The Economic Environment and Investments

Presented by:Dawie Roodt13 July 2006

Real Economy

GDP

GDP

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

%

GDP

GDP per capita '00

20000

20500

21000

21500

22000

22500

23000

23500

24000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

R

Fiscal Policy

State Finances

Revenue/Expenditure:GDP

20

21

22

23

24

25

26

27

28

29

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

%

State Finances

Deficit:GDP

-8

-7

-6

-5

-4

-3

-2

-1

0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

%

State Finances

Government Debt:GDP

25

30

35

40

45

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

%

Debt trapRecovery

Normal Normal

Results

Lower interest payments More social expenditure Better ratings Strong demand

Monetary Policy

Interest rates

Prime

9

11

13

15

17

19

21

23

25

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

%

De Kock

Stals

Mboweni

Interest rates

Prime

10.00

10.25

10.50

10.75

11.00

11.25

11.50

11.75

12.00

12.25

Jan-04 Jan-05 Jan-06 Jan-07

%

Inflation

CPI

0

3

6

9

12

15

18

21

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

%

14.619.91%

5.15%

Inflation

CPIX

2

3

4

5

6

7

Jan-04 Jan-05 Jan-06 Jan-07

%

4.5%

Exchange rates

R/$ and R/Euro

5

6

7

8

9

10

11

12

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

Rand

PPP Cycle (R vs. USA$)/Big Mac

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07

%

Rand Valuation

Gold $800

Rubicon

Stock exchange crash

ANC, Reds fall

Election Exchange controls

Asian

crises

Wakefordgate

Rus, Zim, Arg

Fin Rand

NOFP + NOFP -

Financial

Private Sector Credit Extension

8

10

12

14

16

18

20

22

24

26

Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07

%

Disposable income of households

Change in disposable income of households

-4

-2

0

2

4

6

8

10

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Household debt to disposable income

Household debt to disposable income of households

30

35

40

45

50

55

60

65

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Savings to disposable income of households

Ratio of saving by households to disposable income of households

0

2

4

6

8

10

12

14

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Debt Servicing Cost

Debt payment cost % of disposable income

0

2

4

6

8

10

12

14

16

Q1 94 Q1 95 Q1 96 Q1 97 Q1 98 Q1 99 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05

%

Commodity Prices

Gauteng Pump price (cents) and Brent Crude Oil Price ($ per barrel)

0

100

200

300

400

500

600

700

Jan-00 Jan-02 Jan-04 Jan-060

10

20

30

40

50

60

70

80 $Cent

s

Commodity Prices

Gold Price: Rand and Dollar (spot per ounce)

500

1000

1500

2000

2500

3000

3500

4000

4500

Jan-00 Jan-02 Jan-04 Jan-06

Rand

0

100

200

300

400

500

600

700 $

Balance of Payments

Balance of Payments

Current Account vs Financial Account

-8

-6

-4

-2

0

2

4

6

8

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

% GDPBarclays/Absa

De Beers delisting

Sanctions liftedDebt Standstill

Balance of Payments

Balance on Current Account to GDP

-7

-6

-5

-4

-3

-2

-1

0

1

2

Q1 94 Q1 95 Q1 96 Q1 97 Q1 98 Q1 99 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06

%

Results

Interest rates climbing Inflation jumps slightly Large current account deficit Commodity prices – effect on businesses and inflation outlook Currency exposed to global volatility Alarming increase in PSCE Stellar household debt/disposable income Lack of ‘savings culture’ by households

SA Business Cycle

Business cycle phases in SA since 1980 and GDP

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

%44 19 35 51 42 33 82+15 21 (months)

SA Business Cycle

Business cycle phases in SA since 1980 and the All Share index

0

3000

6000

9000

12000

15000

18000

21000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

points44 19 35 51 42 33 82+15 21 (months)

SA Business Cycle

Longest upwards phase on record (Sept ’99 - ?) Business cycle phases since 1945 (Post war):

Upward phases (15) Duration in months: 441

Downward phases (14) Duration in months: 285

Comparison 2003 -2005

Total increase in: 2003 - 2005

-30-20-10

0102030405060708090

100110120

%

House Prices (nom.) R/$ Alsi 40 R153 Bond(price) CPI (index)

Comparison 2003 -2005

Bonds Equity Property Cash Rand

Expected Return

Risk ? Liquidity Cost

Asset Allocation

Reason

Equities Demand/Rand/International

Bonds Inflation/Supply

Cash Short Interest rates

Property Property Cycle

– Heavy Overweight

– Overweight

– Neutral

– Underweight

– Heavy Underweight

Local Equities, 2006Economic Sector MC EAA JSE Sector

Mining and Quarrying 32 34% Mining, Platinum, Gold, Coal

Finance, prop and bus. serv 30 24%Banks, Insurance, Life Ass, Media & Pht, IT, Property, Support Serv

Manufacturing 12 14%Auto, Basic Ind, Beverages, Chem, Elect, IT Hard, Pharm & Bio, Steel & Other

Personal Service 6 5%Cyc Serv, Health, Leisure Ent, Non-cyc Serv, Person Care

Transport, storage and comm. 6 7% Telecomm, Transport

Trade, hotels and restaurants 6 4%Cyc Cons, Food & Drug, Gen Retail, House Goods, Non-cyc Cons

Electricity, gas and water 4 3% Oil & Gas

Agri, Forestry and Fishing 3 1% Food Prod

Construction 2 8% Const & Build

100 100%

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