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
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
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
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
It’s All In The PackagingSubprime Loan
RISK
CAPITAL
Sell Sell
Resell Resell
Sell
Sell
Sell
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”
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
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
Is SA the next Zim? Institutional Approach
Institutional Approach to Answer
Private Property Rights
Freedom of Press
Independent Judiciary
Independence Central Bank
Democratic Process
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
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% ??
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!
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
Institutions in SA
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?
interes
t rate
SARB Hikes
10 Times!
Democratic Process
POLOKWANE
Destruction of Institutions in SA?
Is SA the Next Zim?Economic Approach
LOST
Mining, 9.0%
Agriculture, 42.0%
Manufacturing, 35.2%
Tourism, 13.6%
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 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%
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%
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%
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%
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
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(?)
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%
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%
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%
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
• 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 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%
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
Theory versus Practice
FISCAL SURPLUS
expansionary
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
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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Authourised Financial Services Provider – FSP No: 859