Chris Hart: Chief Strategist

17 April 2013

Universal economic access

Grassroots Growth for Poverty Reduction

Local enablers

Essentials for growth and jobs

State of the nation

Global context

German Dax and Industrial Production:… Fundamentals not following markets

Source: INet

S&P500 and Earnings:Liquidity-driven momentum

Source: INet

QE and the US economy: hiding recession??

Source: INet

QE: Short Term and Long Term

QE Costs

Short termStabilization

Long TermDebt escalation

Debt:Systemic Ponzi

Smallvs

Large

QE escalation shortens the long term timeline

QE: Central Banks starting to compete?

Source: Federal Reserve of St Louis

Global debt levels are acceleratingMay well be developing into a systemic PONZI scheme

Systemic collapse

Time

Debt needed to sustain the systemBCA: the debt super cycle

Systemic instability

Credit worthy capacity

Deb

t

Dynamics at the 11th hour, as governments compensate

Excessive debt levels mean financial repression is returningA concept widely understood in the 1970’s

Coined in 1973 by Shaw & McKinnon

Described EMs financial systems over 1960s-80s.

Same for developed economies

(WWII to the 1980s)Why is it important?

liquidating debt!!!

How is Repression achieved?

Tools ofRepression

Inflation/Deflation

Fiscal & MonetaryPolicy

Red TapeCorruption

Market Dominance

Tax(Especially Wealth)

…But SA is in a good neighborhood!!African investment risk declining

Jurisdiction risk is changing....butNeither Africa nor Europe completely homogeneous

Solvency

Europe Africa

Taxes

Solvency

Tax Burden

Macro-economic outcomesProof of the pudding

Improving economic management

Inflation

Growth3.5%

1995

40.1%

2011

5.1%

8.2%

2000

15.0%

3.6%

Local enablers

Essentials for growth and jobs

State of the nation

Global context

Business and Consumer Confidence: decade lows

Source: INet

Retail Sales: losing monentum

Source: INet

Car Sales: good but cycle has peaked

Source: INet

SA Manufacturing: Recessionary conditions

Source: INet

Current Account Deficit: major risk to the rand

Source: INet

SA Interest Rates: low for much longer

Source: INet

Local enablers

Essentials for growth and jobs

State of the nation

Global context

Understanding the growth model:Credit & consumption …or…savings & investment

GrowthEssentials

Investment Savings

Red TapeProperty Rights

Rule of Law

Investment timelines are important

Source: INet

Unemployment | 2001 – 2011 Proof of the Pudding!!

• Brazil unemployment: The Enigma

• Brazil Unemployment • South Africa Unemployment

2001

2002

2003

2003

2004

2005

2005

2006

2007

2007

2008

2009

2009

2010

2011

2011

4.5

5.5

6.5

7.5

8.5

9.5

10.5

11.5

12.5

2001

2002

2003

2003

2004

2005

2005

2006

2007

2007

2008

2009

2009

2010

2011

2011

20

22

24

26

28

30

32

Brazil & SA | Corporate Development

Hyperinflation

DivergentOutcomes C

orpo

rate

Con

cent

ratio

nG

DP

Stoc

k M

arke

t

C

apita

lizat

ion

Busi

ness

Pers

pect

ive

Smal

l Bus

ines

sBR

ICS

and

Busi

ness

Stra

tegy

1986 1990 1994 1998 2002

Isolation

Indian Business Conditions | In spite of unfavorable macros: complex but thriving

IMPROVINGBUSINESS

CONDITIONS

Global VisionCompetitive

State & Private Sector

Entrepreneurship

Conglomerate

2

4

1

3

Corporates & SMME mix

5

Job creation means employer creation…the scale needs to be understood

JobsEssentials

EntrepreneurshipSMME’s

HouseholdSavings

AppropriateRegulation

IncentivesRent Seeking

Job creation must be the most important priorityPoverty and inequality are consequences of unemployment

Jobs, minimum wage and global competitionAll variables are relevant

EmploymentVision Price & Value

ChinaGermany

Japan

Wages/JobsTradeoff

TechnologyMachinery

Skills

Poverty | Slums a manifestation

People work where they live

Lowers living costs 1

Govt provision of water and electricity

Crime rate low2

Very little town planning

Regulatory restrictions low 3

Local enablers

Essentials for growth and jobs

State of the nation

Global context

Economy must be accessible at grassroots level…avoid ‘doing things for the poor’

LocalEnablers

TownPlanning

MicroeconomicReform

Policy PrioritiesService Delivery

Productivity

Cost burden must be competitive

EducationalInstitutions

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