You don’t have to be an economist to know that your hard-earned rands don’t go as far as they used to. You only have to go to the grocery store and note that it now costs the same to fill a couple of bags of groceries as it did to fill a whole trolley a few years ago.
As anyone who regularly has to make international purchases or payments will tell you, the inflationary impact has only been heightened by a weakening rand. In 2023 alone, the local currency lost nine percent of its value against the dollar. Losses over the past two years, meanwhile, amount to 17%.
“While a fair portion of these losses are due to interest rate hikes strengthening the dollar, there’s no doubt that own goals around issues such as Eskom and Transnet have contributed to a weaker rand,” says Harry Scherzer, CEO of Future Forex, a fintech specialising in international money transfers. “The rand’s slide isn’t just academic either. We all feel it in our wallets daily, but those who transact internationally have a much more direct relationship with the rand.”
While businesses and individuals can’t impact the rand’s performance on their own, Scherzer points out that they aren’t entirely helpless. There are, he says, several strategies they can use to mitigate the rand’s weakness through 2024 and beyond.
- Don’t use your bank for international payments
Future Forex CEO’s first tip is to avoid using your bank when it comes to international money transfers.
“While it’s understandable that most people would go straight to their bank for international transactions, it’s seldom a good idea,” says Scherzer. “Banks tend to fall short on customer service, especially for individuals and smaller businesses. More concerningly, however, they also don’t practise transparent pricing, meaning that you can end up paying significantly more for a transaction than you were expecting.”
- Choose a provider that puts you first
So, if not your bank, then where should you turn for your international money transfer needs? According to Scherzer, while several options are available when making international payments, businesses and individuals must be careful when choosing a provider.
“Ideally, you should look for a provider that prioritises customer service and transparency,” says Scherzer. “Both should also be backed up with deep industry expertise. That, in turn, allows issues to be resolved quickly and avoids costly delays.”
- Understand the fees you’re paying
Even if you find a provider that’s wholly transparent in the fees it charges, Scherzer points out that it’s still worth understanding the fees on any international payment transaction. You might already know that you’ll be charged a transaction fee (which is sometimes a flat rate and sometimes a percentage of the total transaction), but there’s more to forex fees than that.
Every forex provider also charges an exchange rate margin fee. Sometimes referred to as “the spread,” the exchange rate margin is, in the simplest possible terms, the difference between the actual exchange rate and what the bank can offer.
“Understanding these fees and what they entail can go a long way to ensuring that you can properly plan and budget for any international payments,” he says. “A good international money transfer provider will also guide you through these fees and help you plan for them.”
- Make use of tools like forward exchange cover
According to Scherzer, other tools can help businesses and individuals get the most out of their international payments too. One of the most powerful business tools, he says, is forward exchange cover (FEC).
“Forward exchange cover is a financial tool used to manage the risk of fluctuations in exchange rates,” he says. “In essence, the company making an international payment enters into a contract with the payment provider to exchange a specified amount of one currency for another at a specified exchange rate on a future date. So, regardless of the currency fluctuations in between, the company knows exactly how much it’ll pay for that transaction, providing much-needed certainty.”
- Know your SARS and Reserve Bank allowances
While it may not save you money on a specific transaction, Scherzer points out that it’s also important for individuals to understand their SARS and Reserve Bank allowances when transferring money internationally.
“South Africans can take R1 million a year out without any approvals,” he says. “Having obtained the right approvals from SARS, known as an Approval of International Transfers (AIT), they can take a further R10 million a year out of the country without restrictions.”
If need be, he says, individuals can double these allowances by utilising their spouse’s allowance as well. That means that a couple can take out R22 million in one year in a relatively straightforward manner. It is possible to go above this, but it requires special approval from the SARB which can be cumbersome and time-consuming.
Give yourself the best protection
Ultimately, Scherzer says, it’s likely only going to become more critical that South African businesses and individuals use these tools to give themselves protection from the rand by moving funds abroad and holding foreign currency.
“The domestic factors holding back the rand show no signs of being resolved anytime soon,” he says. “Additionally, uncertainty surrounding the upcoming general elections and global socio-political issues will likely continue to dampen the rand’s performance. Businesses and individuals can’t control these factors, but they can give themselves a reasonable degree of protection by utilising all the tools available to them.