South Africa Posts Its Biggest Trade Surplus in Seven Months

JOHANNESBURG (Capital Markets in Africa) – South Africa recorded its biggest trade surplus in seven months in December, narrowing the shortfall for the year and supporting the rand.

The 12 billion-rand ($890 million) surplus compares with a revised 1.7 billion-rand shortfall in November, after imports of chemicals and base metals dropped, the Pretoria-based South African Revenue Service said in an e-mailed statement on Tuesday. The cumulative deficit for last year was 2.9 billion rand compared with 52.2 billion rand in 2015.

A smaller trade gap could help ease pressure on the current account, the broadest measure of trade in goods and services, and boost the rand, which strengthened for the first time in six years in 2016. While possible further U.S. Federal Reserve interest-rate increases may mean less money flowing to emerging markets, including South Africa, making it more difficult to finance the current-account gap and constraining the currency, an uptick in global metal prices could benefit export earnings and subdued domestic demand may weigh on imports.

“When we have a more balanced trade account as we have had in 2016, it reflects how a combination of higher interest rates and resilient external demand are lending some stability to the local economy and that supports the rand’s strength,” Manisha Morar, an economist at ETM Analytics in Johannesburg, said by phone. “A significant unknown stems from the political environment and that could tamper with the rand, affecting our trade situation.”

South Africa’s rand and bonds have been under pressure since last week amid speculation President Jacob Zuma may change his cabinet and replace Finance Minister Pravin Gordhan. Political turmoil, including now-dropped fraud charges against Gordhan, caused big swings in the exchange rate in 2016.

Weak Demand
The nation’s economy probably expanded 0.4 percent last year, the slowest pace since a 2009 recession, according to central bank estimates, due to a drought, weak demand in South Africa’s main export markets and low commodity prices. Growth will accelerate to 1.1 percent this year, the Reserve Bank, which has raised borrowing costs by 200 basis points since 2014, said on Jan. 25.

The median of eight economist estimates compiled by Bloomberg was for a trade surplus in December of 6.3 billion rand.

Imports declined by 20 percent to 81 billion rand, and included a 20 percent drop in chemical products and a 29 percent decrease in base metals, the Revenue Service said. Exports retreated by 6.1 percent to 93 billion rand as shipments of vehicle equipment fell by 35 percent.

The rand was 0.4 percent stronger at 13.4562 per dollar at 3:28 p.m. in Johannesburg and the yield on rand-denominated government bonds due December 2026 fell eight basis points to 8.85 percent.