South Africa Current Account Gap Unexpectedly Narrows

South Africa’s current account deficit unexpectedly narrowed in the fourth quarter as dividend payments to foreigners declined in the continent’s biggest economy.

The shortfall, the broadest measure of trade in goods and services, shrunk to 3.6 percent of gross domestic product from a revised 4.1 percent in the third quarter, the Reserve Bank said in its Quarterly Bulletin released in Pretoria today. The median estimate of 10 economists surveyed by Bloomberg was for a shortfall of 4.2 percent.

South Africa relies on foreign investment in stocks and bonds to fund the current account gap, inflows that have fluctuated as investors sold off riskier, emerging-market assets last year. The narrower current account deficit may help underpin the rand, which gained 6.8 percent against the dollar so far this year.

Dividend payments to foreigners “declined following exceptionally large payments in the third quarter,” the central bank said. “This offsetting effect was large enough to result in a modest narrowing of the deficit on the current account.”

The shortfall was financed by foreign investment inflows last quarter. Non-resident investment in stocks and bonds reached 12.5 billion rand ($1.7 billion) worth of investments in stocks and bonds in the fourth quarter, after an outflow of 21.4 billion rand in the previous three months, the central bank said.

Foreign Direct Investment

Foreign investor confidence in emerging-market economies was “partly restored” in the final quarter of 2011 as central banks boosted liquidity in global financial markets and European leaders agreed a second bail-out package for debt-riddled Greece, the Reserve Bank said.

Direct investment by foreigners, including takeovers and building of plants, jumped to 18.7 billion rand in the fourth quarter, compared with 2.8 billion rand in the third quarter, the bank said.

South Africa posted a trade deficit of 17.1 billion rand in the fourth quarter compared with a surplus of 16.3 billion rand in the previous three months. Import volumes increased 10.5 percent in the fourth quarter while exports rose 5.9 percent, according to the report.

While the “worsening global economic outlook” caused commodity prices to come down in the final months of 2011, the rand value of a basket of South African-produced export commodities excluding gold increased by about 5 percent because of the currency’s depreciation, the bank said.

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net

To contact the editor responsible for this story: Andrew J. Barden at barden@bloomberg.net

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