• Amid a struggling economy, the value of South African exports reached R130 billion in August. 
  • This is thanks to strong precious metal prices, and a particularly great citrus export season.
  • In turn, the cost of importing oil has fallen - leaving South Africa with a solid trade surplus.
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South Africa’s economy is expected to shrink by 8% this year due to the pandemic, but there’s one unlikely bright spot: exports.

In August, the value of South African exports amounted to R130.2 billion – the largest number on record.

SA exports versus imports. Source: SARS

This is largely due to the rocketing price of gold, which has gained 23% over the past year as Covid-related uncertainty unnerves investors across the world.

Gold is traditionally seen as a safe-haven investment in times of market turbulence. Prices of other South African key export commodities, including palladium, and rhodium, have remained robust throughout the coronavirus crisis, says Jacques Nel, head of Africa Macro at NKC African Economics.

In August, South Africa exported precious metals worth R34.4 billion – from R18.4 billion a year ago. The category represented 26% of the value of exports in August, compared to only 15% a year ago.

Source: SARS

Another export highlight was citrus. In July and August, South Africa exported almost R8 billion in citrus, according to SA Revenue Services. This was thanks to a solid local harvest – but also strong demand, especially in Europe, for vitamin C as the coronavirus caused consumers to become more conscious of protecting their immune systems. In all, South Africa may export almost 10 billion pieces of citrus fruit this year, in what is expected to be one of the best seasons on record. 

But other sectors were struggling, particularly vehicle exports - with demand wilting amid the global pandemic. Vehicle exports are down almost 38% for the first nine months of 2020.

Still, South Africa managed to export R134 billion more than it imported in the first eight months of the year – a remarkable trade surplus in recent times. In the same period last year, South Africa had a trade deficit of R4.1 billion.

Source: SARS

What this means is that the prices of exports have increased while the prices of imports have decreased. This favourable ‘terms of trade’ shock has been one of the few bright spots from an economic perspective in 2020, says Nel. 

South Africa maintained a strong trade surplus this year thanks to the sharp increases in precious metal prices – but also because of a slump in the oil price. Oil represents around 15% of South Africa’s imports. At the start of the year, Brent crude oil was trading at $60 a barrel – it’s now closer to $40. The fall is due to very weak demand, as lockdowns and closed borders brought transport to a halt.

But the trade surplus also reflects the weak state of the local economy. The demand for import products has fallen as household spending shrinks and widespread layoffs hit confidence. Local companies have also not been ordering machinery from overseas amid dwindling business confidence. So far this year, South Africa has imported R25 billion less in machinery than the same period last year.

The trade surplus should, theoretically, be good news for the rand – the demand for rand should be stronger as it means that fewer local importers had to sell rand and buy overseas currencies to pay for their imported goods.

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