South African Reserve Bank Governor Tito Mboweni has sought to soothe markets rattled by a sudden surge in the country’s current-account deficit, but his view that the bulge is merely a blip does not fit with the figures.
Hundreds of thousands of new cars bought last year helped push oil imports higher in the fourth quarter, plunging the current account further into the red, to an almost three-decade record of 7,8% of gross domestic product, and weighing on the rand. Mboweni urged the market not to read too much into the headline number, blaming it on ”unusually high” oil imports.
But analysts say data shows that demand for fuel in Africa’s largest economy has grown dramatically, driven by record vehicle sales, putting the balance of payments at the mercy of an ever-rising trend in oil imports.
”Although the monthly figures can be quite jumpy, the trend is clearly that of higher oil imports, and that is something we’ve been seeing now for over a year,” said Jeff Gable, emerging market strategist at Absa Capital.
South Africa’s trade deficit jumped to a record R12,9-billion in October last year, narrowing only slightly in November as refineries ramped up imports following extended maintenance shutdowns.
Mineral imports, mainly oil, increased by 78,5% year-on-year in the fourth quarter of last year, according to the Reserve Bank’s March quarterly bulletin.
However, the deficit remained high in January at R11,9-billion, again on oil imports, and officials will be hoping the smaller deficit in February is not a one-off reprieve.
South Africans’ insatiable appetite for new cars, many of them expensive imports, will keep pressure on the country’s already-stretched refineries. The fastest economic growth in more than two decades, along with a burgeoning black middle class, has helped propel new vehicle sales to new highs for the past three years. Last year, 714 340 new vehicles hit South Africa’s roads — 15,7% up on 2005.
Running dry
The South African Petroleum Industry Association (Sapia) says it is already importing refined oil products, including petrol, to keep up with rising domestic demand.
”We used to export some diesel before, but in the past few years, demand has grown so much that we’ve started importing that as well,” said Colin McClelland, Sapia director. ”In principle, any more growth of demand for refined products will have to be imported because our refineries have reached their full capacity.”
South Africa’s own ability to meet some of its oil demand has also declined. Coal-to-liquids giant Sasol and state-owned PetroSA now meet 33% of the country’s fuel needs, compared with 40% a few years ago.
Meanwhile, oil from South African fields that make up 7% of the market is fast running dry. ”Our own oil fields are running out, so the balance of payments will be hit both by growth in the market and by decline in our own production,” McClelland said.
Analysts say oil will keep the current-account picture bleak in 2007. ”We have an economy that’s growing at least 5% and that’s soaking up a lot of energy, and that is energy we’re not producing in the liquid-fuels sector,” Gable said.
”Our expectation is that the first-quarter current-account number will likely show a deficit of more than 6% to GDP,” he said.
Increasing machinery and other capital good imports needed to feed a R416-billion, three-year government infrastructure investment drive, and volatile oil prices, could lift that figure even higher.
”The current account is going to worsen; the trend is towards worse numbers,” said Guillaume Salomon, emerging-markets analyst at TD Securities in London.
Mboweni has stressed the deficit is easily financed by capital inflows, but it is likely to keep investors nervous.
”In a less benign global environment, such a large deficit will certainly be difficult to finance,” Absa Capital’s Gable said. ”It’s wrong to think that just because we have easy financing today, we’ll have easy financing tomorrow.” — Reuters