SOUTH Africa could be facing a current account crisis, as exports fall and imports rise.
After an improvement in the trade balance towards the end of last year, January produced a R24.5 billion trade gap, higher than the October 2012 peak of R21.2bn, according to data released by the SA Revenue Service yesterday.
The trade account is one leg of the current account; the other leg, the services account, is routinely in the red.
Finance Minister Pravin Gordhan said on Wednesday that the current account deficit last year was equal to 6.1 percent of gross domestic product (GDP), almost double the 3.1 percent gap in 2011.
On the release of the trade data the exchange rate spiked from R8.85 a dollar to R8.98 and stayed close to the critical R9 level for the rest of the session. At 5pm it was bid at R8.9822 to the dollar, 10c weaker than at the same time on Wednesday.
A ballooning deficit on the country’s external account puts the currency in jeopardy, and a weakening rand eats into household spending power.
Poor demand for South Africa’s goods is in large part due to a recession in the euro zone and Japan and tepid growth in other major trade partners. But January’s slide in exports owes much to a R2.7bn fall in offshore sales of precious and semi-precious stones and metals, a result of supply disruptions in the strife-torn gold and platinum mining sectors.
Since August last year the operations of the mining sector have been hostage to volatile industrial action.
Renaissance Capital’s South Africa economist, Elna Moolman, said the shortfall on the current account was not only a problem in itself but was part of a broader crisis. She saw it as a symptom of “the loss of competitiveness” that prevents South Africa achieving the growth needed to address poverty and inequality.
Meganomics economist Colen Garrow warned: “As a country we live beyond our needs, consuming more than we produce.” He said the trend was reflected also in the national budget deficit equal to 5.2 percent of GDP, announced on Wednesday by Gordhan.
A R5 billion increase in imports of machinery had contributed to the January trade shortfall, Garrow said, adding that the imports could be related to the government’s much needed infrastructure programme and could therefore also be a positive sign.
However, the situation highlights the catch-22 in the economy. Because local industry has to import most of its capital inputs, any expansion of productive capacity automatically inflates the trade deficit. And without foreign investment to fund vital imports the economy would grind to a halt.
For now the tide of investment is flowing in the right direction, with net portfolio inflows worth R15.4bn in the year to date, according to Citi. But local and international events can trigger a reversal.
Standard Bank economist Shireen Darmalingam predicted further trade deficits in the months ahead with the possibility of an improvement towards the end of the year.