the south african economy – are we making progress? presented by: dawie roodt 3 september 2008

The South African Economy –

Are We Making Progress?

Presented by: Dawie Roodt

3 September 2008

4% of African area

23% of African GDP

22% of African Exports

20% of African Imports

Countries Compared to Provinces

Country and Province GDP 2008 ($ Bn)

0 200 400 600

South Africa

Gauteng

Sudan

Ethiopia

Ghana

Eastern Cape

Limpopo

Free State

Côte d'Ivoire

Senegal

Burkina Faso

Mali

Northern Cape

Niger

Malawi

Swaziland

Burundi

Somalia

Gambia

Guinea-Bissau

São Tomé and Príncipe

Source: UN

Is SA the next Zimbabwe???

Zim - The Swartskaap..

UN Human Development Index

0.35

0.40

0.45

0.50

0.55

0.60

0.65

0.70

0.75

0.80

hdi_1975 hdi_1980 hdi_1985 hdi_1990 hdi_1995 hdi_2005 hdi 2010

Indicator Value

Zimbabwe Sub-Saharan Africa World

Source: UN Human Development Report, April 2008

Down & Out?

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)

Negative Impact on

InvestmentSavings

Confidence

IGNORES Private Property Rights

UNDERMINES Economy

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)

Negative Impact on

InvestmentSavings

Confidence

Media & Press:Report on

Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:

Public tries to find Justice through legal system

DESTROYS Independent Judiciary

Start to

Print Money

CapitalDwindles….

DESTROYS Independence Central Bank

IGNORES Private Property Rights

UNDERMINES Economy

Inflation: 11,200,000%

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)

Negative Impact on

InvestmentSavings

Confidence

Media & Press:Report on

Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:

Public tries to find Justice through legal system

DESTROYS Independent Judiciary

Start to

Print Money

CapitalDwindles….

DESTROYS Independence Central Bank

IGNORES Private Property Rights

Voting System:Public tries to

vote dictator out

DESTROYS Democratic Process

UNDERMINES Economy

Democracy: Mugabe-Style

1 Man,1 Vote,

1 Candidate!

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)

Negative Impact on

InvestmentSavings

Confidence

Media & Press:Report on

Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:

Public tries to find Justice through legal system

DESTROYS Independent Judiciary

Start to

Print Money

CapitalDwindles….

DESTROYS Independence Central Bank

IGNORES Private Property Rights

Voting System:Public tries to

vote dictator out

DESTROYS Democratic Process

UNDERMINES Economy

Destruction of Institutions in SA?

Private Property Rights

2008: Land Expropriation Bill

Freedom of Press

Destruction of Institutions in SA?

“Mbeki received R30m”

Independent Judiciary

Destruction of Institutions in SA?

Zuma’s

Mauritius Papers

Independence Central Bank

Destruction of Institutions in SA?

inte

rest

rate

SARB

Hikes

10 Times!

Democratic Process

POLOKWANE

Destruction of Institutions in SA?

Tourism, 13.6%

Agriculture, 42.0%

Manufacturing, 35.2%

Mining, 9.0%L

OS

T

ZimBOBwean Economy: Breakdown

South African Economy: Breakdown

Mining, 5.4%

Personal Services, 5.2%

Other, 11.0%

Construction, 3.5%

Agriculture, 2.2%

Transport&Communication,

9.7%

General Government

Services, 12.4%

Wholesale, Retail, 14.0%

Finance, Real Estate & Business Services,

20.6%

Manufacturing, 16.0%

Source: StatsSA, Q108

South Africa:

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 15.5%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.3%

Private Sector Credit Extension

PSCE (excl Bill & Investments), Mortgage Advances & Other

-5

0

5

10

15

20

25

30

35

Jan-04 Jan-05 Jan-06 Jan-07 Jan-08

%

Source: SARB and own calculations

Household debt to disposable income

Household debt to disposable income of households

40

45

50

55

60

65

70

75

80

1970 1975 1980 1985 1990 1995 2000 2005

%

Source: SARB and own calculations

44.5%

50.2%

56.9%

59.4%

Q108:78.2%

Savings to disposable income of households

Ratio of saving by households to disposable income of households

-2

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

%

Source: SARB and own calculations

9.2%

5.4%

2.6%

0.5%

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 15.5%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.3%

CPI & CPIX

0

2

4

6

8

10

12

14

16

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

CPIX EstmX CPI Estm

Source: StatsSA and own calculations

CPIX Average: 2008 11.6%

Inflation

Producer Price Pressure

PPI: Agriculture & Food at Manufacturing

0

5

10

15

20

25

30

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

% y:y

Source: StatsSA and Efficient Research

Price Feeding Through…

Agriculture, Food at Manufacturing & Conumer Food Prices (CPIX)

0

5

10

15

20

25

30

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09

% y:y

Source: StatsSA and Efficient Research

26.0% in Basket

CPI & CPIX

0

2

4

6

8

10

12

14

16

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10

CPIX EstmX CPI Estm

Source: StatsSA and own calculations

CPIX Average: 2008 11.6%

Inflation

International Monetary Policy

Percentage by which Target is Missed

0

50

100

150

200

250

300

India SA U.K. EuroZone

Russia Australia NZ China U.S.

%

% Target Missed

Source: Efficient Research, Aug 2008

Super Cheap Money!

Real Interest Rates

-4.50

-3.25

-2.00

-0.75

0.50

1.75

3.00

4.25

NZ Australia SA China U.K. EuroZone

U.S. Japan India Russia

%

Source: Efficient Research, Aug 2008

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 16.0%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.3%

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 16.0%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.3%

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 16.0%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.3%

GDP at Market Prices

GDP market prices, q:q seasonal

0

1

2

3

4

5

6

7

8

2002 2003 2004 2005 2006 2007 2008

%

Source: StatsSA and own calculations

Average:3.0%

Breakdown of GDP Sectors2007 Q108 Q208

Finance, Real Estate & Business Services

8.3% 4.9% 2.3%

Manufacturing 3.9% -1.0% 14.5%

Wholesale, Retail & Hotels & Restaurants

5.0% 3.6% -2.2%

Mining & Quarrying -0.6% -22.1% 15.6%

Electricity, Gas & Water 3.2% -6.2% -1.3%

Construction 18.1% 14.9% 10.6%

Agriculture 0.3% 12.5% 19.6%

Transport & Communication

5.2% 3.5% 3.5%

Government Services 3.4% 4.6% 1.1%

Personal Services 4.1% 3.9% 3.9%

Fixed Capital Investment

Gross Fixed Capital Formation by Sector (Index 2000 = 100)

80

120

160

200

240

Q1 00 Q4 00 Q3 01 Q2 02 Q1 03 Q4 03 Q3 04 Q2 05 Q1 06 Q4 06 Q3 07

Ind

ex

20

00

= 1

00

Private Business Enterprises Public Corporations General Government

Source: SARB, 2008

• Eskom: R343bn (5 yrs)

• Transnet: R78bn (3 yrs)

• 80 New Capital Projects – R336.1bn (2008 to June)

50% higher than 2007’s total R224bn

Government’s Infrastructure Spend

Source: Budget Review 2008/09; Nedbank, 2008

Economic Overview

2006 2007 2008

M3 (average) 23.1% 23.7% 20.7%

PSCE (average) 27.6% 22.2% 18.2%

CPIX (average) 4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 16.0%

Current Account: Nom -R111.0bn -R138.2bn -R164.0bn

Current Account: GDP -6.4% -7.3% -7.2%

R/$ (end of year) R7.04 R6.84 R7.80

GDP (full year) 5.4% 5.1% 3.0%

Budget Surplus/(Deficit): GDP

(0.3%) 0.7% 0.1%

Background

Revenue & Expenditure:GDP

20

21

22

23

24

25

26

27

28

29

30

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

%

Trevor’s reign!

Gold

Deficit

Surplus

Theory versus Practice

FISCAL SURPLUS

expansionary

Spending Priorities

Expenditure: Functional Classification (1994)

7%

17%

14%

17%2%

21%

8%

4%

10%

43%

Central Gov

Justice and Prot.

Eco. & Infra.

State Debt Cost

Other

Education

Social Dev.

Other Social Serv.

Health

Expenditure: Functional Classification (Est. 2007/08)

6%

16%

15%

9%1%

18%

16%

8%

11%

52%

Central Gov

Justice and Prot.

Eco. & Infra.

State Debt Cost

Other

Education

Social Dev.

Other Social Serv.

Health

Social Spending

Social Grants Beneficiary Numbers

Grant Type

(‘000)

2003 2006 2007 2008 (projected)

% Change

2003-2008

Old Age Grant 2,022 2,144 2,195 2,225 10%

Disability Grant 953 1,319 1,422 1,409 47.8%

War Veterans Grant 4 3 2 2 -50.0%

Foster Care Grant 138 313 400 446 223.2%

Care Dependency Grant (disabled)

58 94 98 110 89.7%

Child Support 2,630 7,045 7,863 8,208 212.1%

Total 5,808 10,918 11,991 12,402 106.5%

Source: 2008 Budget

2007: 11,9m recipients 26.0% of SA population

Correlation? Excise Duties vs. Social Grants

Excise Duties vs. Social Grants (Index base = 1999)

75

125

175

225

275

1999 2000 2001 2002 2003 2004 2005 2006

50

100

150

200

250

Excise Index SocExp Index

1% Increase in Social Grants = 0.49% increase in Excise DutiesR-squared = 0.966 (small sample)

Source: 2007 Budget, SARB Quarterly Bulletin; Efficient Research

Redistribution Estimation:R1 in = R? out

Rand In : Rand Out Ratio

1997 2003 2007

Family 1* (R20k) R4.29 R13.94 (225%) R15.62 (12%)

Family 2 (R43k) R1.36 R2.10 (54%) R3.22 (53%)

Family 3 (R100k) R0.30 R0.61 (100%) R0.87 (43%)

Family 4 (R300k) R0.80 R0.14 (87%) R0.21 (44%)

Family 5 (R500k) R0.04 R0.08 (81%) R0.11 (37%)

Family 6 (R1mil) R0.02 R0.03 (77%) R0.04 (24%)

*Average family consists of 4 people, aggregates taken per capita

Source: Efficient Research

Aiming For EqualityBefore & After (2007)

0

100,000

200,000

300,000

400,000

500,000

<20k <43k <100k <300k <500k

Category

Source: Efficient Research

Aiming For EqualityBefore & After (2007)

0

100,000

200,000

300,000

400,000

500,000

<20k <43k <100k <300k <500k

Category Effect

Source: Efficient Research

Aiming For EqualityBefore and After (2007)

0

100,000

200,000

300,000

400,000

500,000

<20k <43k <100k <300k <500k

Category Effect GDP per capita

Source: Efficient Research

From those who give….more will be taken

Any Upside?

Earnings Forecast: All Share Index

All Share Model: Earnings Forecast

0

50000

100000

150000

200000

250000

300000

2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1

Ea

rnin

gs

Alsi Alsi Forecast

Source: Inet, Efficient Research

Actual, 2008Q3

Earnings Forecast: Resources Index

Resources Model: Earnings Forecast

0

50000

100000

150000

200000

250000

300000

350000

400000

450000

500000

2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1

Ea

rnin

gs

Resi Resi Forecast

Source: Inet, Efficient Research

Actual, 2008Q3

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