Share

SA current-account gap widens as exports fall

Johannesburg - The current-account deficit widened in the third quarter as exports in mining and factory produce fell due to weaker international demand and a stronger currency.

The gap on the current account, the broadest measure of trade in goods and services, widened to 4.1% of gross domestic product in the three months through Septemebr 30 from a revised 2.9% in the preceding quarter, the Reserve Bank said in its Quarterly Bulletin released on Friday in the capital, Pretoria. The median of 16 economist estimates compiled by Bloomberg was for a shortfall of 3.6%.

Africa’s most-industrialized economy relies mainly on foreign investment in stocks and bonds to help fund the deficit. While the nation averted a credit-rating downgrade to junk this month, foreigners have been net sellers of the debt and equity since the start of the fourth quarter, according to data from the Johannesburg Stock Exchange.

That was due to increased emerging-market uncertainty after the election of Donald Trump as US president and bets that the Federal Reserve will accelerate the pace of interest-rate increases. Domestic political turmoil also spooked investors.

“With the expected Fed interest-rate hike, we could see short-term capital flowing out of emerging-market assets, and that includes South African assets, which could put the currency under pressure and raise the pressure on funding the current-account deficit,” Isaac Matshego, an economist at Nedbank in Johannesburg, said by phone.

“The Trump administration poses another risk, regarding his stance on trade issues, which could hurt emerging markets in the short term and that could definitely raise the challenge of drawing short- or long-term inflows.”

Foreign direct investment in the third quarter was R7bn, compared with R8.6bn in the preceding three months. This was mainly in the form of loans by foreign holding companies to their South African subsidiaries, the central bank said. Investment in South African stocks and bonds recorded inflows of R38.8bn compared with R33bn in the second quarter as investors looked for higher-yield securities.

Trade shortfall

Mining companies, especially in the platinum industry, drew down their inventory levels and boosted exports in the second quarter, resulting in a trade surplus of R48bn. This turned around in the three months through September as weaker global demand and a stronger rand led to a drop in export volumes and values, causing a shortfall of R4bn on the trade account.

The volume of exports, excluding gold, fell 7.5% and the value of these goods was 7.2% lower at R1.03trn, according to the report. Import volumes were 1.9 percent down and the value of goods brought in declined by 3.2% to R1.08trn.

The trade shortfall was due to “weaker international demand for domestically produced goods,” the central bank said in its bulletin. “Export earnings were also affected by the strengthening in the exchange value of the rand, which more than offset the benefit arising from higher international commodity prices.”

The rand gained 7.3% against the dollar in the third quarter, even as the currency remains sensitive to global events and domestic political turmoil. The currency weakened 0.4% to R13.7050/% by 12:24 on Friday. Yields on rand-denominated government debt due December 2026 rose three basis points to 8.92%.

Dividends down

The shortfall on the services, income and current transfer account widened to an annualised R172bn from R171bn, the Reserve Bank said. Gross dividends payments to the rest of the world decreased due to the weak domestic economy, and dividends received also declined, according to the report.

Rating companies including S&P Global Ratings, which kept its assessment of the foreign-currency debt at one level above junk this month, warned that political interference in government policy could lead to a downgrade. Political turmoil, including the now-dropped fraud charges against Finance minister Pravin Gordhan, has overshadowed some of the government’s efforts this year to boost investor and business confidence.

The government forecasts the current-account shortfall will narrow to 3.9% of GDP this year from 4.3% in 2015.

Read Fin24's top stories trending on Twitter:

We live in a world where facts and fiction get blurred
Who we choose to trust can have a profound impact on our lives. Join thousands of devoted South Africans who look to News24 to bring them news they can trust every day. As we celebrate 25 years, become a News24 subscriber as we strive to keep you informed, inspired and empowered.
Join News24 today
heading
description
username
Show Comments ()
Rand - Dollar
18.94
-0.0%
Rand - Pound
23.90
+0.0%
Rand - Euro
20.41
+0.1%
Rand - Aus dollar
12.33
+0.1%
Rand - Yen
0.13
+0.0%
Platinum
908.05
+1.2%
Palladium
1,014.94
0.0%
Gold
2,232.75
-0.0%
Silver
24.95
-0.1%
Brent Crude
87.00
+1.8%
Top 40
68,346
0.0%
All Share
74,536
0.0%
Resource 10
57,251
0.0%
Industrial 25
103,936
0.0%
Financial 15
16,502
0.0%
All JSE data delayed by at least 15 minutes Iress logo
Company Snapshot
Editorial feedback and complaints

Contact the public editor with feedback for our journalists, complaints, queries or suggestions about articles on News24.

LEARN MORE
Government tenders

Find public sector tender opportunities in South Africa here.

Government tenders
This portal provides access to information on all tenders made by all public sector organisations in all spheres of government.
Browse tenders