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The SA Economy 2012:Managing Crises or Unlocking Golden Opportunities
Presentation for:
Cape Town Press Club
21 February 2012
By
Dr Iraj AbedianPan-African Investment & Research Services (Pty) Ltd.
Slide # 2
Outline
1. Stylized Facts of the SA Political Economy
2. Assessing the Fiscal Framework
3. Conditions for Unlocking the Golden Opportunities
4. Concluding Remarks
Stylized Facts of SA Political Economy
Slide # 4
Average GDP growth: SA vs. Peer Countries (2000-2010)
South Africa’s average growth has been lower than that of its peer countries
Source: IMF & Respective Statistical Bureaus
Slide # 5
South Africa’s GDP Outdone by the BRIC Countries
Source: IMF, RMB FICC Research, August 2011
Slide # 6
Unemployment –Global Comparison
Slide # 7
Public Backlog Needs Decade-long Attention
Source: DBSA Barometer, 2008
Slide # 8
Rand Foreign Exchange Volatility
Peer Group Countries:ArgentinaTurkeyHungaryChilePolandMalaysiaPhilippinesMexicoIsraelUkraineKoreaIndonesiaRussiaBrazilPeruColombiaThailand
South Africa’s Eroding Global Competitiveness
Slide # 10
Administered Prices: 2000-2011
High administered prices, in particular the negative impact of the ongoing surge in electricity prices, deplete South Africa’s
competitiveness
Source: IMF & Respective Statistical Bureaus
India: Fuel, Power, Light and Lubricants (2000-2009)Brazil: ElectricityChina: ElectricityRussia: Public UtilitiesSouth Africa: Electricity
Slide # 11
Global Competitiveness Index
Source: World Economic Forum, Competitiveness Report 2011/12
Slide # 12
De-IndustrialisationDeclining Manufacturing Output and Contribution to GDP
Source: SARB & PAIRS
Contraction due toApartheid policies
Expansion due to
democracy
Contraction due to
poor macro policies
Slide # 13
Policy Environment: Manufacturing Employment
IPAPIPAP 2
NGP
IPAP 1
Slide # 14
Most Problematic Factors for Doing Business in South Africa
Source: World Economic Forum, Competitiveness Report 2010/11
Assessing SA’s Fiscal Framework
Slide # 16
Financial , Economic and Effectiveness Assessment of the Fiscal Framework
1. Financial Criteria: Deficit/GDP Ratio, Debt/GDP Ratio
Financial Sustainability Condition:
Rate of Debt Service Changes <= Rate of GDP Growth (Tax Revenue)2. Economic Criteria:
a) Financial Sustainability Conditionb) State of Economic Infrastructure Needed for Sustainable Growth.
3. Effectiveness Criteria
Slide # 17
SA Government Debt as % of GDP
Forecast – 2011 -2014 Source: SARB
Slide # 18
SA Public Debt in Global Context :
Slide # 19
Public Sector Finances at a Glance
Source: National Treasury
2010/11 2011/12 2012/13 2013/14 2014/15
R billion Outcome Estimate Medium-term estimates
Revenue 758.4 814.2 890.0 994.5 1113.0
Percentage of GDP 27.6 27.3 27.0 27.3 27.7
Expenditure 885.8 978.8 1062.3 1157.4 1247.0
Percentage of GDP 32.2 32.9 32.2 31.8 31.0
Budget balance -127.4 -164.6 -172.3 -162.9 -134.1
Percentage of GDP -4.6 -5.5 -5.2 -4.5 -3.3
Real GDP growth (%) 2.8 3.1 3.4 4.1 4.3
GDP at current prices 2 664.3 2 931.8 3 208.2 3 555.0 3 930.5
Slide # 20
Effectiveness Assessment of the Fiscal Framework
1. Overall effectiveness of fiscal expenditure is poor- at best.
2. The level of abuse and corruption is way too high. a) Over R5 billion is under formal investigation!b) Chronic annual audit qualification is the norm!c) Four Provinces are subject to Section C100d) The majority of municipalities are dysfunctional and
financially stressed due to abuse and incompetence.3. The spirit and the skills needed for managing for
effectiveness are lacking.Note: Fixing this is a pre-condition for poverty alleviation
and social development.
Slide # 21
The upshot……………..
1. Financial Criteria: SA is doing fine subject to cyclical changes
2. Economic Criteria: SA has a considerable and unsustainable deficit, unfunded and largely neglected.
3. Effectiveness Criteria: SA is facing a dangerous deficit! This is a real challenge, if not a crisis, of fiscal efficacy! For social development this is a pre-requisite.
Unlocking The Economy’s
Golden Opportunities :
Slide # 23
Unlocking SA’s Economic Potential
Key Sources of SA’s Growth and Job Creation Potential:
1. An integrated mineral beneficiation strategy;
2. A re-industrialisation policy;
3. An effective regional integration strategy.
Slide # 24
Urbanisation Fuelling Demand of Commodities in the BRIC and elsewhere…..
Source: Standard Bank Research
Slide # 25
Mineral Beneficiation – A Narrow Perspective
Source: PAIRS
Mining &Production
of Ore
Mining &Production
of Ore
Conversion of ore into bulk tonnage
intermediate goods
(e.g. metals
and alloys)
Conversion of ore into bulk tonnage
intermediate goods
(e.g. metals
and alloys)
Conversion of the
intermediate goods
into a refined product
for use by small and sophistica
ted Industries
Conversion of the
intermediate goods
into a refined product
for use by small and sophistica
ted Industries
Slide # 26
Beneficiation Value Chain
Source: PAIRS
Supply chain
industries providing
equipment and
services to the mining
sector
Supply chain
industries providing
equipment and
services to the mining
sector
Extraction and mining activities including
processing
Extraction and mining activities including
processing
Industrial application
s, utilization
and downstream activities
Industrial application
s, utilization
and downstream activities
Related industries
& multiplier effects
Related industries
& multiplier effects
Slide # 27
Core vs Integrated Mineral Beneficiation
Source: PAIRS
Mineral beneficiation
&
Re-industrialisation
are inseparable....
A significant business reality:
An Econometric Illustration…
At present, SA enjoys a golden opportunity for the second wave of re-industrialisation with significant and
meaningful political economy benefits....
Slide # 30
3.4% growth over 10 years
(baseline scenario)
10% growth over 10 years(sustainable
scenario)
Change from baseline to sustainable scenario
Output R184 billion R537 billion 191.85%
Employment 158,000 454,000 187.34%
Investment R116 billion R339 billion 192.24%
Household consumption
R136 billion R398 billion 192.65%
Real wages R61 billion R177 billion 190.16%
Fiscal revenue R62 billion R182 billion 193.55%
Exports R52 billion R151 billion 190.38%
Imports R102 billion R297 billion 191.18%
Exchange rate (R/$) -1.43% -4.08% 185.31%
Consumer inflation -0.58% -1.66% 186.21%
10-year cumulative effects of the economy-wide 10-year cumulative effects of the economy-wide impact of an increase in manufacturing outputimpact of an increase in manufacturing output
Source: PAIRS
Slide # 31
Employment effects (no. of jobs)Employment effects (no. of jobs)
3.4% growth over 10 years
(baseline scenario)
10% growth over 10 years(sustainable
scenario)
Change from baseline to sustainable scenario
Manufacturing 61,000 173,000 183.61%
Mining 8,700 25,300 190.80%
Agriculture 2,500 7,100 184.00%
Wholesale & retail trade 39,800 112,400 182.41%
Finance 16,600 47,500 186.14%
Construction 4,300 12,500 190.70%
Transport & Communication 2,800 8,200 192.86%
Electricity 7,400 21,800 194.59%
Source: PAIRS
Slide # 32
First things First: some necessary urgent steps.....
To unlock the potential:
a. Professionalization/De-politicization of the key technocratic layer of the pubic sector and its SOEs as well as state agencies.
b. A radical reform of the education and human resources development paradigm, even if this entails a ‘terminal tax compact’
c. Re-industrialisation policy based on an integrated mineral beneficiation strategy.
d. An active African integration policy, especially for Sub-Saharan Africa.
Slide # 33
Concluding Remarks
In 2012, South Africa finds itself at a cross-road again;
Key capabilities are built over the past 15 years, Major fault-lines remain and need urgent
attention;The solutions require a heavy mix of political
and technical inputs.The speed with which we respond to the urgent
issues will define the trajectory and the pace of the country’s democratization process and global standing over the next decade.
Slide # 34
Concluding Remarks
Slide # 35
Thank you for your attention
abedian@pan-african.co.za Tel: 011 883 8036/7Fax: 011 883 8038
Slide # 36
Global Competitiveness: Global Competitive Index
South Africa is falling in its relative competitiveness.
Slide # 37
Most Problematic Factors for Doing Business in South Africa
Source: World Economic Forum, Competitiveness Report 2011/12
Labour market
efficiencyRank/142
Financial market &
developmentRank/142
Technological readinessRank/142
Market sizeRank/142
Business sophistication
Rank/142
InnovationRank/142
Brazil 83 43 54 10 31 44
Russia 65 127 68 8 114 71
India 81 21 93 3 43 38
China 36 48 77 2 37 29
South Africa
95 4 76 25 38 41
Slide # 38
Most Problematic Factors for Doing Business in South Africa
Source: World Economic Forum, Competitiveness Report 2011/12
GCI 2011-12
Rank/142GCI2010-11
Rank/139Basic
RequirementsEfficiency enhancers
Innovation & sophistication
factors
Brazil 53 58 83 41 35
Russia 66 63 63 55 97
India 56 51 91 37 40
China 26 27 30 26 31
South Africa
50 54 85 38 39
Slide # 39
Most Problematic Factors for Doing Business in South Africa
Source: World Economic Forum, Competitiveness Report 2011/12
InstitutionsRank/142
InfrastructureRank/142
Macro-economic
environmentRank/142
Health and primary
educationRank/142
Higher education &
TrainingRank/142
Goods market
efficiencyRank/142
Brazil 77 64 115 87 57 113
Russia 128 48 44 68 52 128
India 69 89 105 101 87 70
China 48 44 10 32 85 45
South Africa
46 62 55 131 73 32
Slide # 40
Reserves lower than IMF Adequacy Range More Accumulation May Be Needed…
Source: Country Authorities & IMF staff estimates
Slide # 41
Skills ShortageOverall poor ranking in Basic Education
Source: World Economic Forum, Competitiveness Report 2010/11
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