Jun 29, 2012
Worse than it looks?Back
Africa|Africa|South Africa|Gross Domestic Product|Mining|Gabriel Palma
© Reuse this
Palma, a Chilean national who has taught econometrics, macro- economics and development and economic history at the esteemed academic institution since 1981, questioned how South Africa’s current account had deteriorated during a period when commodity prices had been trading well above historical levels – the current account being the sum of earnings on exports, less payments for imports; earnings on foreign investments, less payments made to foreign investors; and cash transfers.
Should the country’s 2011 current account deficit of 3% of gross domestic product (GDP) be adjusted to the terms of trade prevailing ahead of the strong increase in commodity prices, which began their ascent in 2003, Palma estimated, the current account deficit would have been 9% of GDP last year.
“Basically, you have more than adjusted to that price bonanza,” he noted, while cautioning that this placed South Africa “in a vulnerable position”, notwithstanding his expectation that commodity prices were likely to remain relatively robust for some time.
“The important point here is that commodity prices can easily come down . . . and when it happens, it can happen very quickly. If you are saddled with that kind of current account position, the domestic adjustment could be rather brutal,” he said, describing the position as a “bit of a time bomb”.
Moreover, South Africa’s export performance over the last ten years had been “disappointing”, having initially recovered in the period 1994 to 2000.
In 2011, South Africa’s export performance was below that of 2000, with the “surprisingly” poor performance of the mining sector largely to blame. “Other commodity producing countries have had mining sectors that have been performing at much better levels.”
South Africa had, thus, relied on capital inflows to “sort out the problem”.
“But as everybody knows, capital accounts are particularly erratic and particularly unpredictable and often move for reasons that have very little to do with the country itself.”
To remedy the situation, South Africa should not count on commodity prices remaining high “forever”. But it should, never- theless, focus on improving export competitiveness, especially in the mining environment.
South Africa should also “aim for an economic structure that is not so vulnerable to portfolio flows and to deindustrialisation”.
To transition the South Africa economy to a position where it could be more resilient against negative external shocks was easier said than done – especially when considering the strong vested interests associated with the current structure.
Nevertheless, Palma’s poignant input is both important and timely, albeit somewhat difficult to swallow.
Edited by: Terence Creamer© Reuse this Comment Guidelines (150 word limit)
Other Editorial Insight News
Recent Research Reports
Road and Rail 2014: A review of South Africa's road and rail infrastructure (PDF report)
Creamer Media’s Road and Rail 2014 report examines South Africa’s road and rail transport system, with particular focus on the size and state of the country’s road and rail network, the funding and maintenance of these respective networks, and the push to move road...
Real Economy Year Book 2014 (PDF Report)
This edition drills down into the performance and outlook for a variety of sectors, including automotive, construction, electricity, transport, steel, water, coal, gold, iron-ore and platinum.
Real Economy Insight: Automotive 2014 (PDF Report)
This four-page brief covers key developments in the automotive industry over the past 12 months, including an overview of South Africa’s automotive market, trade figures, production and the policies influencing the sector.
Real Economy Insight: Construction 2014 (PDF Report)
This five-page brief covers key developments in the construction industry over the past 12 months. It provides an overview of the sector and includes details of employment in the sector, infrastructure and municipal spending, as well as insight into companies’...
Real Economy Insight: Electricity 2014 (PDF Report)
This five-page brief covers key developments in the electricity industry over the past 12 months, including details of State-owned power utility Eskom’s generation activities, funding and tariffs, independent power producers and prospects for the sector.
Real Economy Insight: Road and Rail 2014 (PDF Report)
This six-page brief covers key developments in the road and rail industries over the past 12 months, including details of South Africa’s road and rail network and prospects for both sectors.
This Week's Magazine
The board of UD Trucks Southern Africa (UDTSA) has announced the resignation of MD Jacques Carelse. Long-time UD employee, corporate planning and marketing GM, Rory Schulz, has been appointed as acting MD while the process started to appoint a new MD. The Japanese...
There is a need to start planning another pumped storage scheme in South Africa. Much work has already been done at a site in the Limpopo province and the project was very close to being put out to tender at one stage. In 2008/9 the National Energy Regulator of South...
The Coega Development Corporation (CDC) is preparing to leverage its strategic coastal position to develop the Eastern Cape economy through proposed aquaculture development zones (ADZs), with a proposed R2-billion project aiming to contribute $278-million to the...
Completion of the ongoing construction of the 102 km Zomba–Jali–Phalombe–Chitakale road, in southern Malawi, has been extended from June to December 15 because of persistent rains and difficulties in paying the contractor. The project is being undertaken by Kuwait's...
The Malawi government has awarded South African firm Fischer Consortium the contract to upgrade the Malawi Road Traffic Information System. The Directorate of Road Traffic and Safety Services at Malawi's Ministry of Transport and Public Works says Fischer...