Retail indaba august 2013

South Africa Economic Overview & Prospects

2013 and beyond

August 2013

The key ingredients

• Rising fixed investment activity• Increased employment

A growing economy:

• Rising disposable income• Rising household wealth• Growing confidence• Increased willingness to lend and borrow• Increased willingness to spend

Rising employment

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312 April 2023

SA economy is growing, but also increasing running out of fuel

The economy is struggling to gain momentum because some key sectors are not performing

412 April 2023

Manufacturing has fared

better but not great

This sector is holding

the whole economy

back

Mining is in the

doldrums

So what is troubling producers:

• Recession in the Eurozone• Growth in China is moderating

A sluggish & patchy world economy:

• Run away electricity costs (2007-2012: +230%)• Rising unit labour costs (above-inflation wage growth, fading

productivity, more & violent strikes)• Insufficient power, transport, logistics infrastructure• Poor service delivery, red tape, corruption

Surging production costs

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So the private sector has been reluctant to expand capacity

612 April 2023

And they have been equally hesitant to expand their labour force

712 April 2023

Most private industries have not created any new jobs since 2008

812 April 2023

Government consumption expenditure is still driving growth, but is not sustainable

912 April 2023

Because government ran out of funds some four years ago

1012 April 2023

And the world has taken note

■ Ratings downgrades

■ Moody’s A3 to Baa on 27 September with negative outlook

■Lack of institutional strength

■Shrinking fiscal space

■Negative investment climate due to infrastructure shortfalls, high labour costs despite high unemployment and increased concerns over future political stability

■ S&P BBB from BBB+ on 12 October, negative outlook

■More emphasis on social tensions spilling over into worse forecasts

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Growth in the total wage bill will be contained

1312 April 2023

So growth in disposable income is slowing

1412 April 2023

And households are still too indebted & vulnerable

General government is at least accelerating spending on social infrastructure

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1612 April 2023

The SARB’s problem is that growth is modest, but becoming increasingly unsustainable

Source: SARB QB June 2012

The good news is that we are still getting the capital inflows we need, but much depends on government

1712 April 2023

…which undermines the rand and fuels inflation

1812 April 2023

But overall the subdued growth rate will probably set the tone for some time to come, keeping interest rates flat

1912 April 2023

Forecasts

2008 2009 2010 2011 2012 2013 2014 2015Economic growth - Annual growth rates (%)Consumer spending 2.2 -1.6 4.4 4.8 3.5 2.7 3.2 3.5Fixed investment 13.0 -4.3 -2.0 4.5 5.7 4.9 5.2 6.2Exports 1.8 -19.5 4.5 5.9 0.1 2.7 4.2 4.5Imports 1.5 -17.4 9.6 9.7 6.3 7.8 6.8 7.0GDP 3.6 -1.5 3.1 3.5 2.5 2.0 3.1 3.4Balance of PaymentsCurrent Account (R'bn) -161.9 -97.1 -75.0 -98.8 -197.6 -234.1 -236.1 -237.7As % of gdp -7.2 -4.0 -2.8 -3.4 -6.3 -6.9 -6.3 -5.8Interest rates - Year-end rates3-month JIBAR 11.5 7.3 5.7 5.7 5.1 5.2 6.3 7.7Prime 15.0 10.5 9.0 9.0 8.5 8.5 9.5 11.0Long bond 7.3 9.1 8.1 8.1 6.8 7.7 8.3 7.2Exchange rates - Annual averagesRand/US$ 8.26 8.44 7.33 7.30 8.21 9.75 10.14 10.38Rand/Euro 12.10 11.75 9.76 10.20 10.62 12.68 13.19 13.69Yen/Rand 12.51 11.08 11.97 10.91 9.75 10.05 10.10 10.07Inflation - Annual averagesNew CPI 11.3 7.1 4.3 5.0 5.7 5.9 5.8 5.9

The end, thank you, and good luck

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2212 April 2023

And the plans for next three years remain ambitious

2312 April 2023

Weak exports are still a major constraints on both confidence and performance on the production side

Source: SARB QB June 2012

2412 April 2023

On balance, 2013 is expected to be very similar to 2012

Source: IMF WEO July 2013

Countries and regionsForecasts ForecastsJuly 2013 April 2013

2008 2009 2010 2011 2012 2013 2014 2013 2014 2015 2016

World 2.8 -0.6 5.2 3.9 3.1 3.1 3.8 3.3 4.0 4.4 4.5Advanced economies 0.1 -3.5 3.0 1.7 1.2 1.2 2.1 1.2 2.2 2.6 2.6 US -0.3 -3.1 2.4 1.8 2.2 1.7 2.7 1.9 3.0 3.6 3.4 Japan -1.0 -5.5 4.7 -0.6 1.9 2.0 1.2 1.6 1.4 1.1 1.2Euro area 0.4 -4.4 2.0 1.5 -0.6 -0.6 0.9 -0.3 1.1 1.4 1.6 Germany 0.8 -5.1 4.0 3.1 0.9 0.3 1.3 0.6 1.5 1.3 1.3 UK -1.0 -4.0 1.8 1.0 0.3 0.9 1.5 0.7 1.5 1.8 1.9Emerging and developing 6.1 2.7 7.6 6.2 4.9 5.0 5.4 5.3 5.7 6.0 6.1Developing Asia 7.9 6.9 10.0 7.8 6.5 6.9 7.0 7.1 7.3 7.6 7.7 China 9.6 9.2 10.4 9.3 7.8 7.8 7.7 8.0 8.2 8.5 8.5 India 6.2 5.0 11.2 6.3 3.2 5.6 6.3 5.7 6.2 6.6 6.9Middle East and N Africa 5.2 3.0 5.5 3.9 4.4 3.1 3.7 3.1 3.7 4.5 4.6Sub-Saharan Africa 5.6 2.7 5.4 5.4 4.9 5.1 5.9 5.6 6.1 5.9 5.7 South Africa 3.6 -1.5 3.1 3.5 2.5 2.0 2.9 2.8 3.3 3.4 3.3 Angola 13.8 2.4 3.4 3.9 8.4 7.0 6.7 6.2 7.3 7.0 6.7 Nigeria 6.0 7.0 8.0 7.4 6.3 7.0 7.0 7.2 7.0 7.0 7.0 Zimbabwe -17.8 8.9 9.6 10.6 4.4 5.5 5.5 5.0 5.7 5.5 5.5 Namibia 3.4 -1.1 6.6 4.8 4.0 4.3 4.3 4.2 4.0 4.3 4.3Latin America 4.2 -1.5 6.1 4.6 3.0 3.0 3.4 3.4 3.9 3.9 3.9 Brazil 5.2 -0.3 7.5 2.7 0.9 2.5 3.2 3.0 4.0 4.1 4.2 Mexico 1.2 -6.0 5.3 3.9 3.9 2.9 3.2 3.4 3.4 3.3 3.3Central & Eastern Europe 3.1 -3.6 4.6 5.4 1.4 2.2 2.8 2.2 2.8 3.3 3.6 Russia 5.2 -7.8 4.5 4.3 3.4 2.5 3.3 3.4 3.8 3.7 3.6

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Hugely unsustainable public sector debt will continue to constrain economic growth in the Eurozone and most advanced economies

Source: IMF WEO Oct 2012

2612 April 2023

SA highly exposed to the weakest spot in the world economy – the Eurozone

Agriculture: 37%Manufacturing: 24.7%Mining: 19.5%

And central banks are doing their best to push liquidity – especially in Japan where “Abenomics” has taken hold

2812 April 2023

Softer growth forecasts have hurt international commodity prices

Source: INET

The gold price has been under huge pressure

2912 April 2023

Global food prices are easing

3012 April 2023

But global oil prices have remained sticky on account of the troubles in Egypt and Syria

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3212 April 2023

Growth in domestic spending is increasingly artificial

Source: SARB QB June 2012

Difficult conditions for producers have implications for capital expenditure

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3412 April 2023

In advanced economies, conditions remain weak and mixed

3512 April 2023

But it is really the sharper than expected slowdown in emerging markets that are behind the downward revisions