Why SA recorded 4th largest trade deficit in 6 years

Feb 29 2016 18:35
Carin Smith

Cape Town - The R17.87bn trade deficit South Africa recorded in January, is the fourth largest in at least six years, according to Bart Stemmet, an analyst at NKC African Economics.

The South African Revenue Service (Sars) reported on Monday that SA’s merchandise trade balance swung from a substantial surplusof about R7.56bn in December to the deficit of R17.87bn in January.

SA’s import bill jumped by 11% month-on-month to R89.37bn in January, mainly due to increases in the machinery and electronics and original equipment components categories which accounted for R7.38bn of the monthly rise in imports.

In turn, export revenues dropped by 18.8% month-on-month to a three-year low of R71.5bn. Precious metals and stones and vehicles and transport equipment represented a combined drag of R9.76bn in January after falling by 36.6% month-on-month and 34.5% month-on-month, respectively.

"Substantial swings in monthly trade figures are relatively common as the timing of large shipments tend to have a marked effect. Moreover, the country has recorded bloated trade shortfalls in every January for the last five years and, therefore, the swing from December’s surplus to the deep January trough was widely expected," said Stemmet.

"That said, policymakers will be particularly disappointed that the country’s export revenues dropped as sharply as they did in January, especially in a weak-rand environment where exporters are expected to flourish."

He added that, although the weaker currency provides opportunity for local exporters, depressed international commodity prices and soft demand from China have negated much of the positive effects from the ailing rand.

"In the meantime, low trending oil prices will continue to offer the country’s trade balance a degree of reprieve, with the value of mineral imports falling by 42% year-on-year in January," said Stemmet.

Annabel Bishop, economist at Investec, expects the current account deficit to likely average 4.5% of gross domestic product (GDP) in 2016.
She added that the large trade "mismatch" of R17.9bn between exports and imports in January could be seen as the norm for January, as production dropped off over SA’s major holiday period.

Exports being down R16.6n from December accounts for most of the deficit, as firms stopped production over the festive season as is the norm, she pointed out. She also said total imports for would have been "front loaded" into the September to November months ahead of Christmas.

"South Africa’s terms of trade deteriorated in January on the large deficit - January 2015 recorded a trade deficit of –R24.2bn with worse terms of trade than in January 2016. SA’s terms of trade were, on average, better in 2015 than in 2014," said Bishop.

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investec  |  trade  |  sa economy



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