Trade and Industry Editor

SOUTH African-based firms are losing out to competition from Europe, Asia and Latin America in tendering for work in the rest of Africa because of the strong rand, civil engineering company ABB SA CE Carlos Poe warned yesterday.

Poe was adding his voice to a chorus of industrialists who have raised concerns about the effect of the exchange rate on business.

He said that while the rand was at the same levels it had been at two to three years ago, inflation in this period had pushed up rand-based costs 16% to 18%, causing a serious loss in productivity.

"Meanwhile, some of our competitors from developing countries have currencies which have devalued against the dollar," said Poe, adding these countries had become SA's competitors for export products to Africa and the Middle East.

These countries include Turkey, Egypt, Brazil and India.

Where imports were concerned, there was also enhanced competition in the local market, as the rand was making imported goods more competitive.

Poe said he expected a push from European companies into the South African market.

He said that ABB's exports from SA were around 25% of the level they had been a year ago.

"ABB SA has lost on a number of projects, mainly in electricity transmission and distribution," he said.

He explained that his company was bidding on new projects worth over R300m up to the end of the year, and once the results of these bids were known, the company would be in a better position to estimate the impact of the strong rand on its export performance.

However, Poe said that there was no point in local managers merely complaining about the strong rand without acknowledging that they may have been wrong to have expected the currency to continue weakening forever.

"We have been confronted with a situation that has happened for the first time in 15 years we didn't know how to manage it, but we are learning fast," he said.

He said that despite problems with exports, ABB's local operations had been performing well in recent years, with good growth in both revenues and profitability.

"We have been very competitive in the local market, particularly on the new technology that we bring in from overseas."

Poe said he was encouraged that the Reserve Bank had launched a series of interest rate cuts this year.

"But we need further interest rate cuts to push the economy and stabilise the rand," he said.

Nov 06 2003 07:38:25:000AM John Fraser Business Day 1st Edition