While South Africa’s large trade deficit in January of R11,9-billion was in part due to seasonal factors, underlying trade conditions are probably set to get worse unless industrial-sector exports improve considerably, according to analysts.
Once again the monthly trade balance shifted strongly into negative territory in January, with the trade deficit similar to the high levels in October and November last year.
South Africa recorded a worst-ever deficit in October last year of R12,943-billion, while a R67,1-billion deficit was recorded for 2006 from a R22-billion deficit the year before.
The market had been expecting a marked shift in the trade balance from December’s small surplus to a deficit in January, but the general consensus was that the deficit for the month would only be in the region of R2-billion to R7-billion.
While the trade balance had been expected to return to deficit largely because of the resumption of oil imports, the underlying export performance across a number of trade categories was particularly poor compared with December last year, analysts told I-Net Bridge.
Mineral exports declined by a massive 48% on the month to R3,1-billion, and the balance on the mineral trade account made up for about 27% of the total monthly deterioration in the overall trade account.
Other significant contributors to the monthly deficit were machinery and equipment, base metals, transport equipment and chemical products, all of which showed significant declines in exports while imports climbed.
Import increases
The most noticeable increases in imports were the R1,9-billion surge in machinery and electrical equipment and the R1,8-billion jump in imports of special classification provisions and parts and components for motor vehicles.
“One certainly has been expecting the balance on the machinery and electrical equipment account to continue deteriorating as more and more capital infrastructure investment projects come on stream, and for this reason it would be reasonable to surmise that most of the increase in imports on this account are related to construction and building machinery as opposed to durable consumer goods, the demand for which would have waned in January,” said independent economic analysts RLJP.
However, the analysts added that a deficit of R11,9-billion is probably considerably larger than the current underlying “normal” monthly trade deficit, given that January would normally see a considerable degree of restocking by wholesalers, retailers and manufacturing suppliers, which would require a temporary surge in the demand for imports.
“Given this, and the fact that currency traders have tended to ignore the trade account of late due to robust capital inflows into bond and equity markets, the rand is unlikely to weaken further purely on the basis of the latest trade figures,” added RLJP.
Growing deficit
However, the analysts said one cannot ignore that the deficit grew by nearly 55% compared with January last year, and that big-ticket infrastructure-related equipment imports are likely to continue unabated for some time to come.
“It is a good thing, therefore, that stable monetary and fiscal policy, strong corporate profitability, and solid investment and growth fundamentals continue to characterise the South African economy, attracting a barrage of foreign capital to these shores,” added the researchers.
“This said, one would nevertheless like to see manufacturing and mining export-led growth lead to healthier conditions on the trade account, which would go a considerable way to insulating the economy from potential shocks related to deteriorating terms of trade from oil and raw materials spikes, as well as from emerging market uncertainty, decreasing international liquidity, and capital flight.
“This could reduce the risk perception of investing in the local market considerably,” they concluded. — I-Net Bridge