authorised financial services provider – fsp no: 859

Authorised Financial Services Provider – FSP No: 859

The South African Economy –

Are We Making Progress?

Presented by: Dawie Roodt

29 September 2008

2008: Subprime & Inflation

International Economic Growth

World, Advanced Economies & Developing Economies

1.02.0

3.0

4.0

5.06.0

7.08.0

1990

1992

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

annual %

Source: International Monetary Fund, 2008

Subprime, Say Wha’ ??

• Subprime definition:– A loan that is offered at a rate above prime

(0.1% - 0.6% higher) to individuals who do not qualify for prime rate loans.

• A.k.a “NINJA” loans• Low interest rate environment • Large-scale lending and borrowing

Subprime Lending

Federal Funds Interest Rate

0.5

1.5

2.5

3.5

4.5

5.5

6.5

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

Nasdaq Bubble

Credit C

rises

Fed Funds Rate – A matter of Interest

Inflat

ion

Source: I-Net, Efficient Research, 2008

It’s All In The PackagingSubprime Loan

RISK

CAPITAL

Sell Sell

Resell Resell

Sell

Sell

Sell

Excellence in Banking Sector?• Global Credit Crisis

– Bear Sterns, Lehman Brothers, Merril Lynch bankrupt or taken over

– AIG, Fannie Mae, Freddie Mac bailed out

• SA Banks Locally: No Direct Exposure International: Limited Exposure

• Thorough Assessment by Registrar of Banks in July 08 : “financial system is sound”

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 MissedSource: 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 EuroZone

U.K. U.S. Japan India Russia

%

Source: Efficient Research, Aug 2008

Is SA the next Zim? Institutional Approach

Institutional Approach to Answer

Private Property Rights

Freedom of Press

Independent Judiciary

Independence Central Bank

Democratic Process

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Negative Impact onInvestment

SavingsConfidence UNDERMINES Economy

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)IGNORES Private Property Rights





Give to the “Have-Nots”(supporters)


SavingsConfidence

Media & Press:Report on

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

Public tries to find Justice through legal systemDESTROYS Independent Judiciary

Start to

Print MoneyCapital

Dwindles….DESTROYS Independence Central Bank

IGNORES Private Property Rights

UNDERMINES Economy

Inflation: 200,000,000% ??







SavingsConfidence




Start to

Print MoneyCapital



Voting System:Public tries to

vote dictator out

DESTROYS Democratic Process

UNDERMINES Economy

Democracy: Mugabe-Style1 Man,1 Vote,

1 Candidate!







SavingsConfidence




Start to

Print MoneyCapital



Voting System:Public tries to

vote dictator out

DESTROYS Democratic Process

UNDERMINES Economy

Institutions in SA

Destruction of Institutions in SA?

Private Property Rights

2008: Land Expropriation Bill

Freedom of Press


“Mbeki received R30m”

Independent Judiciary


Zuma’s

Mauritius Papers

Independence Central Bank


interes

t rate

SARB Hikes

10 Times!

Democratic Process

POLOKWANE


Is SA the Next Zim?Economic Approach

LOST

Mining, 9.0%

Agriculture, 42.0%

Manufacturing, 35.2%

Tourism, 13.6%

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 Overview2006 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%

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%

Q208:76.7%

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%

Q208:-0.5%


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%



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

GDP (full year) 5.4% 5.1% 3.0%


(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

CPI Average: 2008 8.5%

Inflation: Old 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

CPI Average: 2008 9.4%

Inflation: New Basket(?)


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%



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

GDP (full year) 5.4% 5.1% 3.0%


(0.3%) 0.7% 0.3%


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%



R/$ (end of year) R7.04 R6.84 R8.00

GDP (full year) 5.4% 5.1% 3.0%


(0.3%) 0.7% 0.3%


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%



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

GDP (full year) 5.4% 5.1% 3.0%


(0.3%) 0.7% 0.3%

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

Inde

x 20

00 =

100

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


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%



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

GDP (full year) 5.4% 5.1% 3.0%


(0.3%) 0.7% 0.1%

Background

Revenue & Expenditure:GDP

2021222324252627282930

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 GovJustice and Prot.Eco. & Infra.State Debt CostOtherEducationSocial Dev.Other Social Serv.Health

Expenditure: Functional Classification (Est. 2007/08)

6%

16%

15%

9%1%

18%

16%

8%

11%

52%

Central GovJustice and Prot.Eco. & Infra.State Debt CostOtherEducationSocial Dev.Other Social Serv.Health

Social Spending

Social Grants Beneficiary Numbers

Grant Type (‘000)

2003 2006 2007 2008 (projected)

% Change2003-2008

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

www.efgroup.co.za

Authourised Financial Services Provider – FSP No: 859

authorised financial services provider – fsp no: 859

Documents

economic policy

public tries

new leader appointedecstatic

haves nonsupportersgive

financial system

democratic negative

efficient research

subprime definition