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A boon for South African outsourcing industry
Continued weakening of the Rand and a grim recovery outlook in the short- to medium-term, could help the local South African outsourcing industry establish itself as a cost-effective destination for outsourcing contracts and, subsequently, attract more engagements to the country.
In the last two years, the South African Rand has been on a constant decline against the USD. This decline has peaked since 2014/15. The Rand closed at a level of ZAR15.98 to the USD for the week ending February 5, 2016. During the same month in 2015, the currency was trading close to ZAR11 to the USD.
One of the major factors affecting Rand valuation is the improvement in the US economy and expectations of rate hikes in the coming quarters by the Federal Reserve. Any rate hike implementation will have a negative impact on emerging economies as the investors tend to look at developed western economies that will result in an outflow of money towards the developed economies.
Another factor for the depreciation is the Chinese flexible foreign policy. The Rand is one of the currencies most exposed to China, hence any adjustments to Chinese foreign policy has a direct impact on the Rand. After People’s Bank of China devaluated the Yuan by 2% in mid-2015, the Rand lost close to 26% of its value during the next six months.