South Africa’s current account deficit widened to an estimated 6.1% of gross domestic product in 2012, from 3.4% in 2011, and had become a source of external vulnerability, the National Treasury warned last week.

The rise in the current account deficit was the result of a large trade deficit and higher net current transfers abroad, owing to payments to the Southern African Customs Union.

In his address to lawmakers, Finance Minister Pravin Gordhan lamented that the country’s trade performance was “holding us back”. Exports grew by only 1.1% in real terms last year, while imports increased by 7.2%.

“This means, in simple terms, that expenditure in the South African economy exceeded the value of production and income by about R190-billion last year. “This is partly a consequence of the disruption of mining sector activity
and the structural reduction in mineral exports due to lower demand,” he said.

However, the financial account on the balance of payments, which measures all trade and financial transactions between South Africa and the rest of the world, remained in surplus, with strong nonresident demand for government bonds and other investment inflows.

But the 2013 Budget Review indicated that South Africa would need to attract cumulative inflows of global savings of R703-billion over the next three years, between April 1, 2013, and March 31, 2016, to finance the current account deficit.

“Sustained inflows require improvements to both investor confidence and the investment climate,” the document warned.

It also said that policies aimed at improving manufacturing competitiveness, ensuring the long-term viability of mining and reorientating South Africa’s exports towards fast-growing African and emerging markets should bolster the economy’s export potential over time.

With the immediate growth outlook muted, the National Treasury said government would work to improve investor sentiment, which could contribute to attracting the inflows required to fund the budget and current account deficits.