South Africa's plunging currency hits tourism industry

Rakeesha Wrigley, production associate

South Africa's tourist businesses are hoping a stream of foreign visitors will keep flowing as the country's economy takes a hit from its plummeting currency, the rand.

Rand, South Africa's currency
Rapid Eye | Getty Images

"As long as the foreigners keep coming, we will be alright," said Michelle Brooks, owner of Happy Hippo Backpackers in Durban.

Small businesses like Brooks' firm are spread over South Africa's picturesque landscape and in its city centers, offering cheap accommodation and providing employment to local, underskilled workers.

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Travelers can now vacation beachside for as little as $23 (360 rand) a night. That's the price for a single room at Happy Hippo in Durban. The company's options range from dorm rooms with multiple beds to singles.

South Africa's tourism economy has seen revenue fall as a 27 percent drop in the rand has forced businesses to cut back on staff. The currency has suffered because it's closely tied to the value of South African commodity exports such as platinum, iron ore and gold. South Africa supplies 30 percent of the world's platinum, for example.

In August 2015, China devalued its yuan, which immediately triggered a slide in the rand. South Africa exports 68 percent of its iron ore to China and Japan. Slowing growth in China and a flat GDP in Japan have deflated demand for South Africa's exports, driving the rand lower. Political instability within South Africa also has hurt the currency.

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So South Africa is pinning its economic hopes on drawing foreign travelers whose native currencies now go much further within the country. The cheap rand "is really good for us as, we can do more and spend less, but I really don't feel good about it when I know that the state of the rand is hurting the locals and their economy," said Aldia Janson, a foreign exchange student from Germany.

The upshot is that the currency exchange rates have encouraged international travelers to spend more and stay longer. However international travelers make up only half of South Africa's tourists — the other half are locals. That half has been hit hard. Many have canceled travel plans abroad or cut their local holiday plans short.

Cecilia Martens, 25, is the owner of CC's Travel, which specializes in inexpensive tourism. Martens told CNBC that the drop in the rand has stifled, not helped, her company.

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"Most of us are hanging in there waiting for the rand to rebound," Martens said. "I am hopeful that 2016 will be a great year for the travel industry and the rand will improve."

And wait she must. The South African tourism sector cannot afford to raise its prices without the risk of pricing out South Africans.

"In order to make money, we have to spend money," said Brooks of Happy Hippo Backpackers, "and we're getting very little of it back."

— By CNBC's Rakeesha Wrigley; Follow her on Twitter @rakeeshawrigley