Jun 29, 2012
Worse than it looks?Back
South Africa|Gross Domestic Product|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
Other Editorial Insight News
Article contains comments
Article contains comments
Recent Research Reports
Automotive 2014: A review of South Africa's automotive sector (PDF Report)
The report provides insight into the business environment, the key participants in the sector, local construction demand, geographic diversification, competition within the sector, corporate activity, skills, safety, environmental considerations and the challenges...
Construction 2014: A review of South Africa's construction sector (PDF Report)
Construction data released during 2013 hints at a halt to the decline in the industry during the last few years, with some commentators averring that the industry could be poised for recovery. However, others have urged caution, noting that the prospects for a...
Electricity 2014: A Review of South Africa's Electricity Sector (PDF Report)
This report provides an overview of the state of electricity generation and transmission in South Africa and examines electricity planning, investment in generation capacity, electricity tariffs, the role of independent power producers and demand-focused initiatives,...
Defence 2013: A review of South Africa's defence industry (PDF Report)
Creamer Media’s 2013 Defence Report examines South Africa’s defence industry, with particular focus on the key players in the sector, the innovations that have come out of the defence sector, local and export demand, South Africa’s controversial...
Road and Rail 2013: A review of South Africa's road and rail infrastructure (PDF Report)
Creamer Media’s Road and Rail 2013 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...
Liquid Fuels 2013 (PDF Report)
Creamer Media’s 2013 Liquid Fuels report examines South Africa’s liquid fuels market, focusing on the business environment, oil and gas exploration, the country’s feedstock supplies, the development of South Africa’s biofuels industry, fuel pricing,...
This Week's Magazine
A structured approach, wherein managers personally engage at each level of the project, is necessary to mitigate delays to the workflow on mega construction projects, says State-owned Eskom Kusile power station projects GM Abram Masango. The 4 800 MW Kusile power...
Construction of transmission lines to evacuate power from a regional hydroelectric project in East Africa, which was hanging on the balance following the withdrawal of financing by key partners, is now back on track. After six months of uncertainty, the African...
Three Memorandums of Understanding (MoUs) were signed between South African and Malaysian companies at the Malaysian High Commission in Pretoria on Friday. These MoUs are part of the indirect offsets programme South Africa is providing in return for Malaysia’s...
The South African new vehicle market may well dip to 640 000 units in 2014, says Toyota South Africa Motors (TSAM) sales and marketing senior VP Calvyn Hamman. This is the first prediction that anticipates a drop in the market. To date economists and industry bodies...
Nissan will re-enter the South African minibus taxi industry in March, when the new NV350 Impendulo goes on sale. The 16-seater has been specifically tailored to meet the terms of government’s Taxi Recapitalisation Programme, which aims to replace South Africa’s...