South Africa’s preliminary trade surplus for the 11 months to the end of November was R187.8-billion, less than half of the R402-billion recorded over the same period in 2022, the South African Revenue Service (SARS) said late last week.

Exports over the period rose 11.7% to R1,850.2-billion despite the train wreck that is Transnet. But imports of R1,662.4-billion were 32.5% higher in the 11 months to the end of November, slashing the surplus.

Commodity prices are the main drivers at play here, and Russian President Vladimir Putin is the main villain on the stage.

The oil price spiked dramatically in the wake of Russia’s invasion of Ukraine and the price of some of the metals that South Africa produces also cranked up. Palladium hit record highs just shy of $3,000 an ounce, while the gold price vaulted to $2,000 an ounce.

But oil prices rose faster — Brent Crude soared over 50% to more than $120 a barrel — and oil prices remained elevated longer than most of the resources that South Africa pulls out of the ground, only cooling towards the end of the year. Coal was the one exception – its price more than doubling over the course of the year.

Meanwhile, South Africa’s record current account surplus — equal to 3.7% of gross domestic product (GDP) in 2021 — evaporated in 2022 as more capital flowed out of the country than flowed in. But the deficit on the current account of the balance of payments narrowed to R18.1-billion, or 0.3% of GDP, in the third quarter of 2022 from R107-billion, or 1.6% of GDP, in the second quarter.

All of this helps to explain why the rand lost ground in 2022, helped along by rolling blackouts. It ended 2021 at around R15.93/dollar and was fetching about R17/dollar on New Year’s Eve 2022.

So the narrower trade surplus bodes ill for the rand at the start of 2023, though the significant fall in the oil price from its 2022 highs should help to arrest this trend. 

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Brent crude was trading at around $86 a barrel on Tuesday, well off its 2022 highs of over $120 a barrel scaled in March. South Africa’s petrol price at the pump will drop on Wednesday by over R2 a litre and almost R2.70 for diesel, a reflection of lower global prices and mild rand gains in December.

In November, South Africa’s trade balance swung into a surplus of almost R8-billion from a revised deficit of R5.3-billion in October. So the monthly data is moving in the right direction.

The rand’s performance in 2023 will also dance to the tune of monetary policy as the South African Reserve Bank is expected to maintain its interest rate hiking cycle. From November 2021 to November 2022, it raised its key repo rate by 350 basis points, bringing the prime lending rate to 10.5%.

This cycle will likely slow in 2023 as domestic and global inflation subside — a lot will depend on the oil price — with other major central banks also hiking at a more gradual pace.

But there are plenty of spanners that can get thrown into the works.

The oil price is losing its lustre in the face of a slowing global economy, and that may also contain the price of major South African commodities such as platinum group metals and iron ore.

Gold may benefit from the fog of global economic uncertainty or emerging geopolitical flashpoints, but its importance to the South African economy and its export profile is a fraction of what it once was.

Among other things, this highlights the urgency of getting Transnet back on track.

In October 2022, the Minerals Council SA — the main umbrella group for the mining industry — estimated that Transnet’s failures had lost South Africa R50-billion in the export of bulk commodities such as coal and iron ore up to that point in the year.

South Africa’s trade surplus would be healthier if mining companies could get more of their products to port, and the rand would likely be perkier.

For better or worse, the rand is widely classified as a “commodity currency” as well as being a proxy for other emerging markets. Its performance is, in large part, based on the swings of the commodity cycle and when the stuff South Africa exports is hampered by state failure, the rand suffers. DM/BM