Exporters crucial to economy — expert

2008-10-07 00:00

LOCAL exporters will increasingly play a critical role in the welfare of the economy as South Africa battles to cope with a widening trade deficit and a weakened rand amid the current global turmoil.

Concerns over the country’s ability to finance the widening deficit on the current account of the balance of payments, fuelled by the growing gap between the value of imports and exports, have come under the spotlight.

The rand has depreciated to a five-year low against the U.S. dollar in recent days during the worldwide volatility.

South Africa is to a large extent dependent on foreign portfolio inflows (essentially foreign savings) to finance this deficit.

However, although foreigners have bought our bonds and equities in the recent past, they have been net sellers of South African equities in 2008 to the tune of about R16,3 billion.

According to Brian Kahn, a member of the SA Reserve Bank’s (Sarb) monetary policy committee, short-run portfolio flows are vulnerable in the current climate.

He emphasised the importance of exporters given the high trade deficit and a weakening rand.

The country’s trade deficit has grown over the past three years and now amounts to about seven percent of GDP, spurred by rising oil prices and strong local demand for imported capital goods required for the country’s massive infrastructure rollout.

“Imports [of capital goods] are expected to remain strong given our infrastructure plans. It improves our growth prospects so it is not entirely a bad thing and helps attract foreign investment.”

kavith@witness.co.za

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