Evaluating the effects of foreign currency shortages in Africa on South African corporate growth

Abstract

South Africa (SA) is considered Africa's "de facto" economic leader, with the growth of its corporate sector critical to shaping the continent's future. The US dollar (USD) is the primary currency in Africa, and a key driver of cross-border investment is the ability to access foreign currency for repatriating profits, paying suppliers, and receiving payments from customers. By analysing data collected from South African companies operating in Africa, this study identifies key challenges, risk mitigation measures and ultimately assesses the impact of foreign currency (forex) shortages on South African corporate growth. A mixed-method study approach used Spearman’s rank correlation coefficient to measure the strength and direction of the relationship between forex shortages, risk mitigation measures and SA corporate growth. Descriptive statistics identified the primary attributes, challenges and risk mitigation measures. The quantitative analysis was supported by 10 one-on-one interviews with senior executives from SA firms with extensive experience in conducting business in Africa. The data gathered from the participants was then thematically analysed to draw conclusions based on the findings. The findings indicate that forex shortages hinder cross-border investment, cash flows and impede the expansion of South African companies in African markets but are a contributing rather than a deciding factor to their growth. The study highlights the need for robust internal controls and local presence to mitigate the negative effects of sustained periods of forex shortages. The results further confirm previous research, highlighting stable macro-economic indicators, market share, and opportunities to develop Africa’s infrastructure and low technology base as key motivating factors for South African corporate expansion into Africa.