South Africa Current-Account Gap Worsens as Imports Climb

  • Trade surplus swings to shortfall in third quarter, SARB says
  • Portfolio investment by South Africans abroad at record high

South Africa’s current-account deficit widened to 4.1 percent of gross domestic product in the third quarter as consumers boosted imports of mobile phones and cars and dividend payments to foreign investors increased.

The gap on the current account, the broadest measure of trade in goods and services, increased from 3.1 percent in the previous three months, the Reserve Bank said in its Quarterly Bulletin released on Tuesday in the capital, Pretoria. The deficit was forecast to reach 4 percent, according to the median estimate of 18 economists surveyed by Bloomberg.

Worsening trade conditions add to a gloomy outlook for a currency already under pressure from possible monetary policy tightening in the U.S. next week and credit rating downgrades. The rand fell to a record-low of 14.5934 per dollar on Tuesday, taking its decline this year to more than 20 percent. South Africa relies mainly on foreign investment in stocks and bonds to help fund the current-account deficit.

“South Africa is not attractive enough for us to feel comfortable about our current-account deficit,” Elize Kruger, an economist at KADD Capital, said by phone from Johannesburg on Tuesday. “Who wants to invest here if we might end up in junk status in six months or a year? We have a confidence problem in our economy and investors also don’t necessarily have confidence to be here.”

The current-account shortfall is forecast by the government to average 4.1 percent of gross domestic product this year and widen to 4.8 percent in 2018.

South Africa posted a trade deficit of 14 billion rand ($962 million) in the third quarter compared with a 14 billion rand surplus in the previous three months. Exports, excluding gold, rose 0.7 percent to 1.01 trillion rand in the three months through September, while imports increased by 2.6 percent to 1.09 trillion rand.

Portfolio Investment

“The shortfall on the trade account can largely be attributed to increased domestic demand for foreign-produced intermediate and consumption goods,” the Reserve Bank said. “At the same time, growth in export volumes moderated.”

Foreign investment in stocks and bonds slumped to 11.8 billion rand in the third quarter from 54.8 billion rand in the previous three months, while foreign direct investment climbed to 15.9 billion rand from a revised 6.9 billion rand.

South Africans boosted portfolio investment abroad to 24.2 billion rand in the third quarter from 10 billion rand in the previous three months, the biggest quarterly increase on record, the Reserve Bank said.

Rating Downgrades

Spending by consumers, the government and businesses rebounded in the third quarter to expand an annualized 0.8 percent compared with a 7.2 percent contraction in the second quarter. Growth in household spending, which makes up about two-thirds of expenditure in the economy, slowed to 0.9 percent from 1.2 percent.

Fitch Ratings Ltd. last week downgraded South African debt to BBB-, the lowest investment grade level, while Standard & Poor’s changed the outlook on its BBB- rating to negative from stable, taking the nation a step closer to junk status. Fitch said the current-account gap has worsened the nation’s foreign debt ratios and exposes it to shifts in global liquidity and risk appetite.

“Our foreign debt ratio, our ability to attract foreign money, is quite good,” Johan van den Heever, head of economic reviews and statistics in the central bank’s research department, said on Tuesday. “We don’t have a large quantity of foreign debt,” which limits the nation’s risk, he said.

Yields on rand-denominated government bonds due December 2026 rose 3 basis points to 8.79 percent as of 11:25 a.m. in Johannesburg.

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