THE ECONOMY is bleeding on two fronts. Data from the SA Revenue Service yesterday revealed a R13.8 billion September trade deficit.
And Leon Myburgh, a strategist at Citi, said about R5bn worth of foreign investment flowed out of domestic bond and equity markets on a net basis last month.
Standard Chartered’s Razia Khan said the cumulative trade deficit was more than seven times the deficit in the same period last year.
The trade account is one leg of the country’s current account and the poor performance spells an increase in the deficit on the current account, which ballooned from 4.9 percent of gross domestic product in the first quarter to 6.4 percent in the second. Portfolio investment (bonds and equities) are recorded on the financial account, which has routinely produced a big enough surplus to fund the current account deficit in recent years.
If the outflows on both the current account and the financial account persist, South Africa could run out of the financial resources to fund its growth. Domestic savings are low – the ratio of household saving to income is zero – making the country very dependent on income and investment from abroad.
In this context, the outlook for jobs growth is poor.
The goal of creating 5 million jobs by 2020 recedes every day. And the prospect of job losses looks increasingly likely as mining houses agree to uneconomic wage increases.
The deterioration in trade started earlier in the year, as poor economic growth in many parts of the world reduced demand from South Africa’s trading partners. The only region which did not produce a deficit in September was Africa, with a R3.5bn trade surplus.
The problem was compounded by strikes and stoppages, particularly in the mining sector, which reduced the supply of commodities available for export. And the cumulative deficit since January amounts to R86.1bn.
Net portfolio sales are a recent development. In the year to date, net inflows were worth nearly R69bn, despite the recent outflows, Myburgh said.
The trend reversal owes much to the sovereign downgrades by Moody’s and Standard & Poor’s, triggered by strikes and violence in the mining sector. Myburgh warned: “Given the sociopolitical uncertainty in South Africa, this low-risk appetite may persist to the end of the year.”