BUSINESS MAVERICK
South Africa’s current account surges to record surplus in third quarter
The current account of the balance of payments surged out of negative territory in the third quarter of 2020 to a record surplus of R297.5-billion, the South African Reserve Bank said on Thursday, 10 December. This is a reflection of the economy’s roller-coaster ride this year and helps to explain the rand’s perkiness.
The current account forms part of a country’s balance of payments and is basically an accounting of its transactions with the rest of the global economy. This includes imports and exports, foreign aid flows, dividends that flow out to foreign investors and that sort of thing. The massive surplus recorded in the third quarter (Q3) of 2020 was four times the size of the previous record in Q1 of this wild year, and is equivalent to 5.9% of gross domestic product (GDP). In Q2, there was a deficit of R123.7-billion, or 2.9% of GDP. In Q3 1998, the surplus was not as large in rand terms, but was equal to 6% of GDP.
There are a number of reasons for this state of affairs. Mike Schüssler of Economists.co.za told Business Maverick it effectively means “there is more money coming into the country than going out”.
“It is not going to hold forever and a day because consumption is weak now and when that picks up the trend will go the other way.” For example, growing consumption will translate into more imports which means more money leaving the country to pay for them.
The data is clearly a reflection of the economic turbulence which has defined the Year of the Pandemic.
“South Africa’s export volumes bounced back in the third quarter of 2020 in step with global trade, following the easing of Covid-19 lockdown restrictions and the related rebound in economic activity. As a result, South Africa’s trade surplus increased more than six-fold from R71.4-billion in the second quarter of 2020 to R453.6-billion in the third quarter,” the South African Reserve Bank said in a statement.
High prices for the minerals and metals that South Africa produces and exports is one big factor at play here. Mineral sales in September rose 25.9% year-on-year even as production remained in decline. In October, the first month of the current quarter, minerals sales increased 30.7% while production fell 6.3%, Statistics South Africa said on Thursday. That is a positive start to Q4.
This helps to explain the rand’s relative resilience of late. It managed to break below 15 to the dollar on Wednesday. As we have noted, the rand, along with better-than-expected GDP figures and slowing inflation, were all indicators this week that brought some badly needed cheer for the South African economy. The current account data is the latest set of glad tidings this week. As the festive season kicks off, that is something to raise a glass to. DM/BM
Should be a cause for celebration but in reality it is a reflection of depressed domestic demand!