Container ships in Table Bay, Cape Town, South Africa, March 30, 2021. (Photo: EPA-EFE / NIC BOTHMA)
South Africa recorded its thirteenth straight trade surplus in May, with sales of commodities reinvigorating exports and hopes lingering that global increases in the prices of metals such as platinum, gold, copper and iron ore will help the country rise from a fiscal and economic sink.
The figures from the South African tax office on Wednesday showed a trade surplus of 54.6 billion ren per month with an export increase of 1.5%. Since the beginning of the year, the trade surplus has reached a record ZAR 202.6 billion, with exports increasing by a whopping 53.7% since the beginning of 2021.
Sales of raw materials dominated again, with the export of precious metals (gold, platinum), minerals (coal) and steel products making up more than two thirds of total exports.
Commodity prices have skyrocketed to record highs due to strong demand from China, the United States and European power plants, which have embarked on massive infrastructure projects to boost their coronavirus-hit economies.
It has boosted local mining company revenues, with the effect of increasing government tax revenues in the form of corporate income taxes, a much-needed godsend for the National Treasury, which forecast a gaping budget deficit of 14% in February.
While analysts have been cautious about calling the current rise in commodity prices a super cycle, as seen between the early 2000s and the 2008 global financial crisis, many agree that it has the potential to alleviate South Africa’s economic growth problem and the Treasury Department To give leeway to deliver on promises to cut spending and reduce debt.
“With nominal GDP, corporate tax and VAT revenues already at pre-Covid levels, our projections suggest that cumulative revenues could be 5% of GDP above budget base values over the next three fiscal years,” said Jeffrey Shultz, Senior Economist at BNP Paribas.
“If the planned real spending cuts do not slip, the primary budget balance could return to a surplus sooner than we expected.”
A The primary budget balance is the difference between government revenues and its noninterest expenses (excluding debt payments), and it is at the heart of Finance Minister Tito Mboweni’s plan to restore credibility and confidence in the economy by preventing credit rating downgrades.
The first signs are that the plan is working and that South Africa is already benefiting from the upswing in raw materials. The Treasury was able to reduce the national debt by around 20% at weekly auctions, the rand is one of the best performing currencies at around R14 / $, and the current and trade accounts are as healthy as they have been in years.
But the outlook for the economy, which has contracted 7% in 2020, remains rocky due to the patchy power supply from Eskom and the slow roll-out of Covid-19 vaccines, just as a third wave of infections forces the country back into a tighter lockdown and the consumer restricts activity.
“Corporate tax is definitely going to be increased this year and that will support South Africa’s economic recovery. The problem is that South Africa is a consumer driven economy and there is simply no consumer stimulus, ”said Wichard Cilliers of TreasuryOne. DM / BM