1

South Africa: A captured economy

© 2018 Fair Isaac Corporation. Confidential. 2

The 9 wasted years

3

GDP

4,2

2,7

3,7

2,9

4,6

5,3

5,6 5,5

3,6

-1,5

3,1

3,5

2,5

1,9

1,51,3

0,3

0,80,6

0,1

0,60,8

1,5

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 2021

Average growth 2010 -2020 = 1.5%

4

GDP and Business confidence

0

20

40

60

80

100

-8

-4

0

4

8

12

1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019

% q/q indexGDP (lhs) BER Business Confidence

6

Potential impact of selected NDP on GDP growth

0,5

0,6

0,6

0,30,2

0,0

0,5

1,0

1,5

2,0

2,5

3,0

3,5

4,0

4,5

5,0

Currentpotential growth

Improvement inconfidence

Telecomsreforms

Barriers to entry Transportreforms

Prioritisingtourism andagriculture

Potentialgrowth after

reforms

% Other policies and

reforms, such as

addressing the skills

constraint

Production-side

8

GDP: Production

Agriculture3%

Government 17%

Construction4%

Trade14%

Personal5%

Manufacturing12%

Electricity4%

Mining7%

Finance19%

Personal services6%

Transport9%

SAT – Global Market Report, 2019 9Copyright © 2019 — Confidential

Leakage at Stages of the Brand Journey | Barriers – 2019

Note: Based on all respondents (n=25,660); All market sizes are for the 'Never Visited' category in market; All calculations have been done using absolute values, and not the rounded off values. The %

figures at different stages are calculated based on those who have never visited South Africa, and the barriers are based on the leakages at those stages; The calculation for barriers is based on

marketing spend; 2019 onwards the percentages are direct values after applying filters at different stages without converting them to a sum of 100%

Source: SAT BrandTracker Feb,Jun and Nov-19 waves

Barriers

Concerns for my personal safety 42% 21% 24% 28%

Uncertain about political climate 33% 17% 20% 18%

Concern about health risks 20% 12% 11% 8%

Too expensive to get there 24% 29% 32% 29%

Too expensive once there 11% 14% 14% 12%

Another destination was more appealing 41% 31% 42% 40%

No particular reason 12% 17% 17% 15%

Too much time to get there 16% 15% 17% 16%

Don’t know anyone there 11% 9% 8% 7%

Not a relaxing destination 11% 4% 4% 4%

Nothing interesting to do there 8% 5% 2% 3%

Bad Climate 3% 4% 3% 4%

Difficult to get a VISA 3% 4% 3% 4%

2 543

Reduce Leakage Points 2, 5 and 4 followed by Point 1Points with Maximum Leakage Key Barriers

Sa

fety

Co

st

Oth

er

Leakage

5 8 %

4 8 %

2 1 %

3 8 %

4 0 %

A W A R E N E S S

P O S I T I V I T Y

C O N S I D E R A T I O N

S O U G H T I N F O

S H O R T - T E R M

C O N S I D E R A T I O N

N E V E R V I S I T E D 82%

51%

21%

17%

10%

5%

50.71mn

47.54mn

7.25mn

10.59mn

7.66mn

16.10million pax

26.69million pax

132.19million pax

8.44million pax

33.94million pax

81.48million pax

Market Size (million pax)

160.48

Update

d

Poverty, unemployment, Inequality

11

Adults living in poverty

49,2

0

10

20

30

40

50

60

70

80

RSA

Inequality in South Africa

• South Africa is known as one of the most unequal countries in the world, reporting a per-capita expenditure Gini coefficient 0,65

• According to the Palma ratio, the top 10% of the population spent 7.9 times more than the bottom 40%

13

Unemployment rate

29,1

20

22

24

26

28

30

Q2

20

08

Q3

20

08

Q4

20

08

Q1

20

09

Q2

20

09

Q3

20

09

Q4

20

09

Q1

20

10

Q2

20

10

Q3

20

10

Q4

20

10

Q1

20

11

Q2

20

11

Q3

20

11

Q4

20

11

Q1

20

12

Q2

20

12

Q3

20

12

Q4

20

12

Q1

20

13

Q2

20

13

Q3

20

13

Q4

20

13

Q1

20

14

Q2

20

14

Q3

20

14

Q4

20

14

Q1

20

15

Q2

20

15

Q3

20

15

Q4

20

15

Q1

20

16

Q2

20

16

Q3

20

16

Q4

20

16

Q1

20

17

Q2

20

17

Q3

20

17

Q4

20

17

Q1

20

18

Q2

20

18

Q3

20

18

Q4

20

18

Q1

20

19

Q2

20

19

Q3

20

19

Q4

20

19

% q/q

14

Total number of social grants by type

145

146 666 184 696

371 643

1 065 536

3 380 904

12 197 673

War Veteran's grant Care Dependency grant Grant in Aid Foster Child grant

Disability grant Old Age grant Child Support grant

15

Service delivery protests

© 2018 Fair Isaac Corporation. Confidential. 16

What is the cost of corruption in South Africa?

9/12

R506-billion was wiped off the value of SouthAfrican bonds and listed companies, where pensionfunds are heavily invested, after the midnight end-of-March 2017 Cabinet reshuffle that saw PravinGordhan and Mcebisi Jonas booted from thefinance ministry.

South Africa was downgraded to junk status by Fitch and Standard & Poor’s in April 2017, both citing institutional and political uncertainty in the wake of the Cabinet reshuffle, policy uncertainty, and possible changes of direction with regard to nuclear power and SOEs.

Over two days the market value of the country’s 17 biggest financial and property shares fell by R290-billion.

South African bonds lost 12% of their capital value (R216-billion)

R378-billion had been wiped out on the Johannesburg Stock Exchange (JSE) and some 148,000 jobs

Debt service costs were R5-billion higher than initially planned because of the impact of Nenegate

Government expenditure R1.95 trillion

State Capture in the past 4 years = R1.5 trillion

19

State of the State-Owned Entities

21

The BIGGEST liability to South Africa’s economy

ESKOM Revenues and Expenditure

Medupi Power Station

24

Cost escalations at Medupi Power Station

80

154

234

0

50

100

150

200

250

2007 2013 2019

R, Bn

SOEs: Not generating enough revenues to cover costs

• Eskom – given equity injection of R49bn in 2020, R56bn in 2021 and R33bn in 2022

• Transnet – net profit to R6bn in FY18/19, however, ratings agencies downgraded Transnet citing increased liquidity risk as a result of loan covenants triggered by an audit qualification

• SAA – in Business Rescue since Dec 2019 because it was unable to meet its financial obligations. Since 2008, SAA has incurred net losses of over R32bn. Govt has set aside R16.4bn to settle guaranteed debt.

• SAX – illiquid and insolvent and unable to settle short or long-term debt. Incurred losses of about R1.2bn over 10 years. Under involuntary Business Rescue

• Denel – faces serious illiquidity problems. Govt provided R1.8bn in FY18/19. Govt guarantee amount to R6.9bn. Additional funding of R576m allocated for FY20/21

• SABC – Govt allocated R3.2 in FY19/20. R2.1bn transferred and remainder R1.1bn to be transferred in March 2020

26BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn

is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

FINANCIAL SUPPORT FOR SOES

0

10

20

30

40

50

60

70

80

ESKOM SAA Denel SAX SABC

• Between 2008/09 and 2019/20, major SOCs received R162bn in financial support

⁻ Eskom accounts for 82 per cent of fiscal support to state-owned companies over past 12 years.

• Over the next three years, projected support amounts to a further R129 billion, mostly for Eskom.

The Fiscus

29

Budget2020

30

Gross debt-to-GDP

48,9

50,5

53

56,7

61,6

65,6

69,1

71,670,1

71,8

73,474,7

75,8

48,950,5

53

56,7

60,8

64,9

68,5

71,3

73,7

75,8

77,879,5

80,9

45

50

55

60

65

70

75

80

85

2019 Budget Gross loan debt without financial support for Eskom

Gross loan debt with financial support for Eskom

31BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn

is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

BUDGET EXPENDITURE

Education; 351,1

Economic Development

; 200,1

Health; 205,4

Security; 200,8

General public

services; 64

Community Development

; 196,3

Social Development

; 259,4

Debt service cost; 180,1

Education; 396,4

Economic Development;

211,5

Health; 229,7

Security; 217

General public services; 70

Community Development;

212,3

Social Development;

309,5

Debt service cost; 229,3

Composition on tax revenues

0,7

0,7

1,3

2,7

3,1

4

5,5

17,9

25,3

37,1

0 10 20 30 40

Electricity levy

Transfer duties

Skills development levy

Dividends withholding tax

Specific excise duties

Customs duties

Fuel tax

Companies

VAT

Persons and individuals

33

Distribution of taxes and spending by household income

34

Comparative standard VAT rates by country

0

7

14

21

Arg

en

tin

a

Un

ite

d K

ing

do

m

Ma

da

ga

sc

ar

Mo

roc

co

Ca

me

roo

n

OE

CD

Ind

ia

Ru

ss

ia

Tu

rke

y

Ivo

ry C

oa

st

Rw

an

da

Ta

nza

nia

Ug

an

da

Bra

zil

Ch

ina

Mo

zam

biq

ue

Ma

law

i

Me

xic

o

Ke

nya

Gh

an

a

Ma

uri

tiu

s

Na

mib

ia

Zim

ba

bw

e

So

uth

Afr

ica

Bo

tsw

an

a

Ind

on

esi

a

So

uth

Ko

rea

Ja

pa

n

Nig

eri

a

Sa

ud

i Ara

bia

%

35

Corporate income tax as a share of GDP

1

2

3

4

5

6

7

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

Pe

r c

en

t

OECD Africa South Africa

36

37BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn

is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.

WIDENING BUDGET DEFICIT

Source: National Treasury

• A widening gap between revenue and expenditure, with debt-service costs making up an increasing share of the budget deficit.

• The spike in the deficit in 2019/20 reflects lower economic growth, increased support to state-owned companies and a downward revision to nominal GDP.

38

National budget deficit as percentage of the GDP, 1990 to 2022

-6,8

-8

-7

-6

-5

-4

-3

-2

-1

0

1

2

199

5

199

6

199

7

199

8

199

9

200

0

200

1

200

2

200

3

200

4

200

5

200

6

200

7

200

8

200

9

201

0

201

1

201

2

201

3

201

4

201

5

201

6

201

7

201

8

201

9

202

0

202

1

202

2

39

PUBLIC SECTOR WAGES % OF CONSOLIDATED EXPENDITURE

32,6 32,6

32,932,7

33,2

35,2

36,5

36

35,735,6

34,6

35,5

35,6

32

32,5

33

33,5

34

34,5

35

35,5

36

36,5

37

R160bn to be raised in the next three years from slowing the rate of growth of the wage bill…But labour says its also being squeezed unnecessarily!

41

Ownership of domestic government bonds

31,7 30,6 28,3 26,6 25,8 24,924,7

36,132,4 36,0 41,4

37,7 37,1 37,3

14,717,6 17,8

15,016,1 16,7 16,8

8,2 8,3 7,2 6,76,4 6,1 6,1

8,7 10,3 10,3 9,9 13,6 14,7 14,5

0,0

10,0

20,0

30,0

40,0

50,0

60,0

70,0

80,0

90,0

100,0

2014 2015 2016 2017 2018 2019 Jan-20

Per

cent

Pension funds Foreign investors Monetary institutions

Insurers Other financial institutions Other

42

Ownership of domestic government bonds

43

Ratings of Long Term Debt Emerging Markets

Standard & Poors Moody's Fitch

Singapore AAA Aaa AAAChina AA- Aa3 A+Chile AA- Aa3 A+Czech Republic AA- A1 A+South Korea AA- Aa2 AA-Botswana A- A2 -Malaysia A- A3 A-Poland BBB+ A2 A-Taiwan AA- Aa3 A+Thailand BBB+ Baa1 BBB+Mexico BBB+ A3 BBB+Peru BBB+ A3 BBB+Colombia BBB Baa2 BBBPhilippines BBB Baa2 BBB-India BBB- Baa3 BBB-Indonesia BB+ Baa3 BBB-Turkey BB+ Baa3 BBB-Russia BB+ Ba1 BBB-South Africa BB+ (negative) Baa2 (negative) BB+ (stable)Hungary BB+ Ba1 BB+Brazil BB Ba2 BB+Nigeria B+ Ba3 BB-Kenya B+ B1 B+

Ghana B- B3 B

Egypt B- B3 B

Venezuela CCC Caa3 CCC

Argentina SD Caa1 RD