaders and South Africa's trade unions agree that something needs to be done about the currency to stem the job losses. But it is not entirely clear what to do. Part of the rand's strength comes from the general weakness of the dollar against all world currencies at the moment, and South Africa cannot change U.S. monetary policy.
But labor leaders and economists say the South African Central Reserve Bank could lower interest rates and start buying dollars on the international market, which would help neutralize the strong demand for rand, and hopefully help the South African currency settle at a more competitive level.