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Boby Madhav | South Africa records trade deficit for the first time since April 2020

Boby Madhav | South Africa records trade deficit for the first time since April 2020
06-12-22 / Bobby Madhav

Boby Madhav | South Africa records trade deficit for the first time since April 2020

South Africa recorded a trade deficit of R4.3bn in October compared to the September 2022 surplus of R26.2bn. The deficit was well below market expectations of a R16.9bn surplus and the first deficit since April 2020. The deficit came on the back of a 17% decrease in exports to a six-month low of R159.6bn and a softer decrease in imports by 1.3% to R163.9bn.

The decrease in exports was the result of a considerable month-on-month contraction of 20% seen in mineral products (-R11.1bn); wood pulp and paper of 63% (-R5.4bn); vegetable products of 34% (-4.3bn) and base metals of 21% (-R3.7bn).

On the imports side the marginal decline in total import value was mainly due to decreases in the importation of chemical products (-R2.0bn); plastics and rubber (-R1.3bn); vehicles and transport equipment (-R1.2bn) and textiles(-R1.0bn). In contrast, mineral product imports increased by 14% or R5.2bn. This increase is not unexpected, since the biggest import from this category is crude oil.

A month ago, we cautioned that the huge trade surpluses experienced since the outbreak of COVID-19 and subsequently the invasion of Ukraine by Russia will not last forever. A triple ‘whammy’ of lower commodity prices, logistics issues, and lower demand from China has now hit the country, leading to a decline in exports and the resultant trade deficit.

Mineral product exports consist mainly of coal, iron ore, and manganese ore. Although the prices of these commodities remain elevated compared to pre-COVID-19 levels, the prices either remained flat or in the case of manganese ore and coal, decreased in October.

The volume of exports of these commodities was also constrained by lower production recorded by the mining sector in general and the difficulty mining companies had in accessing ports and rail after Transnet declared force majeure because of a wage strike that lasted 11 days in October.

The lower growth experienced in China has also affected export volumes of mineral products to that country. Pre-COVID-19 South Africa shipped more than 35% of its mineral products to China by value. However, China’s share has consistently dropped from about September 2021 to the current level of only about 20% of total exports.

Looking forward, the lowering of global and South African growth forecasts will impact trade negatively. However, a light at the end of a dark tunnel is the fact that international shipping costs are declining rapidly. This trend is expected to continue into 2023 as remaining shipping congestion is expected to disappear, leaving operators with less volume than in 2019, but with a fleet that has grown by double-digits since then.

*Bobby Madhav is Head of Trade & Structured Trade and Commodity Finance at FNB.

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