“I signed a contract last month, but this month I’m short 20,000 RMB when I settled the foreign exchange.” This is a common problem faced by many Chinese companies doing foreign trade in South Africa. The South African rand (ZAR) is a notoriously volatile currency, subject to frequent and significant fluctuations in exchange rates, influenced by factors such as international commodity prices, South African politics, and the US dollar. In 2024, the ZAR depreciated 5% against the CNY within a single month. If a company fails to hedge its exchange rate, its profits can be easily wiped out. According to a 2024 survey by Standard Chartered Bank South Africa, Chinese companies in South Africa suffer an average annual profit loss of 4.2% due to unhedged exchange rate risk. Some high-risk industries (such as mining and agricultural product exports) experience losses exceeding 10%. Today, we’ll share three practical strategies for coping with exchange rate fluctuations to help you protect your profits.

The first: A short-term strategy—locking in a 72-hour exchange rate, essential for small-volume, high-frequency trading. If your business engages in “small-volume, high-frequency” foreign exchange settlements (e.g., 3-5 times per month, each for 100,000-500,000 Rand), you can use the “72-Hour Exchange Rate Lock” feature, which is the most flexible short-term strategy. How does it work? For example, if you sign a 100,000 Rand order with a domestic customer today and are concerned about exchange rate depreciation in the next three days, you can apply for a “Exchange Rate Lock” through the Mustang backend. The system will provide the current ZAR to CNY exchange rate (e.g., 1 ZAR = 0.38 CNY). Once you confirm, this rate will be locked in for 72 hours. Within 72 hours, any subsequent settlements will be calculated based on this rate, regardless of market exchange rate fluctuations. For example, South Africa Trade, a Chinese-owned foreign trade company in Johannesburg, needs to settle foreign exchange four times per month, each for 200,000 Rand. They lock in a 72-hour exchange rate after each order. By 2024, they had avoided approximately 80,000 RMB in exchange rate losses. It’s important to note that if you don’t convert the exchange rate within 72 hours after locking in the exchange rate, a small penalty (generally 0.5% of the locked amount) will be charged, so be sure to calculate the time it takes for the funds to arrive.

The second medium-term strategy: quarterly hedging contracts to stabilize medium- and long-term profits. If your business has “fixed quarterly orders” (for example, exporting goods worth 1 million rand each quarter), you can use a “quarterly exchange rate hedging contract.” This is a key method for mitigating medium-term risk. It works like this: You agree with a compliant financial institution (such as a local South African bank that Mustang partners with) to convert a certain amount of rand at a fixed exchange rate over the next three months. This agreed-upon rate will be applied regardless of market exchange rate fluctuations. For example, in Q2 2024, a Chinese mining company expected to settle 5 million rand. At the time, the market exchange rate was 1 ZAR = 0.37 CNY. They signed a quarterly hedging contract with a bank, agreeing to settle at 1 ZAR = 0.365 CNY. Later, in Q2, the rand depreciated to a low of 1 ZAR = 0.35 CNY. They were still able to settle at 0.365, saving 75,000 RMB in that single quarter (5 million rand x (0.365 – 0.35)). When choosing a hedging contract, consider the delivery method: you can choose “lump settlement” (single settlement at the end of the quarter) or “trace settlement” (settlement of 1/3 of the amount each month), flexibly adjusting based on your funding needs.

The third option: a long-term strategy—capital pool management—to mitigate the impact of exchange rate fluctuations. If your company has long-term operations in South Africa (e.g., more than five years) and has both rand revenue and rand expenses (such as local employee salaries, rent, and procurement costs), you can adopt a “cash pool management” strategy: retain a portion of rand funds locally to cover local expenses, and only convert the remaining funds into RMB. This reduces the number of exchange transactions and naturally mitigates the impact of exchange rate fluctuations. For example, Pretoria-based Chinese manufacturing company “South Africa Seiko” has monthly revenue of 1 million rand and local expenses (salaries, rent, and raw material purchases) of approximately 600,000 rand. Therefore, they only convert 400,000 rand into RMB each month. This way, even if the rand depreciates, their local expenditure costs will be reduced, just enough to offset the losses from exchange conversion. In practice, Mustang’s “cash pool management” feature can be used. The backend automatically calculates monthly revenue and expenses, calculates the “optimal exchange conversion amount,” and even sets exchange rate thresholds. For example, if the ZAR to CNY exchange rate exceeds 0.38, it will automatically prompt you to convert more; if it falls below 0.35, it will prompt you to convert less or not convert at all. In addition to these three strategies, there are two other tips to further reduce risk: First, monitor the policy trends of the South African Reserve Bank (SARB). The SARB announces interest rate decisions monthly, and these adjustments directly impact the rand exchange rate. For example, in 2024, the SARB raised interest rates by 0.5%, and the rand appreciated by 2% against the CNY that very day. Knowing this in advance can help you adjust your exchange rate conversion timing. Second, spread your exchange conversions. Don’t convert all your funds at once. For example, if you have 1 million rand per month, convert them in 3-4 installments to avoid hitting exchange rate lows. The Mustang’s “Exchange Rate Alarm” feature can help you with this. You can customize exchange rate thresholds (for example, “convert when the ZAR/CNY exchange rate exceeds 0.38, and wait and see when it falls below 0.35”). The system monitors the exchange rate in real time and sends text or email alerts when the threshold is reached, eliminating the need to constantly monitor the exchange rate chart.