The strong performance of the mining and resource sectors continued into the second quarter ending June 2021. According to SARS, the trade surplus expanded to a record high of R57.68 billion (bn) in June of 2021. This is far above the market forecast of R52 bn. Exports were up 2% to R166.5 bn, boosted mainly by sales of precious metals and stones (which increased 7%), base metals (9%), chemicals (23%) and vegetable products (10%). Shipment of vehicles declined 31%. Most exports went to the US, China, Germany, the UK and Japan. Imports remained relatively unchanged at R108.8 bn. The strong export performance has led to a first half 2021 trade surplus of R255.6 bn, translating into a welcome boost to the revenue coffers, thanks to increased taxes from mining and resource companies. This is evident when looking at the taxes paid by Anglo American Platinum (Amplats) and Kumba Iron Ore for the first half of 2021. Kumba paid R9.2 bn in taxes and royalties in the first half of the year. This is more than double the R4.3 bn paid over the same period last year. On Monday, Amplats reported a tax and royalty payment of R16.6 bn during the first half of 2021, a significant increase from last year.

On Friday the monthly government and expenditure data was released by the Treasury. Gross government tax revenue amounted to R377 bn in the second quarter of 2021, an increase of 56.2% on the 2020 figure. Given the Covid-19 effect, it is more accurate to compare the figure to the second quarter 2019, which still shows an increase of almost 20%. The increased revenue collection has given the government headroom to introduce the fiscal relief package, announced by Cyril Ramaphosa last Sunday following the civil unrest in KZN and Gauteng. The package, which amounts to about R36.5 bn (0.7% of GDP), will be distributed mostly in the form of a R350 monthly social relief of distress grant until March 2022. The package will not be financed through government taking on more debt but through the above-mentioned tax revenue.

The manufacturing purchasing managers’ index (PMI) decreased to 43.50 points in July from 57.40 points in June. The outcome of the PMI was much worse than expected – it came out well below the critical reading of 50 points. A reading above 50 index points indicates an expansion in manufacturing activity, while a reading below that level shows contraction. This disappointing figure reflects a 14-month low for our PMI. It highlights the damaging effect of South Africa’s stricter lockdown measures and the fallout of the recent violent civil unrest. This is one of the first data points published to mark the impact of the adverse effect of the unrest on South Africa’s economy. This will not be the last bit of bad news. The full effects of the more severe level 4 lockdown, as well as the unrest that centred on Gauteng and KwaZulu-Natal, will only become evident in time. The riots disrupted supply chains, industrial output and the demand for manufactured goods. It has significantly put the brakes on the country’s economic recovery. In addition, the manufacturing sector may also have been negatively affected by the recent cyberattack on Transnet, which saw operations at South Africa’s major ports temporarily grind to a halt. July was a particularly challenging month for our economy.

South Africa’s private sector credit extension (PSCE) declined by 0.64% YoY in June 2021. This is the fourth straight month of negative reading since February. However, the broadly defined M3 measure of money supply increased by 0.12% YoY in June 2021, following a 1.82% increase in May. The decline in PSCE is worrying. It reflects just how South African businesses have remained reluctant to take on more credit as uncertainties over the economic outlook remain due to rising Covid-19 cases and lockdown restrictions. This could affect investors’ risk appetite and willingness to embark on a strong investment drive. The unfavourable and uncertain economic environment will first have to be addressed by government, in particular by cabinet’s economic cluster. In contrast, household credit extension continued an upward trend, growing by a robust 5.6% YoY as demand for all categories of credit increased.

According to Stats SA, the producer price index (PPI) accelerated to 7.7% YoY in June 2021, following a 7.4% rise in May. It is the highest producer inflation reading since February 2016. The biggest contributors were coke, petroleum, chemical, rubber and plastic products (15%); food products, beverages, and tobacco products (6.3%); and metals, machinery, equipment, and computing equipment (8.4%). Producer price pressure at the factory gate is important – it is a leading indicator of which way inflation is heading. The acceleration in PPI is indicating that consumer inflation could rise, although we do not expect inflation to reach 7% as producers will likely absorb the cost increases rather than pass them onto consumers amid subdued domestic demand.