By: Bobby Madhav, Head of Trade and Structured Trade and Commodity Finance at FNB

South Africa recorded a trade deficit of R23.1bn in January 2023 compared to a surplus of R5.0bn in December 2022.

Although not unexpected, the deficit was larger than the R10bn deficit that the market expected and the biggest trade shortfall since April 2020, when the market experienced a full lockdown in the face of the outbreak of the global pandemic. Pre-COVID-19, a bigger shortfall was recorded only in January 2018, or almost five years ago. The trade deficit came on the back of a 14.4% month-on-month decrease in exports and a 2.9% increase in imports.

South Africa once again recorded trade deficits with all of its regional trade partners, bar Africa. Imports from Asia totalled R83.5bn, almost twice the imports from Europe at R43.1bn. Asian imports are once again dominated by China, with that country contributing almost a quarter to total South African imports. As pointed out previously, this overweight position of China holds material risks for a small developing country such as South Africa.

South Africa’s month-on-month exports decrease was mainly driven by huge declines in precious metals and stones of R11.7bn, vehicles and transport equipment of R10.8bn, and machinery and electronics of R2.3bn. Exports of prepared foodstuffs and base metals bucked the trend and increased by R2.2bn and R3.7bn respectively.

Both these export categories benefitted from elevated global prices and are not pointing to increased export volumes as such. On the import side, various products contributed to the increase in total South African imports: Original Equipment components by R3.0bn, chemical products by R1.8bn, and vegetable products by R1.3bn.

Analysing the full 2022 calendar year trade statistics, it is apparent what a big economic impact the composition of trade had on the country and its citizens. It is well known that South Africa is predominantly an exporter of low value-added commodity products, while higher value-added products dominate the country’s import basket.

The economic value of the one above the other is well-documented and forms the basis of the DTIC’s trade and industrial policies to rectify or at least balance the situation. This dilemma has never been so prevalent as in the period that followed the outbreak of the pandemic and the invasion of Ukraine by Russia. These events materially impacted hard and soft commodity prices, driving global inflation, and especially food inflation to double digit-levels.

So, whilst the run-on commodity prices benefitted the country handsomely, the benefit was fairly narrow-based (at least initially) in that mining companies returned super profits and the government collected super taxes.

However, the impact of higher oil prices and that of agricultural products have been immediate and wide-based. Transport costs shot up and food inflation reached levels twice that of top-line inflation, hurting all people and the poorest of the poor the most.

More urgency is therefore needed by the DTIC in applying policies that will develop South Africa’s manufacturing base to the benefit of all.