To enjoy the full Mail & Guardian online experience: please upgrade your browser
30 Apr 2014 19:19
According to economists, Eskom's reliance on oil-guzzling, peaking power plants to keep the lights on have contributed to the deepening deficit. (Brendan Croft, Gallo)
South Africa recorded a
shock trade deficit of R11.4-billion in March, outpacing market expectations of
a R1.5-billion decline, thanks in large
part to steep import increases, particularly oil, and declines in exports.
According to economists, Eskom’s
reliance on oil-guzzling, peaking power plants to keep the lights on have
contributed to the deepening deficit, alongside strikes in the mining and
manufacturing sectors over the last year, which have hurt exports.
The value of imports rose steeply by 11.6% month on
month, or R9.5-billion, while exports declined by 3% month on month, a drop of
R2.5-billion, according to Stanlib chief economist Kevin Lings.
The increase in imports included a massive 37% month
on month rise in mineral imports, which includes oil-related products, Lings
said in a research note.
The decline in exports meanwhile included a 17% month
on month loss in exports of mineral products including coal – a drop of
The data was “out of sync” with recent trends towards
a narrowing trade deficit and was “clearly
a major worry given that there are already heightened concerns about South
Africa’s ability to finance an extremely large current account deficit on a
sustained basis”, said Lings.
March trade data“Prior to the release of the
March trade data, there was growing evidence to suggest that the weaker rand is
slowly starting to improve South Africa’s trade position,” he continued.
According to Lings, extensive
labour market disruptions in the mining and manufacturing sectors had
severely undermined South Africa’s export performance over the past 18 months.
It also took time for exporters to improve their
presence in global markets, while local companies had difficulty substituting
domestic products for imported products when the rand weakened, he noted.
The ongoing strikes at South Africa’s largest platinum
mines in the Rustenburg area are ensuring that producers are quickly depleting
their refined platinum reserves.
“Once this happens, South Africa’s exports of platinum are
likely to weaken significantly, delaying the anticipated improvement in the
monthly trade balance,” said Lings.
David Faulkner, South Africa economist at HSBC said that although the effect of the platinum strike was evident in
the export numbers, with precious metals exports declining for a
second consecutive month, the more damaging development for exports in March
was the sharp fall in mineral exports, consistent with a decline in
coal exports from Richards Bay Coal Terminal during the month.
Oil importsMeanwhile, Investec’s Annabel
Bishop said the jump in oil imports has been aggravated by Eskom’s use of expensive peaking power plants in recent months as it battles
with the short electricity supply.
“March and April saw limited spare electricity
capacity as generating units were shut down to undertake preventative
maintenance ahead of the winter months,” Bishop said in a research note.
“Expensive oil-powered generators were relied upon to
provide power to the grid in peak periods, and this has negatively impacted the
The ongoing electricity constraints have required that
South Africa’s large industrial companies either temporarily shut down or
cut back 20% of their production, well above previous requirements of a 10%
reduction, which will negatively impact economic growth, argued Bishop.
But steady recovery in world growth, coupled with rand
weakness and the hope that labour market conditions, especially in the gold
and platinum sectors, could improve South Africa’s export performance in the
coming 12 to 24 months, said Lings.
“Unfortunately, as we mentioned in past months, the
progress is likely to be slow and relatively moderate,” he said.
Create Account | Lost Your Password?