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JOHANNESBURG (Capital Markets in Africa) – In December 2016, South Africa’s trade balance recorded a further surplus of R12.04 billion. This compares with a trade deficit of –R1.7 billion in November 2016. The market was expecting a trade surplus of around R6.3 billion for the month, although the trade data is extremely difficult to forecast accurately on a month-by-month basis, especially since the data is not seasonally adjusted and prone to revisions. South Africa has recorded a trade surplus in five of the last eight months.
During December exports fell by R6.0 billion, while imports crashed by –R19.75 billion. The sharp decline in imports reflect a combination of seasonal factors as well as sluggish domestic economic activity, especially the dearth of fixed investment spending by the private sector. During 2016 as a whole South Africa recorded a trade deficit of only –R2.9 billion, compared with a deficit of –R52.2 billion during all of 2015. This improving trend is expected to continue into 2017, with South Africa recording more regular trade surpluses.
As mentioned above, the value of imports fell by -19.6%m/m (-R19.75bn) in December 2016. This decline was broad-based and included a R6.0 billion (24%m/m) decrease in machinery imports, a R3.1 billion (53%m/m) drop in imports of vehicle parts, a R2.1 billion fall in imports of chemical products and a R1.5 billion slump in base metal imports. Over the past year, South Africa’s imports have risen by only 0.6%y/y in Rands. The sluggish growth in imports is closely linked to the country’s overall economic performance. Unsurprisingly, South Africa’s tax collection of import duties is well behind budget. Given that economic growth is expected to remain relatively subdued over the coming year, import demand should also remain relatively subdued in 2017.
The value of exports fell by -6.1%m/m (-R6.0bn) in December 2016. This decline included a massive R4.7 billion (35%m/m) drop in the value of vehicle exports. More positively, in dollars terms, South African exports were up almost 22%y/y. This is the best export performance South Africa has achieved since 2011, and partly reflects the benefit of significantly higher commodity prices.
In conclusion, South Africa’s trade balance has generally improved over the past year, at least on a trend basis, helped by a combination of slowing import growth and a pick-up in exports. Higher international commodity prices have provided welcome relief to South Africa’s balance of payments in 2016. Unfortunately, the slowdown in import growth largely reflects the weakness in the South African economy, rather than an improvement in import substitution. This overall trend is expected to continue during 2017, which should help to further narrow South Africa’s current account deficit, reducing the pressure on the Rand exchange rate.