The shock October trade shortfall underscores South Africa’s dependence on foreign investment. A record R21.2 billion trade deficit in the month followed a massive R13.8bn shortfall in September, as imports grew twice as fast as exports, the SA Revenue Service (Sars) reported on Friday.
With export earnings declining and no domestic savings, the country will rely increasingly on offshore investment to fund economic growth.
Unfortunately these flows are subsiding as domestic problems and lack of policy certainty scare investors. In the five days to last Thursday, non-residents sold a net R1.2bn worth of local bonds and shares, according to Leon Myburgh, a strategist at Citi.
After gaining ground in the first part of the day, the rand weakened sharply on the trade data. The exchange rate shot from R8.7599 to the dollar at 2pm, when the news was released, to R8.88 at 3.38pm. At 5pm it was bid at R8.85 a dollar.
Kevin Lings, the chief economist at Stanlib, said South Africa would “struggle to significantly improve export performance” over the coming 12 to 24 months, due to slow global demand, and this would increase the risk to the rand.
Sars recorded exports of the category that includes gold and platinum fell by nearly R2bn in October, from the September level – reflecting lost output on the country’s precious metal mines due to wildcat strikes.
This is more evidence of a trend remarked on last week by Reserve Bank governor Gill Marcus when she spoke to the National Union of Metal Workers of SA about self-inflicted damage.
The trade deficit was well above the Bloomberg consensus forecast of R15.5bn and the previous record high of R17.5bn in January 2009. The gap between export revenue and import costs is a cumulative R104.6bn this year, compared with R9.4bn for the same period last year.
The trade account is one leg of the current account; the other leg is the services account, which is always in the red. In the second quarter, the current account deficit stood at 6.4 percent of gross domestic product. The benchmark level is 3 percent.
A widening current account deficit could put paid to any chance of further rate cuts.
Shireen Darmalingam, an economist at Standard Bank, noted the Reserve Bank “recently made it clear that [the deficit] has become more important to monetary policy decision-making and one of the reasons for the no rate change at the past two meetings”.
While mining production losses contributed to the alarming deficit, exports also suffered due to poor demand from Europe, where many countries are in recession.
Imports are at an all-time high, according to Lings.
He said the figure for October was boosted by machinery and equipment imports and “most likely included a build-up of stock [household appliances and electronics] ahead of the Christmas season, but might have included other forms of capital equipment”.
Lings also noted also a R1.2bn increase in chemical imports and a R1.7bn rise in imports of motor vehicles and vehicle components.
The Reserve Bank will publish current account data for the third quarter on Thursday.