Structured Finance Solutions
June 2024 Data
South Africa recorded a trade surplus of R17.6bn in July 2024. Although lower than the R24.2bn surplus posted in the previous month, this was the sixth consecutive month the country returned surpluses. Cumulatively, the surplus for the year stood at R85.3bn, almost three times higher than the surplus for the same period in 2023 but only half of that of 2022, when record-high commodity prices drove exports due to the pandemic.
The July surplus came on the back of a 1.8% month-on-month increase in exports and a more significant increase of 6.6% in imports. The higher exports were mainly the result of a month-on-month increase in vegetable products of R2.7bn, primarily consisting of citrus fruit (R1.5bn). Other product groups adding to the rise in exports were machinery and electronics at R2.2bn and wood pulp and paper at R1.5bn. Mineral products bucked the positive trend and declined by R2.3bn, mainly of coal of R2.2bn. Platinum products also declined by a sizeable R1.1bn.
Higher imports were due to increases across several import categories: machinery and electronics, worth R6.6bn, consisting mainly of generators and converters, self-propelled bulldozers, and cell phones; chemical products, worth R3.0bn; and textiles, worth R1.1bn. These healthy import increases were partly offset by a decline in mineral products, worth R2.2bn, consisting mainly of crude oil, worth R1.3bn, and OE component imports, worth R1.5bn.
On a country level, China remained the country's top trading partner on both the import and export sides, contributing 23.1% to total country imports and 11.6% to total exports, respectively. The rapid growth in trade relations between the two countries since the democratisation of South Africa is evident: In 1994, China ranked merely as its 13th largest import partner and its 25th export partner, only to jump to the first position by 2009, a position it has ever since held. Within this context, the recent visit by President Ramaphosa to China must be evaluated.
The importance of these trade ties to South Africa's growth must not be underestimated. After the 2008/9 global financial crisis, healthy mining exports to China continued, cushioning the country's GDP contraction. Unfortunately, exports today are still concentrated in low-value-added mining products, with slight expansion into more value-added products. Imports from China exploded, growing 22% per year between 1994 and 2023, mostly in higher-value-added consumer goods. The net result is an increasing trade deficit from R752m in 1994 to R176bn last year.
A study from the World Bank underlines the importance of the economic and trade ties between the two countries. It calculated that a one-percentage-point reduction in China's growth results in a 0.37-percentage-point decline in South Africa's GDP at the end of a two-year horizon. Indeed, if China sneezes, South Africa could get double pneumonia. Over the last decades, slowed from a 10-percent economy to growth expected by the IMF at 4.6% for 2024 and an average growth rate of a mere 3.6% p.a. forecast between 2025 and 2029. Any global disruptors could also influence trade flows between China and South Africa, as seen in the material breakdown in the logistics chain from China to the rest of the world in the wake of the pandemic. The resumption of a trade war between the USA and China under a potential Trump presidency also doesn't bode well for South Africa.
Therefore, President Ramaphosa is correct in calling for narrowing the trade deficit with China, addressing the structure of bilateral trade, and petitioning for more sustainable manufacturing and job-creating trade and investments.
Please contact your banker for guidance on how to leverage these insights to grow your businesses.
