South Africa’s exports have had a slower growth since the recovery from the shock caused by the COVID-19 pandemic. The country’s total merchandise exports had a slower growth since the recovery to USD 123.0 billion in 2021. South Africa has a highly diversified export profile and earnings from platinum metals group (PMG) have continued increasing to USD 21.9 billion (approx. 17.8% of total exports) in 2021. Other top exports from South Africa include iron ore and metallic ores. These exports contributed USD 27.6 billion (approx. 22.4% of total exports). South Africa’s export earnings from iron ore have continued increasing to USD 16.8 billion in 2021; and earnings from metallic ores have continued increasing to USD 10.8 billion in the same period. South Africa’s trade surplus continued widening from the historical medium-term average of USD 5.2 billion for 2018 to 2020, to USD 24.7 billion in 2021.
Total merchandise export earnings have continued increasing which ameliorated the relieved pressure caused by net FDI inflows (foreign capital being invested domestically). South Africa’s FDI inflows increased to USD 40.9 billion in 2021. Hence, South Africa’s FDI stock has begun recovering from COVID-19 from an annual average of USD 139.0 billion for 2018 to 2020, to USD 173.1 billion in 2021. This bodes well for South Africa as a country that is aiming to attract more foreign investment to growth and diversify its economy away from the reliance on PMG exports. The recent jump in foreign investor interest in South Africa signifies the many opportunities in various sectors in the economy.
Remittances receipts have begun recovering over the period. Personal remittances received have begun recovering from COVID-19 from an annual average of USD 876.7 million for 2018 to 2020, to USD 926.7 million in 2021. Personal remittance payments to foreign nationals have begun increasing since the COVID-19 pandemic from an annual average of USD 1.0 billion for 2018 to 2020 to USD 1.1 billion in 2021. South Africa has had net remittance outflows (net remittance payment to foreign nationals) which decreased to USD 139.8 million in 2021. This has affected the current account balance and strength of the ZAR over the period.
The ZAR has continued depreciating. In nominal terms, the ZAR depreciated by an annual average of -8.7% against the USD for 2018 to 2020. The ZAR depreciated by -9.8% to an annual average of ZAR 14.8 per USD in 2021. South Africa’s current account surplus continued widening from the historical medium-term average. In 2022, South Africa’s current account surplus narrowed despite being above the historical medium-term average. In particular, South Africa has benefited from the higher commodity prices which started depreciating despite the lower global supply following the sanctions against Russian exports after its military exercises in Ukraine. The global price of silver decreased by -12.8% to USD 22.0 per ounce in 2022 (2021: 22.7%; USD 25.2 per oz.). Similarly, the price of platinum decreased by -12.2% to USD 957.8 per ounce in 2022 (2021: +23.5%; USD 1,090.8 per oz.) However, this has been offset by higher fuel and food import prices. This is also reflected in the projections for South Africa’s current account balance.
In 2023, South Africa’s current account balance is projected to deteriorate to a deficit of -USD 4.3 billion (approx. -1.0% of GDP). In the medium-term from 2024 to 2026, South Africa’s current account deficit is project to continue widening, to an annual average of -USD 7.4 billion (approx. -1.6% of GDP). This illustrates a persistent deterioration in the current account balance due to an offsetting of higher export earnings due to higher prices by the higher cost of fuel and food imports which is primarily driven by the impact of sanctions against Russia on global commodity prices. However, this could change in the medium-term due to the expected easing of geopolitical tensions and the gradual transition away from fossil fuels. Therefore, South African authorities will have to take advantage of the current reprieve and invest in further growth and diversification of the country’s exports away from the continued reliance on PMGs.
The issue of growing the South African economy remains an elusive obstacle for the country. South Africa still has a significant potential to grow its exports from iron ore and metallic ores. These represent the highest growth potential towards diversifying the South Africa’s economy and export earnings. Apart from this, South Africa should also deepen its integration in the SACU and SADC regions to increase its intra-regional trade. This will provide an opportunity for South Africa’s exports to compete against goods and services of comparable quality from the SADC region. Moreover, South Africa can offset the risks with its traditional export markets by increasing its dependence on the SADC region for its exports.