South Africa's current account deficit: are proposed cures worse than the disease?

This research paper by the South African Institute of International Affairs examines the sustainability of South Africa's current account deficit and critiques proposed policy interventions. The author argues against currency devaluation and trade barriers, suggesting instead that the deficit reflects the country's ability to attract capital inflows for investment. The paper advocates for long-term competitiveness through infrastructure improvement, education, and the removal of structural barriers rather than short-term industrial subsidies.

• The author argues that South Africa's current account deficit is not an immediate threat to sustainability and may actually reflect economic strength through the ability to attract capital inflows. The paper suggests that net capital inflows can be beneficial if invested to create jobs, raise living standards for the poor, and increase domestic savings.
• The document critiques the 'competitiveness approach' which advocates for currency devaluation and trade policy interventions to reduce the trade deficit. The author asserts that eschewing inflation targeting in favor of a 'growth friendly' exchange rate would be self-defeating, as the resulting inflation would damage the economy and harm the poorest citizens.
• Analysis of import structures indicates that the current account deficit is not driven by consumption goods. For over twenty years, more than 50% of South Africa's imports have consisted of capital and intermediate goods, which the author suggests can boost productivity.
• The paper supports the objectives of the National Industrial Policy Framework (NIPF) to diversify the economy and grow manufacturing exports, but warns against using it for traditional industrial subsidies. Instead, it recommends focusing on technological change, education, and resolving bottlenecks in electricity, transport, and communication infrastructure through liberalisation and de-monopolisation.

APA

South African Institute of International Affairs (2008). South Africa's current account deficit: are proposed cures worse than the disease? https://saiia.org.za/research/south-africas-current-account-deficit-are-proposed-cures-worse-than-the-disease/

Chicago

South African Institute of International Affairs. South Africa's current account deficit: are proposed cures worse than the disease? 2008. https://saiia.org.za/research/south-africas-current-account-deficit-are-proposed-cures-worse-than-the-disease/.

Wikipedia

{{cite report |author=South African Institute of International Affairs |title=South Africa's current account deficit: are proposed cures worse than the disease? |date=16 September 2008 |url=https://saiia.org.za/research/south-africas-current-account-deficit-are-proposed-cures-worse-than-the-disease/ |access-date=17 August 2026 |via=Climate Insights Directory}}

BibTeX

@techreport{southafricaninstituteofinternationalaffairs2008south, author = {{South African Institute of International Affairs}}, title = {{South Africa's current account deficit: are proposed cures worse than the disease?}}, institution = {South African Institute of International Affairs}, year = {2008}, month = sep, url = {https://saiia.org.za/research/south-africas-current-account-deficit-are-proposed-cures-worse-than-the-disease/}, urldate = {2026-08-17}, note = {Indexed by Climate Insights Directory} }