Current Account Balance is a measure of a region’s foreign Trade. Current accounts record the amount of capital passing through an economic region in the form of trade in goods and services, earnings and payments on foreign Investments, and international cash transfers. In this way, the current account acts as an indicator of the economic health of a region and points to its level of Macroeconomic Convergence, within the region and outside.
Because international purchases and sales constitute the majority of the current account, current account surpluses are usually associated with positive net exports – especially if the economy is strongly integrated with those of other regions. Therefore, a current account surplus chiefly indicates net export of goods and services from a region, while a deficit indicates positive net imports.
Current account surpluses are positive indicators for a region, showing that more money is entering a region than leaving it and that the economy is regularly interacting on an international scale. Therefore, as part of its plan for Macroeconomic Convergence in-line with its goal of Regional Integration, SADC addresses the Current Account Balance in the Protocol on Finance and Investment.
Current Accounts and the Protocol on Finance and Investment
In Annex 2 of the Protocol on Finance and Investment, SADC advises Member States to monitor the balance and structure of their national current accounts. These figures act as an indicator of Macroeconomic Convergence within the Member State, which allows SADC to adjust its procedures accordingly in order to best approach the goal of Regional Integration and economic development for Southern Africa.
Annex 4 also addresses current accounts. It requires Member States to establish a framework for coordinating exchange controls of current account transactions. Collaboration on exchange controls furthers the SADC Regional Integration agenda and also ensures that international trade and finance remain liberalised, and unhindered by inefficient and inconsistent exchange mechanisms.
Current Accounts in SADC
The current accounts of SADC Member States vary widely; certain Member States receive significantly more in grants and transfers than others, while other Member States have large export-driven extractive industries.
The present current account situation for SADC as a whole is at approximately a 7% deficit. However, that number is an aggregate of the current accounts of all Member States, which split clearly into three tiers: those with a rising current account surplus, such as Botswana and Mauritius; those with modest current account deficits no greater than 5% of gross domestic product, such as South Africa and Zimbabwe; and those with high and deteriorating current account deficits, such as Angola, Lesotho, and Malawi.
However, due to the high volatility of emerging markets, many Member State current account balances have shifted dramatically in recent years. While this is a positive indicator of stronger integration into world markets, not all economies have benefited. Middle-income Member States such as Mauritius and South Africa have seen their current account deficits widen due to growth in imports. Other Member States – Botswana, Lesotho, Namibia, and Swaziland – have recorded surpluses, but these stem from transfer payments from the Southern African Customs Union, not an increase in exports. Likewise, low-income Member States have run a 12% current account deficit on average, due to increases in aid-financed imports and rising oil prices.
As the only Member State of SADC with significant oil exports, the high price of this commodity has greatly advantaged Angola. Furthermore, new mining developments in Madagascar created rapid growth in imports, pushing its current account deficit to 24% of Gross Domestic Product in 2008. However, this situation is expected to reverse once the mining projects become productive.
Following the height of the global economic downturn in 2008, the current account balances of the region as a whole have steadily improved. In 2009, the region held an 11% current account deficit as percentage of Gross Domestic Product, which improved to 8.3% by 2011. Even this magnitude of deficit is partly due to the high price of strategic imports used for development, such as oil, which cost the region US $32.6 billion in 2011.
As the region rebounds from the economic downturn, exports should return to their 2005 level. Coupled with a mild increase in imports at 4.6%, the region anticipates a 6.6% current account deficit for 2012 – its strongest since 2007.