SA’s current account and trade surpluses’ record high
The upturn in the commodity cycle is a key driver behind the rand’s bull run.
South Africa recorded its largest current account surplus ever in the second quarter of 2021, widening to R343-billion from R262-billion in Q1. The trade surplus also hit a record high. The commodities boom is the main reason for this positive state of affairs against the backdrop of an otherwise frail economic recovery.
Prices for a range of metals and minerals, from rhodium to iron ore, have been scaling historic highs this year as the global economy rebounds from 2020’s pandemic-induced contraction.
That’s good news for resource-rich economies such as South Africa’s, where mining companies have been posting record results. Much of that money has been flowing to the Treasury at a time when it needs every rand it can lay its hands on, and shareholders have reaped windfall dividends.
For the South African economy more broadly, this can be seen in the current account, which forms part of a country’s balance of payments and is basically an accounting of its transactions with the rest of the global economy.
“The balance on the current account of the balance of payments widened substantially to the largest surplus ever of R343-billion in the second quarter of 2021, advancing from R261-billion in the first quarter. As a ratio of gross domestic product (GDP), the current account surplus widened to 5.6% in the second quarter of 2021 from 4.3% in the preceding quarter,” the South African Reserve Bank (SARB) said on 9 September.
It must be said that, as a percentage of GDP, the ratio would be lower if the rest of the economy was growing faster. But the economy as a whole only expanded 1.2% in the quarter. Without the commodities boom, the economy would be performing far worse.
The SARB also said that South Africa notched a record trade surplus in Q2 of a whopping R614-billion compared to R451-billion in Q1 – growth of 36%.
“The value of South Africa’s merchandise exports increased to a new all-time high in the second quarter of 2021 with imports increasing by 3.4% to its second-highest level since the second quarter of 2019 … The higher value of exports of goods and services reflected a larger increase in prices than volumes while imports mostly reflected an increase in prices,” the SARB said.
So it is clearly commodity prices that are driving this trend. “South Africa’s terms of trade [including gold] improved further in the second quarter of 2021 as the rand price of exports of goods and services increased more than the price of imports,” the SARB said. This means that more money is flowing into the country than flowing out, which explains the rand’s relative resilience.
This has also long been the goal of ANC mandarins – export-led growth.
But what is distressing is that record current account and trade surpluses were recorded in the same quarter – April to June – that saw the unemployment rate hit a record high of 34.4%. That is surely testimony to the many structural factors that are preventing job creation.
Of course, many jobs have been lost in sectors that don’t export anything, such as restaurants, bars and bottle stores, which have been waylaid by arguably ill-conceived and draconian lockdown measures to contain the pandemic. But new investment elsewhere that could generate jobs is not gushing in. Mining companies are dishing out delightful dividends, but hardly any new mines – which would require significant amounts of labour – are being built. At least they are not shedding jobs at the moment.
Still, it is better to have such surpluses, which among other things are keeping a balance of payments crisis – which would send Pretoria to the International Monetary Fund with a begging bowl – at bay.