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The fallacy of a weaker Rand: It won’t help SA manufacturing

Adrian Saville, CIO of Cannon Asset Managers, recently conducted a study using 30 years of data (“Cents and Sensibility”) in which he found that there is no meaningful relationship between a weaker Rand and a rise in South African manufacturing production. Worse, if people are anticipating that a revival of manufacturing will flow from a weaker rand, they are possibly pinning their hopes on defying history.

In fact, the closest relationship between movements in the Rand and manufacturing growth that the study could identify was a roughly 10% explanatory power which occurred when observing a lagged manufacturing response time of 12 months and a currency move over six months. However, in sharp contrast to the textbook argument, the relationship is negative.

Please download the attachment to view the complete article together with the accompanying graphs.

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