Forex expert Bianca Botes of Citadel Global urges local companies to take a structured approach to foreign exchange risk.

Foreign exchange (FX) risk has become a clear threat to globalised South African (SA) businesses that need to navigate increased trade turbulence, currency fluctuations and rising costs.  

“In today’s climate, currency risk isn’t a once-off concern - it’s a continuous daily business risk that must be actively managed,” says Bianca Botes, Director at Citadel Global.  

With the rand continuing to fluctuate in response to global economic headwinds, geopolitical tensions, and domestic uncertainty, Botes urges businesses to adopt strategic and structured approaches to currency risk rather than relying on reactive, short-term decisions.

BUSINESS LEADERS ARE WORRIED – WITH GOOD REASON

According to PwC's 28th Annual Global CEO Survey: Sub-Saharan Africa perspective, 42% of CEOs in Sub-Saharan Africa cite inflation as a persistent challenge, while 30% feel highly exposed to macroeconomic volatility.  

The 10% universal tariff on all imports to the US, with higher rates for some countries, “introduced significant uncertainty into global markets, affecting supply chains and increasing costs for businesses worldwide”, says Botes. The US initially proposed tariffs of 30% on non-exempted SA products, but This was later replaced by a universal 10% tariff applied to all countries, which has been suspended for a 90-day review period ending in mid-July. This is good news, for instance, for South Africa’s citrus industry, which hopes to get large shipments into the US before the deadline.  

RECKONING WITH RISKS TO THE RAND

“Various current local and global factors have a direct impact on exchange rate fluctuations, capital flows, and investment decisions,” she explains. “We are operating in a world where policy shifts can lead to rand moves of 3% to 5% in a matter of days. Businesses need to plan around that.”

Further unpacking issues affecting the rand, she says: “The rand continues to face volatility, but we have seen some strength recently, largely driven by a moderation in Trump policies. However, it remains vulnerable to global risk aversion and policy changes, particularly from the White House and the US Federal Reserve (Fed). The outlook suggests that the US dollar may weaken further, given the deteriorating US economic outlook, which will benefit the rand. A continued improvement in sentiment could see the rand strengthen in the short term; however, policy uncertainty locally and globally, trade conflict, geopolitical fragmentation, all pose risks, not just to the rand, but also to trade ties and agreements with key trade partners.”

DON’T PANIC, PLAN AHEAD WITH A PORTFOLIO APPROACH

“We often see businesses hedging their entire exposure at the worst moment, when the rand is weakest, because they’re trying to protect themselves from further losses. But by then, the damage is often done,” she says. “Instead, companies should implement a proactive FX policy that clearly outlines their risk appetite, preferred instruments, and hedging terms.”

Citadel Global recommends a portfolio approach to FX risk, using a mix of spot transactions, forward contracts, and options to lock in rates and manage exposure over time.

In doing this, Botes advises that there are two key steps to commit to. “Firstly, map out a hedging policy to understand your risk appetite, facilities in place, and the hedging instruments to use to hedge the risk. Secondly, the strategy needs to be implemented and adhered to; different instruments in a portfolio approach leave room for rate improvement as market conditions change, but this is, however, dependent on each client’s hedging term, and type of exposure, i.e., import or export. You need a decision-making table that details the proportions in each instrument alongside each conviction, for instance, if you expect the rand to strengthen or weaken or trade sideways.”

Botes also advises that FX policies need to leave room for a bulk hedge for future exposure to benefit from a beneficial currency move, that is expected to only last for a short period of time, before the market corrects.

“Forward contracts give you predictability. Options give you flexibility. And a portfolio approach allows you to balance these tools,” Botes explains. “The key is to implement your strategy before the market moves.”

DON’T UNDER-INVEST IN FX MONITORING

A frequent mistake Botes sees is businesses under-investing in internal capacity to monitor the currency market consistently.

She also stresses that currency risk is not static. “Review your FX policy at least twice a year and make space for tactical changes if the market environment shifts. The most resilient businesses are those that treat FX as a board-level discussion, not just a treasury function.”

SA FIRMS NEED TO TREAT FX MANAGEMENT AS GROWTH STRATEGY  

Botes believes more SA companies - need to see FX planning as an integral part of their growth strategy.

“If you’re earning or spending in foreign currency, you are already exposed to risk. The question is whether you are managing it or letting it manage you,” she says.

Her advice to businesses that haven’t yet implemented formal currency risk solutions: “Start now. Engage your finance team, seek expert advice, and put a structure in place. Volatility isn’t going away, in fact, it may get worse in 2025 as the global economy undergoes changes that impact SA businesses. The good news, however, is that your exposure to FX risk can always be controlled, no matter how globalised your business has become.”