Eskom threatens exports

• Global economic recovery has boosted exports, but economists say load-shedding is a risk

SA posted its second-largest current account surplus in history in the first quarter of 2021, as the value of exports surged on a global economic recovery and a stronger rand curbed prices of steadily rising imports.

Even so, economists said risks to the surplus remain as long as load-shedding continues. Though in a surprise announcement on Thursday President Cyril Ramaphosa lifted the threshold for companies to produce their own electricity without a licence to 100MW, it is unlikely to alleviate Eskom’s power-generating woes for at least the rest of this year.

Reserve Bank data released on Thursday showed the balance on the current account of the balance of payments widened to R267.35bn in the first three months of 2021, up from R197.82bn in the fourth quarter of 2020. That took the current account surplus to 5% of GDP in the first quarter, up from 3.7% in the final three months of 2020.

“The current account has benefited from positive global economic momentum, which is likely to be sustained for at least the rest of this year as the global vaccine rollout continues to support consumer spending by releasing pent-up demand,” said Isaac Matshego, an economist at Nedbank.

“The major risks to the sustainability of the current account surplus are primarily local in nature, particularly the rolling blackouts, which limits the potential for production of key mining exports.”

SA’s economic recovery from the Covid-19 pandemic last year, when growth plunged the most in 100 years, is being hobbled by persistent power cuts and a state-led vaccination campaign in which just 1.12-million people have been inoculated.

That is less than 1.9% of an estimated 59.62-million people.

With rolling blackouts continuing across the country, the IMF predicts SA’s economy will grow just 3.1% this year, less than half the 7% contraction suffered in 2020. The IMF forecast for global growth is 6%.

“We continue to see betterthan-expected growth in our major trading partners, which is boosting the current account. But they’re buying commodities that we dig from the ground,” said Isaah Mhlanga, chief economist at Alexander Forbes.

“Load-shedding continues to be a stark reminder that we don’t have sufficient electricity to maintain that. Even with the announcement by the president it will still take at least a year for private generating capacity to come on stream.”

SA’s terms of trade, including gold, improved for a seventh consecutive quarter in the first three months of 2021, representing the longest period of consecutive quarterly increases on record. The improvement resulted from a further rise in the rand price of exports of goods and services alongside a lower price of imports.

“The current account surplus SA is enjoying is mainly a result of the global supply disruptions that occurred due to Covid-19 that have created bottlenecks, especially for commodities,” said Johann van Tonder, an economist at Momentum Investments.

“It’s more of a price effect than a volume effect. SA would have benefited a lot more from higher commodity prices if it didn’t have electricity constraints,” he said.

While the strong current account surplus is likely to further buoy the rand, which has emerged as one of the bestperforming emerging-market currencies against the dollar in 2021, the country’s traditional reliance on imports may return once the economy fully recovers. Still, it could take several years for GDP to return to prepandemic levels.

“The local economy will rebound slowly, and consumer spending will take time to recover, so I don’t see that boosting imports significantly in the near future,” Matshego said.

“The biggest import items in terms of value are typically machinery and equipment, but with capital expenditure from local companies still quite constrained that isn’t likely to result in a big increase in the import bill,” he said.

Matshego highlighted wage talks at Eskom, which are locked in a dispute with three unions, as a risk to electricity supply and the economy.

“We have seen in the past that it is not unusual for striking workers to engage in deliberate sabotage of the grid,” he said. “That is a risk to exports.”