Annual export volumes in the second quarter contracted by 6.3% which resulted in a widening of South Africa’s trade deficit, which is expected to average 5.9% of gross domestic product (GDP) in 2012, up from 3.3% in 2011. Pravin Gordhan indicated that, over the medium term to 2015/6, the deficit was projected to moderate slightly to 5.5% of GDP. Add to that, the National Treasury lowering its growth forecast for 2012/3 to 2.5% and this all points to a worrying slide.
By contrast, import volumes are up almost 4% above pre-2009 highs, while exports are down 13% from their highs. The recent disruptions in the mining sector could further trim these numbers. The National Treasury estimates that R10.1 billion has been lost to unprotected strike activity in the gold and platinum sectors. The steady decline in the country’s price of exports relative to imports trade deficit has also added to the trade deficit.
Tradepoint SA Nelson Mandela Bay Manager, David Hamer said, “The recent flows of economic news all seem to be pointing in the wrong direction, our economy is following a path similar to that if the USA and some European countries, where we are consuming more than we are making and using foreign debt to fund this”.
Exports to Japan and the European Union fell, while exports to the US were flat. On the upside, exports to India and China together with the Southern African Development Community (SADC) grew, although not enough to offset the falls elsewhere.
Overall, the trade deficit deteriorated to 1.9% of GDP in the first half of 2012.
Foreign inflows are financing the current account deficit, underpinning the importance of foreign investor confidence. The recent downgrades by Moody’s and Standard and Poor’s have brought a higher level of scrutiny in this regard. At a recent United Nations conference, concerns over investor confidence were highlighted by a 43.6% fall in foreign direct investment flows into South Africa for the first half of 2012. However, the National Treasury expects foreign demand for bonds to remain robust, net inflows for the first half of 2012 totaled R98.5 billion.
Hamer went on to say, “The key to economic stability has to be found in improvements to the import – export balance. Unless the country tips into recession, it is highly unlikely South Africa will reduce its dependence on imports. Therefore, increasing our exports has got be become an urgent priority. The government through its agencies such as the DTI and Tradepoint SA is taking steps to assist businesses who are export ready, but we need more of them and quicker”
David Hamer
