REPUBLIC OF SOUTH AFRICA FOREIGN INVESTOR PRESENTATION

March 2011

National Treasury

2

Economic recovery bolstered by:

• Structural tailwinds from strong regional growth and low domestic debt levels

• Sustained improvements in external and internal demand supports investment and

employment prospects

• Accommodative policies afforded by low inflation levels

Public finances on a solid footing:

• Recovery in revenue and moderate growth in public spending lowers the fiscal deficit

• Debt ratios remain low

• Emphasis on fiscal sustainability by setting a target for the structural budget balance

External vulnerability reduced:

• Sustainable long-term policy solutions to strengthen and diversify current account funding

sources

• External vulnerability reduced by low external debt

• Banking sector systemically sound

Key highlights

3

1. South Africa Macro Backdrop

• Structural shift in world demand

underway as economic power shifts

to emerging market economies

• Rising EM intensity in South Africa’s

export basket:

– Share of exports to advanced

economies declined to 58% in

3Q10 (73% in 3Q06)

– Exports to developing Asia

increased to 19% in 3Q10

(6% in 3Q06)

4

Emerging market households’ final consumption expenditure (FCE)

Source: World Bank

Emerging markets claim a greater share of SA exports

*Greece, Ireland, Italy, Portugal and SpainSource: IMF

52

54

56

58

60

2000-2005 2006 2007 2008 2009

Emerging economies FCE % of world FCE

%

0

20

40

60

2006-2007 2008 2009 2010China Emerging markets (excl China)Advanced economies (excl. Euro-area) GIIPS*Euro area (excl. GIIPS)

% of total exports

Rebalancing of world demand favours south-south flows

World vs. Sub-Saharan Africa real GDP growth

FDI flow into sub-Saharan Africa

Source: UNCTAD

• What explains the SSA surge?

– Favourable demographic

developments

– Improvements in the political

environment

– Pay-offs from better

macroeconomic policies

• Lower inflation and

interest rates

• Smaller budget deficits

• Lower levels of

sovereign debt

– Benefits directly related to

strong growth in developing

economies

-3

0

3

6

9

1980 1985 1990 1995 2000 2005 2010 2015

World Sub-Saharan Africa

% yoy

0

1

2

3

1990 1995 2000 2005 2010

% of world

Source: IMF

5

South Africa is part of a positive regional growth story

-24

-16

-8

0

8

16

24

-12

-8

-4

0

4

8

12

2000 2002 2004 2006 2008 2010

Leading indicator of trading partnersExport volumes incl. gold - lagged 3 quarters (RHS)

% yoy % yoy, smoothed• GDP recovery toward potential

expected over medium term,

underpinned by:

– Accommodative fiscal and

monetary policies

– Public sector capital

formation supportive of the

broader recovery in private

fixed investment

– Inflation anchored within

target band

– Trade partner growth leading

exports higher

6

Strong demand from global trading partners for SA exports

Macroeconomic growth forecasts, 2009 - 2013

  2009 2010 2011 2012 2013

Calendar year Actual  Estimate   Forecast  

Percentage change unless otherwise indicated  

Final household consumption -2.0 4.6 4.2 4.3 4.5

Gross fixed capital formation -2.2 -3.6 3.9 5.5 6.8

Real GDP growth -1.7 2.7 3.4 4.1 4.4

GDP at current prices (R billion) 2 396.0 2 615.7 2 846.5 3 122.0 3 445.9

CPI inflation 7.1 4.3 4.9 5.2 5.5

Current account balance (% of GDP) -4.1 -3.2 -4.2 -4.9 -5.0

Source: SARB

Source: SA National Treasury

The domestic economic outlook is positive

Private sector credit-to-GDP ratio – EM comparisons (2009/10*)

Government debt and funding requirement ratios (2011)

• Household debt service cost is low

in comparison to historical levels

• The government debt-to-GDP ratio

remains low relative to that of the

developed world and compares

favourably with other EMs

• The relatively low debt ratios create

room for household and government

expenditure to meaningfully

contribute to domestic demand

growth

0 50 100 150 200

RussiaBrazilIndia

UkraineHungary

South AfricaIsrael

SingaporeLatvia

MalaysiaChina

Hong Kong

Private sector credit % of GDP

0 20 40 60 80 100

HungaryIndiaIsraelBrazil

MalaysiaLatvia

UkraineSouth Africa

ChinaRussia Public debt 2011

Gross financing requirement 2011

% of GDP

*Average from 4Q09 – 3Q10 Source: IMF

Source: IMF

7

Low debt ratios support household and public demand

-24

-16

-8

0

8

16

24

-50

-25

0

25

50

1999 2001 2003 2005 2007 2009

Real capital goods imports* Real gross fixed capital formation (RHS)

% yoy, smoothed % yoy

• Corporate profitability improved in

2010 and employment prospects are

firming

– Unemployment has fallen from

25.3% in 3Q10 to 24% in 4Q10

– 120,000 formal non-agriculture

jobs have been created between

October and December 2010

• Growth in capital imports is picking

up

• Real investment in productive

capacity will foster higher economic

activity.

8

Corporate profits and employment in trade- and non-trade sectors

* Proxied by gross operating surplus. Source: SARB

Progress in fixed capital formation underway

*Nominal imports deflated by trade-weighted exchange rate.Source: Department of trade and Industry (DTI), SARB

-12

-6

0

6

12

18

0

5

10

15

20

25

2002 2004 2006 2008 2010Corporate profitability* (LHS) Employment: non-trade sectorsEmployment: trade sectors

% yoy % yoy

Healthy corporate profits potentially supportive of investment and employment

9

2. Monetary Policy and Prices

10Source: Reuters Ecowin, RMB FICC Research

Nominal policy rates

Real policy rates

Source: Reuters Ecowin

• South Africa’s policy rate is at a 30-

year low. Low rates are stimulating

consumer spending growth

• Real rates are positive, though still

accommodative

Source: Reuters Ecowin0 2 4 6 8 10 12

Brazil

Russia

China

India

South Africa

Australia

New Zealand

Canada

Euro Area

UK

US

%

-4 -2 0 2 4

Brazil

China

South Africa

Euro Area

Canada

US

Russia

New Zealand

UK

India

%

Monetary policy remains accommodative

6

9

12

15

18

21

2

4

6

8

10

12

2000 2002 2004 2006 2008 2010

Core inflation (CPI excl. food & energy) Prime rate (RHS)

Percentage points %

0

6

12

18

2003 2004 2005 2006 2007 2008 2009 2010 2011

Goods inflation Services inflation Headline inflation

% yoy• Currency appreciation and a

deceleration in global price

pressures dragged targeted inflation

below the mid-point of the 3-6%

target band

• Services inflation (45.8% of CPI)

lags disinflation in goods prices,

supportive of accommodative policy

• Although moderating somewhat,

administered prices (14.8% of CPI)

remain an upside risk to inflation

• Second-round inflation pressures

remain absent in non-food and

energy inflation

11

Inflation well-below target

Source: Stats SA

Core inflation remains low

Source: SARB, StatsSA

Inflation remains well-contained within target band

• Rising international food and energy

prices pose upside risk to global

inflation

• South Africa is in a better position

relative to EM peers to weather the

inflation storm

– Weight of food in CPI in SA is

currently 14.3% vs EM peer

group of between 15% and

35%

• The SARB forecasts inflation to

remain within the target band over

the forecast horizon to the end of

2012

12

The Economist Food Index vs. Brent crude oil

Source: Bloomberg

Core vs food and fuel inflation

Source: Stats SA

0

40

80

120

160

50

100

150

200

250

2003 2005 2007 2009 2011

The Economist Food Price Index Brent crude (RHS)

Index USD/bl

-36

-24

-12

0

12

24

36

48

60

2003 2004 2005 2006 2007 2008 2009 2010 2011

Food inflation Fuel inflation

% yoy

Room to absorb upside risk from food and fuel prices

13

3. Public Finance

• Fiscal discipline is critical to create

scope for future countercyclical

policy when the need arises

• Public infrastructure programmes of

more than R800bn will maintain a

fair degree of stimulus

• A stabilisation of non-interest

spending and higher revenue

reduces the primary budget deficit

from of -4.3% in 2009/10 to -0.9% of

GDP in 2013/14

14

Consolidated government fiscal framework, 2009/10 – 2013/14

Source: SA National Treasury

Primary budget deficit projected to narrow significantly over the medium term

  2009/10 2010/11 2011/12 2012/13 2013/14

Rbn Outcome Estimate Medium-term estimates 

Revenue 664.84 755 824.5 908.7 1017.2

% of GDP 27.2 28.3 28.3 28.4 28.8

Expenditure 825.9 897.4 979.3 1061.6 1151.8

% of GDP 33.8 33.6 33.6 33.2 32.6

Budget balance -161.076 -142.4 -154.8 -152.9 -134.6

% of GDP -6.6 -5.3 -5.3 -4.8 -3.8

Nominal GDP 2442.6 2666.894 2914.9 3201.3 3536

Source: SA National Treasury

21

24

27

30

33

-6

-4

-2

0

2

4

6

2002/03 2004/05 2006/07 2008/09 2010/11 2012/13f

Primary fiscal balance (LHS) Budget revenue Non-interest expenditure

% of GDP % of GDP

New growth cycle encourages fiscal consolidation

• The public sector borrowing

requirement is projected to fall from

10.5% of GDP in 2010/11 to 6.3%

by 2013/14

– Lower consolidated

government deficit

– Lower borrowing by non-

financial public enterprises as

own revenue streams come on

line once capital projects are

completed and become

operational

15

Public sector borrowing requirement

Source: SA National Treasury

-1.5

1.6

75.5 5.6 5

4.1

1.7

2.7

1.9 5.03.9

3.1

2.2

-4

-2

0

2

4

6

8

10

12

2007/08 2008/09 2009/10 2010/11f 2011/12f 2012/13f 2013/14f

General government Non-f inancial public enterprises

% of GDP

Borrowing requirement reined in over medium term

• The countercyclical fiscal stance led

to increased borrowing to meet

expenditure commitments

• Fiscal sustainability will be guided

by:

• The adoption of an annual target

for the structural budget balance

consistent with long-term growth,

the desired level of public debt

and inter-generational

considerations

• Communicating the costs of

existing and new programmes

that require a long-term

expenditure commitment

• Setting a time-line to bring the

budget back on target following

large fiscal shocks

16

Net loan debt expected to stabilise at 40% of GDP

Source: SA National Treasury

0

10

20

30

40

50

60

70

0

200

400

600

800

1000

1200

1400

1600

1800

Gross loan debt Net loan debt Total net loan debt as % of GDP (RHS)

R billion % of GDP

Fiscal debt sustainable over medium term

17

4. External Vulnerability

-9

-6

-3

0

3

6

9

12-12

-9

-6

-3

0

3

6

9

2003 2004 2005 2006 2007 2008 2009 2010

Trade balance

Net service, income and transfers balance

Current account def icit

Current account def icit excl. SACU* transfers

Financial account (RHS - inverse)

% of GDP % of GDP

• Net capital inflows increased

strongly over the past two years,

reaching 4.0% of GDP in 2010,

versus 4.7% of GDP in 2009

• Structural deficit remains the key

contributor to the current account

deficit – net services and income

payments to the world account for

90% of the current account deficit

• Relaxation of exchange control a

sustainable long-term solution to

balancing financial market flows

18

Structure of current account deficit

* Southern African Customs Union, comprising Botswana, Lesotho, Namibia and SwazilandSource: SARB

External vulnerability reduced by a positive balance of payments position

• The shift in portfolio inflows from

bonds to equities reflect confidence

in South Africa’s growth prospects

and business-friendly policy choices

• The recent revisions in South

Africa’s credit rating outlook to

stable confirm that external balance

sheet dynamics remain manageable

19

Cumulative inflows into bond and equity markets support rand

Source: Bloomberg

South African equity market outperforms the EM asset class

Source: Bloomberg

0

40

80

120

160

2000 2002 2004 2006 2008 2010MSCI World MSCI EM MSCI South Africa

Index (Jan 2008 = 100)

50

58

66

74

82

90

-8

-4

0

4

8

12

2007 2008 2009 2010

USD bn, cumulative from 2008

Net foreign purchases: bonds Net foreign purchases: equities

Nominal effective exchange rate (RHS)

U Index

South Africa benefiting handsomely from rising interest in EM assets

01234567

0

0.2

0.4

0.6

0.8

1

1.2

2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011*

Standard deviation of the rand exchange rateImports covered by reserves (months - RHS)

Cents Months• Coordinated fiscal and monetary

policy response to building reserves

have contributed to lowering rand

volatility

• Rising import cover assist in

reducing external vulnerability

20

Reserves accumulation assist in limiting rand volatility

*Rand volatility calculated for Q1. Import cover for 2011 based on January figures.Source: Bloomberg, SARB

External Vulnerability Index

* (Short-term external debt + currently maturing long-term external debt+ total non-resident deposits over one year)/Official foreign exchange reservesSource: Moody’s Ratings Agency

0

50

100

150

200

250

2002 2003 2004 2005 2006 2007 2008 2009 2010F 2011F

External Vulnerability Indicator*

Index

Reserves accumulation assist in reducing rand volatility

21

5. Banking System Stability

22

• The South African banking system is

highly concentrated with the top four

banks holding a 85% market share

• Banks are comfortably exceeding

the minimum capital adequacy

requirements of 9.75%

• The current banking sector Tier 1

capital to risk-weighted assets

ratio is over 11%, exceeding the

target Basel III requirements for

2018

• Global perceptions of South African

Banks consistently among best in

the world. South Africa ranked 6th

out of 139 countries in terms of

soundness of banks (World

Economic Forum Executive

Opinion Survey)

Funding structure of SA banks

Source: SARB, June 2010

Professional/wholesale deposits 30.5%

Household deposits 20.5%

Corporate sector deposits 19.7%

Government, local government and public enterprises deposits

8.6%

Interbank & intragroup deposits 6.6%

Non-resident deposits 2.7%

Other borrowed funds 4.9%

Foreign currency funding 2.3%

Subordinated debt 4.0%

Capital adequacy

Source: Company data

0%

3%

6%

9%

12%

15%

Dec-08 Dec-09 Jun-10

ABSA FirstRand Nedbank Standard Bank

Ample banking liquidity

• Banks account for 33% of the total

primary market issuance over the

last five years

• Cost of bank funding in the local

market increased during the crisis,

but spreads have contracted

significantly

23

Credit spread of bank vs. public sector entities

Source: JSE

Robust primary issuance volumes in the local capital markets

Source: JSE

0

40

80

120

2006 2007 2008 2009 2010

Rbn

Banks / Financials Securitisations Corporates Public Sector Municipal

-

100

200

300

400

2003 2004 2005 2006 2007 2008 2009 2010 2011

bp

Bank Senior Bank Subordinated Public Sector Entities

Banking system remains systemically sound

24

6. Conclusion

• The macroeconomic landscape reflects sustained improvements in both internal and global demand

• The positive regional backdrop and low domestic debt levels are structural tailwinds

• Stimulatory fiscal and monetary policy have lessened the impact on South Africa from the global

slowdown.

• Prudent fiscal management and automatic stabilisers have ensured that the fiscal position should

return to pre-crisis levels without requiring extraordinary fiscal austerity

• External debt remains low and manageable

• The banking system remains on a solid footing

25

Concluding thoughts

26

7. Appendix

• R392.6bn (49%) of spending by non-

financial public enterprises

• Guarantees for SOEs

increase from R63bn in

2008/09 to R194bn in

2013/14 to reduce their cost

of borrowing

• Provinces and municipalities remain

significant drivers of infrastructure

spending, despite the completion of

many large projects related to the

2010 FIFA World Cup

27

Major state-owned entities’ capital expenditure programmes, 2009/10 – 2014/15

Source: SA National Treasury

  2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

R billion Outcome Budget Revised Medium-term estimate

Total public sector capital expenditure

235.2 261.9 260.1 252.9 269.3 286.4 252.9

SOE capital expenditure 88.6 149.5 136.2 136.5 122.7 104.3 123.9

Of which:    

Eskom 48.4 96.3 86.8 93.7 85.2 67.0 88.9

Transnet 18.4 19.4 22.8 21.9 17.1 16.2 15.2

Central Energy Fund 1.4 5.8 6.8 4.3 8.2 10.1 5.5

South African National Roads Agency Limited 11.6 13.5 8.4 2.6 2.0 1.5 1.5

Trans-Caledon Tunnel Authority 0.4 7.1 5.0 9.0 4.8 4.8 2.9

Airports Company of South Africa Limited 5.2 1.6 1.3 0.8 1.1 – –

Public sector infrastructure spending

28

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This presentation contains certain forward-looking statements within the meaning of Section 27A of the U.S. Securities Act of 1933. Statements that are not historical facts, including statements with respect to certain of the expectations, plans and objectives of South Africa and the economic, monetary and financial conditions of the Republic, are forward-looking in nature. These statements are based on current plans, estimates and projections, and therefore you should not place undue reliance on them. Forward-looking statements speak only as of the date that they are made, and South Africa undertakes no obligation to publicly update any of them in light of new information or future events.Forward-looking statements involve inherent risks and uncertainties. South Africa cautions you that a number of important factors could cause actual results to differ materially from those contained in any forward-looking statement. Such factors include, but are not limited to (i) external factors, such as interest rates in financial markets outside South Africa and social and economic conditions in South Africa’s neighbors and major export markets; and (ii) internal factors, such as general economic and business conditions in South Africa, present and future exchange rates of the rand, foreign currency reserves, the ability of the South African government to enact key reforms, the level of domestic debt, domestic inflation, the level of foreign direct and portfolio investment and the level of South African domestic interest rates.

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