Figure 1: Current Account Balance in South Africa (2016-2024)
Source: IMF 2020, South Africa 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
Total merchandise imports to South Africa increased to USD 93.4 billion in 2018, from an annual average of USD 81.1 billion for 2015 to 2017[1]. Exports increased to USD 93.4 billion in 2018, from an annual average of USSD 80.1 billion for 2015 to 2017[2]. The faster growth in exports has not been sufficient to improve South Africa’s current account deficit, which widened from an average of -USD 10.2 billion (approx. -3.0% of GDP) for 2016 to 2018, to a deficit of -USD 11.9 billion (approx. -3.3% of GDP) in 2019[3]. The slower growth in export earnings has not affected South Africa’s balance of payments and gross official reserves have increased due to the improved capital and financial account surplus.
Figure 2: Capital and Financial Account Balance in South Africa (2016-2024)
Source: IMF 2020, South Africa 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
South Africa’s capital and financial account balance improved from a surplus (net inflows) averaging USD 11.2 billion (approx. 3.3% of GDP) for 2016 to 2018, to a surplus of USD 14.1 billion (approx. 4.0% of GDP) in 2019[4]. As a result, South Africa’s balance of payments improved from a surplus averaging USD 1.8 billion (approx. 0.5% of GDP) for 2016 to 2018, to a surplus of USD 2.0 billion (approx. 0.6% of GDP) in 2019[5]. Gross official reserves decreased from USD 48.2 billion in 2016 to USD 46.8 billion in 2018, before recovering to USD 51.1 billion in 2019[6]. During this period, South Africa experienced increasing inward FDI inflows.
Figure 3: Gross Official Reserves and Balance of Payment in South Africa (2016-2024)
Source: IMF 2020, South Africa 2019 Article IV Consultation. Note: (*) Figures from 2019 onwards are projections.
Inward FDI inflows increased from USD 1.7 billion in 2015 to USD 2.0 billion in 2017, and continued increasing to USD 5.3 billion in 2018[7]. However, South Africa’s inward FDI stock decreased from an average of USD 139.4 billion for 2015 to 2017, to USD 128.8 billion in 2018[8]. South African investments abroad have persisted as inward FDI to the country increased.
Figure 4: Inward Foreign Direct Investment in South Africa (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
Outward FDI outflows increased from USD 5.7 billion in 2015 to USD 7.4 billion in 2017, before decreasing to USD 4.6 billion in 2018[9]. As a result, South Africa’s outward FDI stock increased from an average of USD 202.3 billion for 2015 to 2017, to USD 238.0 billion in 2018[10]. These capital flows have improved South Africa’s balance of payment and the country’s net international FDI position.
Figure 5: Outward Foreign Direct Investment from South Africa (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
South Africa’s balance of payment has been supported by the improved capital and financial account surplus despite the widening current account deficit in the period from 2015 to 2018. Outward FDI flows have been persisting as inward FDI inflows increased. South Africa’s net international FDI position improved from net assets amounting to an average of USD 66.7 billion (approx. 20.1% of GDP) for 2015 to 2017, to net assets amounting to USD 108.4 billion (approx. 29.5% of GDP) in 2018[11].
Figure 6: International Foreign Direct Investment Position in South Africa (2015-2018)
Sources: UNCTAD 2019, UNCTADStat Database.
At these levels South Africa’s foreign assets remain significant and unsustainable as a proportion of GDP. Given that the country has amongst high levels of inequality and poor economic performance, despite wide domestic capital markets, South Africans should focus on repatriating some of its outwards FDI into sectors that will expand its productive capacity and increase domestic jobs. Nevertheless, South Africa’s balance of payments surplus is projected to deteriorate to a deficit in 2020 before recovering from 2021 onwards, which is projected to support steady levels of gross official reserves.
Improvements in the capital and financial account surplus should be insufficient to support South Africa’s balance of payments due to the widening current account deficit in the forward-looking medium-term. The current account deficit is projected to widen from a deficit of -USD 11.9 billion (approx. -3.3% of GDP) in 2019 to an average of -USD 15.0 billion (approx. -3.8% of GDP) from 2020 to 2024[12]. South Africa’s capital and financial account balance is projected to improve to a surplus (net inflows) averaging USD 14.7 billion (approx. 3.7% of GDP) from 2020 to 2024[13]. Therefore, the balance of payment is projected to recover from a deficit of -USD 2.3 billion in 2020 to a surplus of USD 100.0 million in 2024, which is equivalent to an average deficit of -USD 360.0 million (approx. -0.1% of GDP)[14]. Thus, South Africa’s gross official reserves are projected to increase from USD 51.0 billion in 2020, to USD 51.9 billion in 2024[15].
[1] UNCTAD 2019. UNCTADStat Database, United Nations Conference on Trade and Development: Geneva. Available At: https://unctadstat.unctad.org/ [Last Accessed: 8 March 2020].
[2] UNCTAD 2019. UNCTADStat Database, ibid.
[3] IMF 2020. South Africa 2019 Article IV Consultation, International Monetary Fund: Washington, D. C. Available At: https://www.imf.org/ [Last Accessed: 8 March 2020].
[4] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
[5] IMF 2020. South Africa 2019 Article IV Consultation, ibid. There are relatively significant errors and omissions in South Africa’s balance of payments data equivalent to -USD 400.0 million in 2016, -USD 600.0 million in 2017, and USD 2.3 billion in 2018.
[6] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
[7] UNCTAD 2019. UNCTADStat Database, ibid.
[8] UNCTAD 2019. UNCTADStat Database, ibid.
[9] UNCTAD 2019. UNCTADStat Database, ibid.
[10] UNCTAD 2019. UNCTADStat Database, ibid.
[11] UNCTAD 2019. UNCTADStat Database, ibid.
[12] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
[13] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
[14] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
[15] IMF 2020. South Africa 2019 Article IV Consultation, ibid.
