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Africa Economic Brief - Understanding South Africa’s current account deficit: The role of foreign direct investment income
This article unpacks the contribution of the investment income balance to South Africa’s current account deficit post-1994 and places it within the context of South Africa’s balance of payments and FDI history. It highlights the prominence of net investment income payments made to foreign direct investors in driving South Africa’s current account deficit (37% between 2004-2013). During the same period net payments to all other investors accounted for 14.5% of the deficit. The slow accumulation of direct investment assets by South African firms prior to 2006 coupled with the higher returns on South Africa’s direct investment liabilities further aggravates this imbalance. While FDI inflows currently present a challenge to South Africa’s balance of payments, over the long term they provide it with one of the best opportunities through which to alleviate its external imbalances, provided policy support is forthcoming.