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27TH INFORUM WORLD CONFERENCE 2019SOCHI, RUSSIA FEDERATION
DETAILED PROJECTION OF THE SOUTH AFRICAN ECONOMY – TWO STAGE APPROACH BASED ON THE SOUTH AFRICAN INFORUM MODEL (SAFRIM)
David Mullins, Zanele Kayumba
Date: 3rd September 2019
1
2
TWO STAGE APPROACH:
A. Standard Projections of the Economy with SAFRIM
B. Disaggregation of SAFRIM Projections through an Input – Output Approach
3
UPDATE OF SAFRIM MODEL New Base Year: – Original Model 2005 Constant prices- New Model 2010 Constant Prices Reduction of Sectors: - Original Model 46 sectors in Total- New Model 26 sectors in Total Reduction in Manufacturing sectors Reason for Reduction in sectors- Stabilising forecasts- Import intensity of certain commodities is too high (exploding of model, when production becomes negative)
4
Step 1: Disaggregation of SAFRIM Projections through an Input – Output Approach A. Construction of an Input – Output table
B. Constructing a NAM (Control total, Supply and Demand figures)
C. Calculating commodity detail for the various final domestic demand components, using the supply and Use (S&U) tables from Stats SA (base Year 2017)
D. Calculate imports and exports for the various commodities from the South African Reserve bank (SARB) and Calculating Value Added for the Various sectors
E. Use a RAS to calculate intermediate demand5
STEP 2:Calculation detailed Exports, Imports and Production for Base year
6
VALUE RAND MILLIONS
2018 (BASE YEAR) EXPORTS OF GOODS AND SERVICES
IMPORTS OF GOODS AND
SERVICESPRODUCTION
AGRICULTURE Barley 3 54 1 44626 COMMODITIES Grain Sorghum 19 79 505
Grapes 8 805 232 16 521MINING Coal Mining
Exports68 306 - 68 306
32 COMMODITIES Coal Mining Domestic
- 1 401 12 804
Iron Ore Exports
46 782 - 46 782
Magnetite 7 697 - 9 088
Step 2 Continued….MANUFACTURING Processed food 26 303 16 300 256 269
40 COMMODITIES Petrol 9 170 15 222 75 427
Slaughtered animal meat
(incl. broilers)10 103 10 578 87 426
Chemicals 58 354 54 483 118 806
SERVICES Electricity Distribution
3 058 7 94 567
11 SECTORS Building Construction
1 354 381 306 910
Business services
15 486 38 979 530 962
7
STEP 3: FORECASTING OF FINAL DEMAND COMPONENTS BASIS: INFORUM MODEL
8
Final Consumption Expenditure by Households: Durable Goods R ‘m (long – term)
-
50,000
100,000
150,000
200,000
250,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Final consumption expenditure by households: Durable goods R'm
GROWTH RATE: 2018 - 2049LIKELY = 3.7%LOW = 2.7%HIGH = 4.7%
6,0%2,9%
2,5%
LONG TERM GROWTH = 4.7%
9
Final Consumption Expenditure by Households: Semi-Durable Goods R’m
-
20,000
40,000
60,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Final consumption expenditure by households: Semi-durable goods R'm
3,4%
6,3%
6,4%
LONG TERM GROWTH = 6,0%
GROWTH RATE: 2018 - 2049LIKELY - 3.8%LOW - 3.0%HIGH - 4.5%
10
Final Consumption Expenditure by Households: Non-Durable Goods R’m
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Final consumption expenditure by households: Non-durable goods R'm
1,1%
1,6%
2,1%
LONG TERM GROWTH = 1,9%
GROWTH RATE: 2018 - 2049LIKELY - 2,2%LOW - 1,7%HIGH - 2,7%
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Final Consumption Expenditure by Households: Services R’m
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Final consumption expenditure by households: Services R'm
1,5%
3,8%
4,9%
LONG TERM GROWTH = 3,7%
GROWTH RATE: 2018 - 2049LIKELY - 2,1%LOW - 3,1%HIGH - 3,6%
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General Government Consumption Expenditure R’m
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
General government consumption expenditure R'm
GROWTH RATE: 2018 - 2049LIKELY - 2,9%LOW - 2,3%HIGH - 3,4%
4,2%
1,0%
1,5%
LONG TERM GROWTH = 2,5%
13
Gross Fixed Capital Formation: Buildings & Construction R’m
-
50,000
100,000
150,000
200,000
250,000
300,000
350,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gross Fixed Capital formation: Buildings & Construction R'm
GROWTH RATE: 2018 - 2049LIKELY - 2,2%LOW - 1,7%HIGH - 2,7%
LONG TERM GROWTH = 4,4%
0,5%
10,6%
1,1%
14
Gross Fixed Capital Formation: Transport Equipment R’m
-
10,000
20,000
30,000
40,000
50,000
60,000
70,000
80,000
90,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gross Fixed Capital formation: Transport Equipment R'm
GROWTH RATE: 2018 - 2049LIKELY - 2,2%LOW - 1,7%HIGH - 2,7%
2,7%
2,1%
7,5%
LONG TERM GROWTH = 5,0%
15
Gross Fixed Capital Formation: Machinery & Other Equipment R’m
-
50,000
100,000
150,000
200,000
250,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Gross Fixed Capital formation: Machinery & Other Equipment R'm
GROWTH RATE: 2018 - 2049LIKELY - 2,2%LOW - 1,7%HIGH - 2,7%
0,4%
3,1%
8,1%
LONG TERM GROWTH = 4,4%
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Exports of Goods and Services R’m
-
100,000
200,000
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Exports of Goods & Services R'm
GROWTH RATE: 2018 - 2049LIKELY - 2,3%LOW - 2,0%HIGH - 2,7%
1,8%
4,9%1,7%
LONG TERM GROWTH = 3,0%
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Imports of Goods and Services
300,000
400,000
500,000
600,000
700,000
800,000
900,000
1,000,000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017
Imports of Goods & Services R'm
GROWTH RATE: 2018 - 2049LIKELY - 3,1%LOW - 2,3%HIGH - 3,7%
4,2%
5,9%
1,8%
LONG TERM GROWTH = 4,7%
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Step 4: Forecasting of individual commodities: Exports
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60,000
65,000
70,000
75,000
80,000
85,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Coal Mining Exports
0.4%
1.7%
0.9%
Long - term Growth Rate - 0.6%
Step 4:Continued…..
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-
50.00
100.00
150.00
200.00
250.00
300.00
350.00
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Tons
Wheat Exports
1,5%
15,5% -6,5%
Long - term Growth Rate 4,5%
Step 5: Forecasting of Individual Commodities: Imports
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0
1,000
2,000
3,000
4,000
5,000
6,000
7,000
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Coal Mining Imports
20,0% -15,4% 24,6%
Long - term Growth Rate 10,8%
Step 5: Continued…
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-
5.00
10.00
15.00
20.00
25.00
30.00
35.00
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018
Grapes
8,1% 19,2% 12,2%
Long - term Growth Rate 14%
Step 6: Assumptions on Exogenous Variables
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Assumptions for the baseline projection (Likely Growth Scenario)
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Input Variable Parameter Value Source and Explanation
1 South African population 1.7% Conningarth’s Long Term Forecast
Current (2019) 1.55% StatsSA Mid-Year Population Estimates, 2019
Long-term projection by NDP, declining to 0.5% by 2030
1% p.a on short and medium term, declining to 0.5%
by 2030.
National Development Plan 2030. Due to the significant improvement in mortality rates attributed to HIV/Aids
and TB treatment programmes, the population projections of the NDP are too pessimistic.
2
South African inflation targets (SARB objectives between 3.0% and 6.0%)
6.0% Conningarth Economists. Applies to the short to medium term.
Continued…..
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3
World prices/inflation: (2019 –2023)
3.5%Overview of the world economic outlook projections. World Economic outlook (IMF) July 2018
Major Advanced Economies(2018 – 2023)
2.0%Overview of the world economic outlook projections. World Economic outlook (IMF) July 2018
Emerging market develoment economies(2018 – 2023)
4.6%
Overview of the world economic outlook projections. World Economic outlook (IMF) July 2018
Continued…
4
Final consumption expenditure by government
3.0%Conningarth Economists: The role of government in the South African economy should be in line with economic growth. This applies to the full 31 years. The NDP is slightly higher.
5
Growth cycle deviation from the Mean
2.5% Conningarth Economists
2018 to 2019below
average
2020 to 2026above
averageall other
yearsstandard
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Assumptions for the baseline projection (Likely growth scenario) Continued
6
Exchange rate per annum (depreciation of the real effective Rand exchange rate for the weighted basket)
-0.9% p.a.
A Manual for Cost Benefit Analysis in South Africa with Specific Reference to Water Resource Development (WRC Report Number: TT598/14). This real 0.9% is over and above the purchasing power parity theory which means that the Rand will depreciate against its trading partners with this real percentage plus the difference between South African inflation and the inflation of its main trading partners. Applies to the full 31 years.
7World economic growth
2018 to 2023 3.6% Overview of the world economic outlook projections. World Economic outlook (IMF). (July 2018)
2024 to 2034 3.5% Conningarth Economists
2035 to 2045 3.0% Conningarth Economists
8
Current account of balance of payments as percentage of GDP
4.0%
Conningarth Economists. Assumption is based on 18 years average of SARB bulletin. As a rule of thumb, this ratio
should be in the order of Net Capital Formation as percentage of GDP, which has been 6.1 % on average over the last 18 years. Applies to the full 31 years Projection.
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Step 7: Results
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South African and Global Economic Growth
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Final Demand & GDP Projections (2018 Base Year, constant 2010 prices)
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GDP and Final Demand Components
Compound Annual Growth Rate per annum over Period
2019-2049 2019 2020
Likely High Low Likely High Low Likely High LowFinal Consumption
Expenditure by Households:
2,9% 3,5% 2,3% 1,4% 1,5% 1,0% 1,9% 2,1% 1,4%
Final Consumption Expenditure by Government:
2,9% 3,4% 2,3% 1,6% 1,7% 1,1% 2,0% 2,3% 1,5%
Gross Capital Formation (Investment): 4,0% 5,4% 2,6% -0,4% -0,2% -0,7% 1,3% 1,9% 0,5%
Exports of Goods and Services
2,3% 2,7% 2,0% 1,2% 1,6% 1,0% 1,6% 1,9% 1,3%
Imports of Goods and Services
3,1% 3,5% 2,3% 1,7% 2,2% 1,4% 2,3% 2,7% 1,8%
Gross Domestic Product 2,9% 3,8% 2,3% 0,7% 0,9% 0,4% 1,5% 1,8% 1,0%
STEP 7: Continued…Local Production Growths
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MAIZEForecasted CAGR for Local Production
Scenarios 2019-2049 2019 2020 2021Likely 2,1 1,2 1,4 1,9High 2,6 1,3 1,7 2,2Low 1,6 0,8 1,1 1,4
Forecasted Index Levels for Local ProductionScenarios 2018
(Base Year) 2019 2020 2021
Likely 100 101 103 105High 100 101 103 105Low 100 101 102 103
Local Production Growths
MOTOR VEHICLES AND TRUCKSForecasted CAGR for Local Production
Scenarios 2019 - 2049 2019 2020 2021Likely 4,0 0,2 3,5 3,2High 5,2 1,0 4,3 3,9Low 2,9 0,2 1,9 1,7
Forecasted Index Levels for Local ProductionScenarios 2018
(Base Year)2019 2020 2021
Likely 100 100 104 107High 100 101 105 110Low 100 100,2 102 10432
THE END
THANK YOU!!!
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