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The South African Economy –
Are We Making Progress?
Presented by: Dawie Roodt
3 September 2008
4% of African area
23% of African GDP
22% of African Exports
20% of African Imports
Countries Compared to Provinces
Country and Province GDP 2008 ($ Bn)
0 200 400 600
South Africa
Gauteng
Sudan
Ethiopia
Ghana
Eastern Cape
Limpopo
Free State
Côte d'Ivoire
Senegal
Burkina Faso
Mali
Northern Cape
Niger
Malawi
Swaziland
Burundi
Somalia
Gambia
Guinea-Bissau
São Tomé and Príncipe
Source: UN
Is SA the next Zimbabwe???
Zim - The Swartskaap..
UN Human Development Index
0.35
0.40
0.45
0.50
0.55
0.60
0.65
0.70
0.75
0.80
hdi_1975 hdi_1980 hdi_1985 hdi_1990 hdi_1995 hdi_2005 hdi 2010
Indicator Value
Zimbabwe Sub-Saharan Africa World
Source: UN Human Development Report, April 2008
Down & Out?
Destruction of InstitutionsDemocracy:
New Leader AppointedEcstatic!
Change Economic Policy:More ‘democratic’
Take from the “Haves” (non-supporters)
Give to the “Have-Nots”(supporters)
Negative Impact on
InvestmentSavings
Confidence
IGNORES Private Property Rights
UNDERMINES Economy
Destruction of InstitutionsDemocracy:
New Leader AppointedEcstatic!
Change Economic Policy:More ‘democratic’
Take from the “Haves” (non-supporters)
Give to the “Have-Nots”(supporters)
Negative Impact on
InvestmentSavings
Confidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal system
DESTROYS Independent Judiciary
Start to
Print Money
CapitalDwindles….
DESTROYS Independence Central Bank
IGNORES Private Property Rights
UNDERMINES Economy
Inflation: 11,200,000%
Destruction of InstitutionsDemocracy:
New Leader AppointedEcstatic!
Change Economic Policy:More ‘democratic’
Take from the “Haves” (non-supporters)
Give to the “Have-Nots”(supporters)
Negative Impact on
InvestmentSavings
Confidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal system
DESTROYS Independent Judiciary
Start to
Print Money
CapitalDwindles….
DESTROYS Independence Central Bank
IGNORES Private Property Rights
Voting System:Public tries to
vote dictator out
DESTROYS Democratic Process
UNDERMINES Economy
Democracy: Mugabe-Style
1 Man,1 Vote,
1 Candidate!
Destruction of InstitutionsDemocracy:
New Leader AppointedEcstatic!
Change Economic Policy:More ‘democratic’
Take from the “Haves” (non-supporters)
Give to the “Have-Nots”(supporters)
Negative Impact on
InvestmentSavings
Confidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal system
DESTROYS Independent Judiciary
Start to
Print Money
CapitalDwindles….
DESTROYS Independence Central Bank
IGNORES Private Property Rights
Voting System:Public tries to
vote dictator out
DESTROYS Democratic Process
UNDERMINES Economy
Destruction of Institutions in SA?
Private Property Rights
2008: Land Expropriation Bill
Freedom of Press
Destruction of Institutions in SA?
“Mbeki received R30m”
Independent Judiciary
Destruction of Institutions in SA?
Zuma’s
Mauritius Papers
Independence Central Bank
Destruction of Institutions in SA?
inte
rest
rate
SARB
Hikes
10 Times!
Democratic Process
POLOKWANE
Destruction of Institutions in SA?
Tourism, 13.6%
Agriculture, 42.0%
Manufacturing, 35.2%
Mining, 9.0%L
OS
T
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 Overview
2006 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%
Private Sector Credit Extension
PSCE (excl Bill & Investments), Mortgage Advances & Other
-5
0
5
10
15
20
25
30
35
Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
%
Source: SARB and own calculations
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%
Q108:78.2%
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%
Economic Overview
2006 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%
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
CPIX Average: 2008 11.6%
Inflation
Producer Price Pressure
PPI: Agriculture & Food at Manufacturing
0
5
10
15
20
25
30
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
% y:y
Source: StatsSA and Efficient Research
Price Feeding Through…
Agriculture, Food at Manufacturing & Conumer Food Prices (CPIX)
0
5
10
15
20
25
30
Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09
% y:y
Source: StatsSA and Efficient Research
26.0% in 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
CPIX Average: 2008 11.6%
Inflation
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 Missed
Source: 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 U.K. EuroZone
U.S. Japan India Russia
%
Source: Efficient Research, Aug 2008
Economic Overview
2006 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% 16.0%
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%
Economic Overview
2006 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% 16.0%
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%
Economic Overview
2006 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% 16.0%
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%
GDP at Market Prices
GDP market prices, q:q seasonal
0
1
2
3
4
5
6
7
8
2002 2003 2004 2005 2006 2007 2008
%
Source: StatsSA and own calculations
Average:3.0%
Breakdown of GDP Sectors2007 Q108 Q208
Finance, Real Estate & Business Services
8.3% 4.9% 2.3%
Manufacturing 3.9% -1.0% 14.5%
Wholesale, Retail & Hotels & Restaurants
5.0% 3.6% -2.2%
Mining & Quarrying -0.6% -22.1% 15.6%
Electricity, Gas & Water 3.2% -6.2% -1.3%
Construction 18.1% 14.9% 10.6%
Agriculture 0.3% 12.5% 19.6%
Transport & Communication
5.2% 3.5% 3.5%
Government Services 3.4% 4.6% 1.1%
Personal Services 4.1% 3.9% 3.9%
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
Ind
ex
20
00
= 1
00
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
Economic Overview
2006 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% 16.0%
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% 0.1%
Background
Revenue & Expenditure:GDP
20
21
22
23
24
25
26
27
28
29
30
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 Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Expenditure: Functional Classification (Est. 2007/08)
6%
16%
15%
9%1%
18%
16%
8%
11%
52%
Central Gov
Justice and Prot.
Eco. & Infra.
State Debt Cost
Other
Education
Social Dev.
Other Social Serv.
Health
Social Spending
Social Grants Beneficiary Numbers
Grant Type
(‘000)
2003 2006 2007 2008 (projected)
% Change
2003-2008
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
Correlation? Excise Duties vs. Social Grants
Excise Duties vs. Social Grants (Index base = 1999)
75
125
175
225
275
1999 2000 2001 2002 2003 2004 2005 2006
50
100
150
200
250
Excise Index SocExp Index
1% Increase in Social Grants = 0.49% increase in Excise DutiesR-squared = 0.966 (small sample)
Source: 2007 Budget, SARB Quarterly Bulletin; Efficient Research
Redistribution Estimation:R1 in = R? out
Rand In : Rand Out Ratio
1997 2003 2007
Family 1* (R20k) R4.29 R13.94 (225%) R15.62 (12%)
Family 2 (R43k) R1.36 R2.10 (54%) R3.22 (53%)
Family 3 (R100k) R0.30 R0.61 (100%) R0.87 (43%)
Family 4 (R300k) R0.80 R0.14 (87%) R0.21 (44%)
Family 5 (R500k) R0.04 R0.08 (81%) R0.11 (37%)
Family 6 (R1mil) R0.02 R0.03 (77%) R0.04 (24%)
*Average family consists of 4 people, aggregates taken per capita
Source: Efficient Research
Aiming For EqualityBefore & After (2007)
0
100,000
200,000
300,000
400,000
500,000
<20k <43k <100k <300k <500k
Category
Source: Efficient Research
Aiming For EqualityBefore & After (2007)
0
100,000
200,000
300,000
400,000
500,000
<20k <43k <100k <300k <500k
Category Effect
Source: Efficient Research
Aiming For EqualityBefore and After (2007)
0
100,000
200,000
300,000
400,000
500,000
<20k <43k <100k <300k <500k
Category Effect GDP per capita
Source: Efficient Research
From those who give….more will be taken
Any Upside?
Earnings Forecast: All Share Index
All Share Model: Earnings Forecast
0
50000
100000
150000
200000
250000
300000
2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1
Ea
rnin
gs
Alsi Alsi Forecast
Source: Inet, Efficient Research
Actual, 2008Q3
Earnings Forecast: Resources Index
Resources Model: Earnings Forecast
0
50000
100000
150000
200000
250000
300000
350000
400000
450000
500000
2000Q1 2001Q1 2002Q1 2003Q1 2004Q1 2005Q1 2006Q1 2007Q1 2008Q1 2009Q1
Ea
rnin
gs
Resi Resi Forecast
Source: Inet, Efficient Research
Actual, 2008Q3
www.efgroup.co.za
Authourised Financial Services Provider – FSP No: 859