Bobby Madhav | SA records negative deficit for the second time this year
South Africa recorded a trade deficit of R3.5bn in June 2023 compared to the surplus of R9.6bn recorded in May 2023 and far below the market forecast of an R11.9bn surplus. This is the second month in this calendar year that the country has returned a negative balance, resulting in a far lower trade surplus for the first six months of the year of R5.6bn compared to the same period in 2022.
The trade surplus bonanza brought about by rising commodity prices in the wake of the COVID-19 pandemic and the Ukraine-Russia war is history. This will have a huge negative impact on the windfall taxes that the government earned over the last few years and is more indicative of the underlying ill-health of South Africa’s economy and its manufacturing sector. This view is underpinned by the latest Purchasers Managers Index data released for June 2023, which indicates a further contraction of the manufacturing sector compared to a month earlier.
The trade deficit came on the back of a month-on-month decrease in imports of 1.6% and an even bigger decrease of 8.6% in exports.
The decline in exports was largely the result of substantial decreases in the export of vehicles and transport equipment such as commercial vehicles and passenger cars to the value of R6.2bn (-28%) and mineral products such as iron ore to a further value of R6.2bn (-13%).
Smaller decreases by the mineral complex (base and precious metals) of R2.9bn and R1.2bn were recorded respectively. The only notable increase in exports came from vegetable products which were R528m higher than the previous month.
The value of imports decreased marginally, mostly driven by lower imports of prepared foodstuffs of R1.1bn (-20%); precious metals and stones of R855m (-32%), and machinery and electronics of R609m (-1%). The lower imports of food and precious metals can be indicative of a moderation in the prices of these products, rather than simply lower volumes that were imported. Bucking the trend was the import of Original Equipment components which increased by R602m (+4%).
Trade with most regions declined by between 8% and 34%. The only regional increases that were recorded were imports from the US of 2.3% and exports to Oceania of 2.5%.
The importance of the US to South Africa is once again emphasised by the US cementing its second place after China as both export and import partner, with shares of 7.4% and 8.5% in South Africa’s export and import baskets respectively. The AGOA preferences that the US affords South Africa should therefore be cherished. Exclusion from AGOA will result in the loss of major exports to the US and directly to material job losses locally, a scenario that the country can ill-afford. Political rhetoric coming from some quarters should therefore be carefully evaluated in light of the national interest.