Current account gap widens to 7%, but rand remains firm
June 19, 2009
By Ethel Hazelhurst
South Africa's current account deficit - the gap between revenue from exports of goods and services and the import bill - widened in the first quarter to 7 percent of gross domestic product (GDP) from 5.8 percent in the previous quarter, the Reserve Bank's Quarterly Bulletin showed yesterday.
Standard Bank described the shortfall as "shocking", but the rand weakened only minimally on the news. At 5pm it was bid at R8.1044 a dollar, compared with R8.1165 on Wednesday.
Export volumes suffered due to low global demand, despite repeated infusions of liquidity in major economies.
Fortunately, perceptions that the global economy may have seen the worst of the recession boosted commodity prices, or the news would have been worse. The price of a basket of South African commodities rose 14.2 percent in dollar terms.
But the recovery in prices did not offset the impact of low demand. The value of exports fell from nearly R670 billion in the fourth quarter to just under R540bn in the first. The figures are seasonally adjusted and annualised, or multiplied by four.
South Africa benefited as oil prices fell to a low of about $36 (R292 at yesterday's exchange rate) a barrel in January. As a result, import prices fell 5 percent in the first quarter. The value of imports fell to R643bn from R739bn.
The net effect was a deficit of R53.4bn on the trade account, much higher than the R19.6bn deficit in the previous quarter.
On the services account there was also a deficit: R110bn in the first quarter from R118bn. These two legs of the current account produced a combined deficit of nearly R164bn.
The current account deficit continued to be funded by net inflows on the financial account. Foreigners invested directly into the economy, as well as in shares and bonds.
The bulletin recorded a net inflow of R11.7bn in foreign direct investment, after R3.3bn in the previous quarter.
A major component was "a substantial equity investment by a non-resident investor in a South African mining company".
The Reserve Bank did not name the company, but was clearly referring to the purchase of 11.3 percent of AngloGold Ashanti by US hedge fund Paulson & Co.
Foreigners invested R10.1bn in bonds and shares in the first quarter.
But positive flows were partly offset by net outflows of R9.3bn of "other investment", as foreigners withdrew deposits from local banks.
South African companies reduced direct investments in companies abroad, creating net inflow of R4.4bn. And local companies invested only a net R900 million in foreign bonds and shares.
Overall, South Africa attracted a net R35.3bn on the financial account. These figures are not seasonally adjusted and annualised. - Ethel Hazelhurst
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