South Africa’s largest ever current account surplus, though is a positive trend, does not necessarily meant that the South African economy is sound.
According to the SA Reserve Bank’s Monetary Policy Review that South Africa enjoyed one of the largest current account surpluses during 2020, with its ratio to GDP swinging from a 2.9% deficit in the second quarter of 2020 to a 5.9% surplus during the third quarter, a 32-year high.
The review further noted, “Within the South African context, current account surpluses do not occur often: the current account has been in deficit nearly two-thirds of the time since 1960 and 86% of the time since 1994.”
In simple terms, the current account forms part of a country’s balance of payments and is fundamentally an accounting of its transactions with the rest of the global economy. Among other things, being in surplus can help support the rand. The fact that it has been in deficit 86% of the time since 1994 is one of the reasons for the rand’s current route for these past 27 years.
What is noteworthy is the fact that more capital is flowing into the country from exports than the outflow of capitals from expenditure on imports. This has been assisted by the downfall in oil prices last year and a sharp decline in import consumption related to 2020’s massive, pandemic-induced 7% economic contraction.
Contribution of the precious metals
“The terms of trade are strongly influenced by the prices for platinum group metals (PGMs), which have increased fivefold since 2018. When these commodities are excluded, South Africa’s commodity price basket is much more moderate, increasing by only 8%,” the Monetary Policy Review said.
Among other things, higher prices for palladium and rhodium, key catalysts for petrol engines which are both comparatively rare and in serious demand, contributed to the massive inflow of capitals into the economy.
“Palladium and rhodium prices are expected to fall over the forecast horizon as the market shortage in these metals begins to narrow. Nonetheless, they are expected to remain above their long-run averages as demand for catalytic converters remains buoyant on climate imperatives. These strong commodity prices have helped to push exports to 30% of GDP, a 12-year high,” the Monetary Policy Review said.
Higher PGM prices have stimulated other parts of the economy, offering huge profits and dividends for producers of these metals. Export-driven growth is a focused area on the government’s agenda.
Reflections on the wider economy
It is of paramount importance to note, South Africa’s resource base, once a cure, has now been turned into a fortune for all, spreading its benefits over a winder community and society at large; including the mining communities, with business playing an optimistic role – a stark contrast from the past.
Munising industry and the resources of South Africa, at last, have started to make a substantial contribution to the wider economy, making wealth and uplifting livelihoods.
