By Bobby Madhav, FNB Head of Trade & Structured Trade and Commodity Finance
South Africa’s trade surplus narrowed to R24.2bn in June 2022, compared to the revised surplus of R30.9bn for the previous month. The surplus was slightly lower than market expectations of R25.5bn and was the result of a small increase in exports of 1.6% month-on-month and a higher increase of 6.3% in imports compared with May 2022.
The small and disappointing growth in exports is partially explained by the widely reported problems experienced in and by the mining industry. This is evident from the fact that the exports of precious metals and stones increased by R2.5bn (+6%), and in contrast, the exports of mineral products declined by R3.2bn (-6%). Whilst both precious metals (PGMs, gold, diamonds etc.) and mineral products (different types of ores, coal etc.) are experiencing high global prices, only the precious metals industry is benefitting fully from the price bonanza.
The conundrum lies in the fact that the former is exported by air to its final export destinations, whilst the latter is dependent on transport by rail to the various South African ports. The inability of both rail transport and ports to provide an effective and efficient service to the industry is impacting the industry and the country. However, the mining industry also slightly contributed to the declining production volumes experienced by certain commodities amidst a commodity boom.
The crisis currently impacting rail and port infrastructure is underpinned by the surprising fact that Mozambique has moved into the top five export destinations for South African products. A greater number of South African exporters are using the Mozambique port of Maputo for its efficiencies and price competitiveness instead of South African ports.
On the import side, mineral products increased by a massive R7.4bn (+21%) and vegetable products by R1.0bn (+42%). Prices of products from these two broad categories are heavily affected by the continuing war between Russia and Ukraine, especially oil. Although a weak local economy contains the oil demand (volumes), the imported value of oil is skyrocketing. Through the transmission system, ‘imported inflation’ has put immense pressure on South Africa’s overall inflation rate, as it has done globally.
The Reserve Bank has reacted with the highest basis point rise in nearly 20 years. This rate hike, together with the crisis at Eskom, temper the growth outlook for South Africa, whilst the rising costs impact South Africa’s global competitiveness negatively.
Asia was the only region of note with which South Africa recorded a trade deficit. This trade deficit is widening as imports from the region increase and exports record low or even negative growth. For June 2022, imports from Asia increased by 9.8%, whilst exports declined by 1.3%.
