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

The author contends that South Africa's current account deficit is sustainable because it is driven by capital inflows and the import of capital and intermediate goods rather than consumption. The paper warns that 'mercantilist' attempts to force a trade surplus through currency devaluation or trade barriers would damage the economy and hurt the poor. Instead, the author advocates for long-term competitiveness through the National Industrial Policy Framework (NIPF) and ASGISA, specifically by addressing low productivity, fostering technological change, and liberalising network industries like electricity and transport to remove structural bottlenecks.

• The sustainability of South Africa's current account deficit is not immediately endangered and could safely continue for many years, as the country benefits from net capital inflows that can be used to create jobs and raise living standards.
• South Africa's import structure is relatively consistent and sustainable, with more than half of imports consisting of capital and intermediate goods over a twenty-year period, rather than consumption goods.
• Attempts to reduce the deficit through currency devaluation or the removal of inflation targeting to achieve a 'growth friendly' exchange rate would be self-defeating, causing economic damage and harming the poorest citizens.
• To improve long-term competitiveness and reduce the current account deficit, the government should focus on the National Industrial Policy Framework (NIPF) and ASGISA by tackling infrastructure bottlenecks in electricity, transport, and communication 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} }