The impact of the Rand depreciation on the risk management practices of small, micro and medium-sized enterprises (SMMEs) in Johannesburg

Abstract

This research report is for the purposes of the exploration in the use of strategies utilised by small medium and micro enterprises (SMME’s), in managing the risks associated with foreign-exchange rate exposure and the depreciation of the rand against other foreign currencies. Depreciation rate poses the risk on hindering company’s purchasing power and competitive advantages .The research is to discover the reasons as to why SMME’s make use of these specific strategies as well as weather or not the chosen strategies have proven to be successful and effective when managing the incurred risk of the rand depreciation and foreign exchange rate risks. Research has found that smaller enterprises are more vulnerable to fluctuations concerning the rand versus the larger firms due to the accessibility and capital resources that are available. Extensive and exploratory research designs were used to answer the research questions. It was determined that hedging the most commonly used form as a risk management strategy among SMME’s, however there was also a hybrid method of combing hedging and spot rates in order to better secure future purchasing power capability of the company. Even though companies did find this method to be a successful means of risk management, the reason for this method being so popular was that the participant was not aware of many alternatives as well as the fact that the company had a limited budget, but are willing to further their knowledge and become familiar with new and innovative methods.