authorised financial services provider – fsp no: 859
DESCRIPTION
Authorised Financial Services Provider – FSP No: 859. The South African Economy – Are We Making Progress?. Presented by: Dawie Roodt 29 September 2008. 2008: Subprime & Inflation. International Economic Growth. Source: International Monetary Fund, 2008. Subprime, Say Wha’ ??. - PowerPoint PPT PresentationTRANSCRIPT
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Authorised Financial Services Provider – FSP No: 859
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The South African Economy –
Are We Making Progress?
Presented by: Dawie Roodt
29 September 2008
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2008: Subprime & Inflation
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International Economic Growth
World, Advanced Economies & Developing Economies
1.02.0
3.0
4.0
5.06.0
7.08.0
1990
1992
1994
1996
1998
2000
2002
2004
2006
2008
2010
2012
annual %
Source: International Monetary Fund, 2008
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Subprime, Say Wha’ ??
• Subprime definition:– A loan that is offered at a rate above prime
(0.1% - 0.6% higher) to individuals who do not qualify for prime rate loans.
• A.k.a “NINJA” loans• Low interest rate environment • Large-scale lending and borrowing
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Subprime Lending
Federal Funds Interest Rate
0.5
1.5
2.5
3.5
4.5
5.5
6.5
Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08
Nasdaq Bubble
Credit C
rises
Fed Funds Rate – A matter of Interest
Inflat
ion
Source: I-Net, Efficient Research, 2008
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It’s All In The PackagingSubprime Loan
RISK
CAPITAL
Sell Sell
Resell Resell
Sell
Sell
Sell
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Excellence in Banking Sector?• Global Credit Crisis
– Bear Sterns, Lehman Brothers, Merril Lynch bankrupt or taken over
– AIG, Fannie Mae, Freddie Mac bailed out
• SA Banks Locally: No Direct Exposure International: Limited Exposure
• Thorough Assessment by Registrar of Banks in July 08 : “financial system is sound”
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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 MissedSource: Efficient Research, Aug 2008
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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 EuroZone
U.K. U.S. Japan India Russia
%
Source: Efficient Research, Aug 2008
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Is SA the next Zim? Institutional Approach
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Institutional Approach to Answer
Private Property Rights
Freedom of Press
Independent Judiciary
Independence Central Bank
Democratic Process
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Destruction of InstitutionsDemocracy:
New Leader AppointedEcstatic!
Change Economic Policy:More ‘democratic’
Negative Impact onInvestment
SavingsConfidence UNDERMINES Economy
Take from the “Haves” (non-supporters)
Give to the “Have-Nots”(supporters)IGNORES Private Property Rights
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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 onInvestment
SavingsConfidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal systemDESTROYS Independent Judiciary
Start to
Print MoneyCapital
Dwindles….DESTROYS Independence Central Bank
IGNORES Private Property Rights
UNDERMINES Economy
Inflation: 200,000,000% ??
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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 onInvestment
SavingsConfidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal systemDESTROYS Independent Judiciary
Start to
Print MoneyCapital
Dwindles….DESTROYS Independence Central Bank
IGNORES Private Property Rights
Voting System:Public tries to
vote dictator out
DESTROYS Democratic Process
UNDERMINES Economy
Democracy: Mugabe-Style1 Man,1 Vote,
1 Candidate!
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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 onInvestment
SavingsConfidence
Media & Press:Report on
Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:
Public tries to find Justice through legal systemDESTROYS Independent Judiciary
Start to
Print MoneyCapital
Dwindles….DESTROYS Independence Central Bank
IGNORES Private Property Rights
Voting System:Public tries to
vote dictator out
DESTROYS Democratic Process
UNDERMINES Economy
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Institutions in SA
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Destruction of Institutions in SA?
Private Property Rights
2008: Land Expropriation Bill
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Freedom of Press
Destruction of Institutions in SA?
“Mbeki received R30m”
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Independent Judiciary
Destruction of Institutions in SA?
Zuma’s
Mauritius Papers
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Independence Central Bank
Destruction of Institutions in SA?
interes
t rate
SARB Hikes
10 Times!
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Democratic Process
POLOKWANE
Destruction of Institutions in SA?
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Is SA the Next Zim?Economic Approach
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LOST
Mining, 9.0%
Agriculture, 42.0%
Manufacturing, 35.2%
Tourism, 13.6%
ZimBOBwean Economy: Breakdown
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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
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South Africa:
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Economic Overview2006 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%
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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%
Q208:76.7%
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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%
Q208:-0.5%
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Economic Overview2006 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%
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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
CPI Average: 2008 8.5%
Inflation: Old Basket
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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
CPI Average: 2008 9.4%
Inflation: New Basket(?)
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Economic Overview2006 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 -R167.0bn
Current Account: GDP -6.4% -7.3% -8.1%
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%
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Economic Overview2006 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 R8.00
GDP (full year) 5.4% 5.1% 3.0%
Budget Surplus/(Deficit): GDP
(0.3%) 0.7% 0.3%
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Economic Overview2006 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%
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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
Inde
x 20
00 =
100
Private Business Enterprises Public Corporations General Government
Source: SARB, 2008
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• 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
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Economic Overview2006 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%
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Background
Revenue & Expenditure:GDP
2021222324252627282930
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010
%
Trevor’s reign!
Gold
Deficit
Surplus
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Theory versus Practice
FISCAL SURPLUS
expansionary
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Spending Priorities
Expenditure: Functional Classification (1994)
7%
17%
14%
17%2%
21%
8%
4%
10%
43%
Central GovJustice and Prot.Eco. & Infra.State Debt CostOtherEducationSocial Dev.Other Social Serv.Health
Expenditure: Functional Classification (Est. 2007/08)
6%
16%
15%
9%1%
18%
16%
8%
11%
52%
Central GovJustice and Prot.Eco. & Infra.State Debt CostOtherEducationSocial Dev.Other Social Serv.Health
Social Spending
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Social Grants Beneficiary Numbers
Grant Type (‘000)
2003 2006 2007 2008 (projected)
% Change2003-2008
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
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www.efgroup.co.za
Authourised Financial Services Provider – FSP No: 859