CHRIS HART

Economic Megatrends

Setting the business and investment horizons

2

Economyand

markets

Inflation Demographics

CommoditiesTechnology

Emerging &developedmarkets

Investment implications: longer term

ClimateChange

CRB Commodity index: record commodity prices following 20-year bear trend

Source: INet

Commodities: inflation adjusted suggests there is scope for more!

Source: INet

Commodities: long term bull market.Super-trend, around which there will be cycles

Supply

Infrastructure

Demand

Expansion and maintenance:Global backlog across both emerging and developed markets

Structural rise in demand from emerging market growth

Depletion factor

6

Demographics

Ageprofile

Dependencyratios

Longevity

Global demographics will be driving policy and economies

Education andskills

Energy prices: records and uptrend to be sustained. New technology a very long term limiting factor

Source: INet

Economist Food Index: a global problem. Fuel prices raising production costs

Source: INet

9

Technology

Commodityprices

Foodshortages

Climatechange

Utility andadvancement

Geo-politicaltension

Technological gains: a key change driverForgotten post the tech bubble

PlatinumUranium

SubstitutesExplorationExtraction

Climate changeBio fuelsGM, hybrids

10

USSuperpower

Geo politics: economic power shift from the developed world to emerging markets

A decade ago

Now

US debtornation

Internal criticalmass

Growth dynamics

Demographics

No rivals both militarily and economicallyUS catches cold…

11

Globalinflation

Commodityprices

Emergingmarket

affluence

EMdemographics

Regulation;protectionism

Central banks

Inflation: a multiplicity of “challenges”

EU bond yields: trend change due to inflation.No longer benign due to commodities

Source: INet

South Africa: the short term

BoP

InterestRates

TradeBalance

GDP

Demand

PPI

$/R

CPI

The Business

Cycle

Inflation: relentless rise since mid-2006Food, fuel, rand weakness

Source: INet

Food inflation: another surgeSolution??

Source: INet

Transport: highest inflation level since 1993!

Source: INet

Furniture: inflation? What inflation?

Source: INet

Maize: at high levels and staying there

Source: INet

Chicago maize

Source: INet

Wheat: tripled in two yearsGive us our daily bread will cripple the taxpayer!

Source: INet

Economics: lesson 1Suppress price and create a shortage

Source: INet

Price

Quantity

Equilibrium point

Demand

Supply

Other key economic issues

GDP growth: cycles evident and roughly two years in duration

Vicious cycle could become more violent due to extreme current account gap

26

Current a/c-6% GDP

The current account: does not matter until it does!

9 months ago

May 2008

Current a/c-8% GDP

ESKOMSlowing growth

Politics

Only!

Interest rates: heading for recession in consumer sectors

Source: INet

Vehicle sales: in recession already

Source: INet

Property: house prices not keeping up with inflation for the first time in 9 years!

Source: INet

Inflation: Above inflation target for at least the next 1 to 2 years

Source: INet

Interest rates: could we reach 2002 levelsTito Mboweni is in a really bad mood!

Source: INet

Rand not helping

Source: INet

Rand: crash vs euro (but not a crisis!!)

Source: INet

Defeating inflation:if the hammer was the cause of the headache, more hammer is not the cure

Supply - demand

Fiscal reforms

Cost - push

Spend on infrastructure, lower cost of doing business, penalize consumption, reward saving

Costs can be absorbed with higher productivity and competition

Interest rates are bringing down demand but not inflation!!

… and if you think we have a problem:

Source: INet

Keeping perspective

CyclicalityCycles are a natural part of any economy

Current position

Two years hence

In a down cycle at present and there is further downside. 2008 will be rough!

Resumption of up-cycle with greater strength due to lessons learned in this cycle

Thank you

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