1

THE REPUBLIC OF SOUTH AFRICA

Investor Presentation April 2013

Table of contents

Slide1) South African proposition 4 2) Macro economic developments 6

2

3) Public finance 13 4) Financing of borrowing requirement 20 5) Monetary policy 25 6) Banking stability 31

3

1. South African proposition

Key highlights

– Domestic growth positive, albeit at a relatively low level– Public sector continues to play a pivotal role in rolling out the long-term

infrastructure build programme, particularly with regard to energy and logistical infrastructure

– A disciplined spending trajectory and improved growth to ensure sustainability of public finances

Expenditure review to increase efficiency of spending Tax review commissioned Long-term fiscal report

– While global economic environment remains uncertain, emerging markets and developing countries supportive

– Monetary policy stance has been supportive of growth– The NDP setting out an integrated strategy for accelerating growth, eliminating

poverty and reducing inequality and proposes mechanisms to change the structure of the economy

4

1. Stable macroeconomic environment

2. Strong institutions, including the Treasury and Central Bank

3. High quality of production for high value goods

4. Proximity to regional markets

5. Government support for manufacturing sector

6. Protection of property rights

7. Strong business infrastructure

8. The credibility of the sovereign in foreign markets

9. Attractive bond yields

10.Credible fiscal stance

11. The depth of domestic financial market and sophistication of the stock market

12.Strong capitalisation of firms listed on the JSE

13.Strong legal system and accounting institutions

14.Good long term growth prospects5

South Africa’s value proposition

6

2. Macro economic developments

Growth outcome in 2012

7

  % change year-on-year actual % Annual average  June-12 Sep-12 Dec-12 2010 2011 2012GDP at market prices 3.1 2.3 2.5 3.1 3.5 2.5 GDP at basic prices 2.9 2.2 2.2 3.0 3.3 2.4 GDP at basic prices: Non-agriculture 2.7 2.3 2.3 3.1 3.4 2.4

Sectoral Components of GDP            Primary Sector 1.2 -1.6 -3.2 -1.6 0.4 -0.1 Agriculture 6.5 -2.5 2.0 0.4 -0.1 2.3 Mining -1.7 -1.2 -3.5 5.7 0.3 -4.0Secondary sector 2.0 2.3 3.0 -10.1 5.5 3.6 Manufacturing 2.3 2.5 3.6 5.5 3.6 2.4 Electricity and water -1.5 -1.0 -2.0 2.1 1.1 -1.2 Construction 2.2 3.1 3.1 0.7 0.5 2.5Tertiary Sector 3.4 2.6 2.5 -1.2 3.8 4.5 Wholesale and retail trade 3.9 3.2 2.9 3.8 4.5 3.6 Transport and communication 2.5 2.0 1.8 2.0 3.1 2.3 Finance,real estate and business 3.7 2.3 3.4 2.2 4.0 3.3

Personal services 3.2 3.1 0.0 0.4 2.5 2.1 General government services 3.2 2.9 2.5 2.9 3.9 3.1

GDP and its sectoral components

Source: SA National Treasury

• GDP growth of 2.5% recorded in 2012

• The primary sector was the most affected in the period in 2012

• Solid growth in the tertiary (services) sector

• Moderate growth in manufacturing and agriculture

• Lower production in mining driven by extended periods of strike action

Shifting trade patterns• South Africa’s trade patterns have

changed in line with global growth trends

• Emerging Markets and Africa’s share in South Africa’s export basket is rising:– exports to China increased to

11.6% in 2012 (averaged 4.2% between 2005-2008)

– Southern African Development Community absorbed 13% of South Africa’s total exports over the past year (largely driven by manufacturing)

– share of exports to the European Union declined from 33% in 2005 to 20.5% in 2012

– almost a quarter of manufactured exports destined to SADC

Source: SA National Treasury

Mapping South Africa’s exports,2012

Automobiles (25.8) Platinum (6.6) Rhodium( 3.7)Palladium (5.2)

Purifying Machinery (8.6) Platinum (7.2)Coal (6.3)Automobiles (5.5)

Petroleum carbons (4.4) Diesel trucks (3.2) Electrical energy (2.2)

Iron ore(47) Coal (11.2) Chromium ores (7.7) Ferro-chromium (6.8)

Platinum (35.3) Iron ore (13) Aluminium (4.7) Ferro-chromium (5)

Region/Country Share of Exports (%) Main Products (%)

Commodity

Manufactured

Total

5.5

12.8

8.8

Commodity

Manufactured

Total

16.1

23.8

20.5

Commodity

Manufactured

Total

3.3

22.4

12.9

Commodity

Manufactured

Total

18.5

5.4

11.6

Commodity

Manufactured

Total

8.9

4

6.3

8

Current account

9

Source: Reserve Bank* For first 10 months of 2012

2009

2010

2011

2012

*

2011

Q4

2012

Q1

2012

Q2

2012

Q3-7.0

-6.0

-5.0

-4.0

-3.0

-2.0

-1.0

0.0

1.0

2.0

Trade balanceNet service receiptsNet income receiptsNet transfer payments (mainly SACU)current account balance

Perc

ent G

DP

• Mining disruptions visible in external trade activity

• Infrastructure related machinery and equipment driving imports

• Trade balance moved from a surplus of 0.6% in 2011 to a deficit of 2.4% in 2012

• SACU payments doubled from 0.5% of GDP in 2011 to 1% in 2012

• Current account widened to -5.9% of GDP in 2012 from -3.4% in 2011

Trade deterioration

Components of the quarterly current account deficit (% of GDP), 2009-12

Medium term economic outlook

10

• Growth reaches 2.7% in 2013, before rising to 3.5% in 2014 and 3.8% in 2015

• Headline consumer inflation averages within the 3-6% target range

• Current account deficit to average 6.2% over the MTEF as import demand rises

• Slower growth results in moderate employment gains

Calendar year 2009 2010 2011 2012 2013 2014 2015    Actual   Estimate   Forecast  Percentage change unless otherwise indicated  Final household consumption -1.6 4.4 4.8 3.4 3.1 3.7 3.9 Final government consumption 4.8 5.0 4.6 3.9 3.3 3.3 3.2 Gross fixed capital formation -4.3 -2.0 4.5 6.4 5.7 5.9 6.5 Gross domestic expenditure -1.6 4.4 4.6 4.1 3.4 3.9 4.1 Exports -19.5 4.5 5.9 1.1 3.9 6.7 7.2 Imports -17.4 9.6 9.7 7.2 5.9 7.2 7.3 Real GDP growth -1.5 3.1 3.5 2.5 2.7 3.5 3.8 GDP inflation 8.3 7.2 6.0 5.2 6.6 6.3 6.0 GDP at current prices (R billion) 2,406 2,659 2,918 3,145 3,445 3,790 4,170 CPI inflation 7.1 4.3 5.0 5.7 5.6 5.5 5.4 Current account balance (% of GDP) -4.0 -2.8 -3.4 -6.1 -6.2 -6.3 -6.0

Macroeconomic performance and projections, 2009 -2015

Source: SA National Treasury

11

3. Public Finance

Consolidated fiscal framework

12

Consolidated fiscal framework , 2009/10 –2015/16

Source: SA National Treasury

2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

R billion / percentage of GDPOutcome Revised

estimateMedium-term estimates

Revenue 664.5 757.2 836.9 887.8 985.7 1 091.1 1 199.8

27.1% 27.7% 28.1% 27.7% 28.0% 28.1% 28.1%

Expenditure 824.1 877.5 954.2 1 055.9 1 149.4 1 244.3 1 334.1

33.6% 32.1% 32.1% 32.9% 32.6% 32.1% 31.2%

Non-interest expenditure 766.9 811.3 877.7 967.6 1 049.6 1 135.6 1 215.9

31.3% 29.7% 29.5% 30.2% 29.8% 29.3% 28.5%

Debt-service cost 57.1 66.2 76.5 88.3 99.7 108.7 118.2

2.3% 2.4% 2.6% 2.8% 2.8% 2.8% 2.8%

Budget balance -159.6 -120.4 -117.3 -168.0 -163.7 -153.2 -134.4

-6.5% -4.4% -3.9% -5.2% -4.6% -3.9% -3.1%

Primary balance -4.2% -2.0% -1.4% -2.5% -1.8% -1.1% -0.4%

• Budget deficit for 2012/13 revised upwards to 5.2% at the time of the budget

• Deficit narrows to 3.1% of GDP by 2015/16 as economic growth gains traction

• Primary balance to improve to 0.4% by 2015/16

Tax revenue outcomes

13

• 2012/13 revenue outcome R 4 billion higher than revised estimate published in Budget 2013 due to:

– Steady growth in CIT driven by the services sectors

– Healthy growth in domestic and import VAT

– Growth in compensation of employees

• With the higher revenue and anticipated lower expenditure

– fiscal deficit in 2012/13 is likely to be lower than the Budget 2013 estimate (5.2%)

Tax Revenue collections 2012/13

Source: SA National Treasury

Revenue surprises on the upside

2011/2012 2012/2013 MTBPS est

2012/2013 Budget est

2012/2013 outcome700

720

740

760

780

800

820

840

R b

illio

n

Revenue outlook

Revenue outlook

• Revenue-to-GDP is projected to rise over the medium term

Tax system review• A commission to be set up for tax review, an

ex-judge already appointed to head the commission

• Tax system to be reviewed for its impact on employment and fiscal sustainability

• Ability to support long-term policy objectives, including those set out in the NDP and faster economic growth

14

2005

/06

2006

/07

2007

/08

2008

/09

2009

/10

2010

/11

2011

/12

2012

/13

2013

/14

2014

/15

2015

/16

4

5

6

7

8

9

Personal income tax Corporate income tax

Value-added tax Other revenue (including customs duties)

Per c

ent o

f GD

P

Revenue composition, 2005/06-2015/16

Source: SA National Treasury

Expenditure growth slowing• Real annual non-interest expenditure

growth of 2.3% in the 3-year framework, compared with 2.9% at the time of the 2012 MTBPS

• Government has: - Trimmed growth in national

department expenditure- Reduced the contingency reserve by

R23.5bn- Reprioritised R52.1 billion in support of

key priorities

• Core spending is reduced by R10.4bn over the medium term

• Expenditure reviews to increase the efficiency of spending and eliminate waste

Slower growth in real expenditure

Source: SA National Treasury

2010/2011

2011/2012

2012/2013

2013/2014

2014/2015

2015/20161

2

3

4

5

6

Perc

enta

ge

15

Composition of public spending

1.41.9

3.9

1.7

2.5

3.4

5.2

3.0

6.4

4.5

8.3

1.3

0

2

4

6

8

10

12

2008/09 – 2011/12 2012/13 – 2015/16

Per c

ent

Other transfers and subsidies

Goods and services

Capital payments

Transfers to households

Debt-service costs

Compensation of employees

• Compensation set to fall as a share of allocated expenditure, while capital rises• Improved certainty on compensation budget due to multi-year wage agreement• Over the long term, declining debt-service costs allows a greater share of resources to be

allocated to productive investment and social priorities

2011/12 2015/16Share of allocated spending Outcome ProjectionCompensation of employees 36.2% 34.5%Goods and services 16.1% 15.3%Interest and rent on land 8.8% 9.5%Transfers and subsidies 32.2% 32.8%

of which:Households 15.5% 15.8%Departmental agencies, provinces and municipalities

9.7% 9.8%

Public corporations and private enterprises 2.2% 2.5%Higher education institutions 2.1% 2.0%

Payments for capital assets 6.5% 6.9%

Average real growth in expenditure, 2008/09 – 2015/16 Composition of government spending, 2011/12 – 2015/16

Source: SA National Treasury

16

Spending projections on infrastructure

17

Public-sector infrastructure expenditure by area of responsibility, 2011/12 - 2015/162011/12 2012/13 2013/14 2014/15 2015/16 MTEF

TotalR million Outcome BudgetNational departments 6,599 10,802 11,225 14,046 14,329 39,600 Provincial departments 43,449 43,762 46,202 49,385 52,098 147,685 Local government 33,239 38,489 46,940 50,506 53,161 150,607

Extra-budgetary institutions1 15,418 15,697 21,493 21,909 23,176 66,578 of which: SANRAL non-toll building programme

8,296 9,667 10,206 10,433 10,960 31,599

Public-private partnerships 10,710 17,955 7,145 4,504 13,713 25,362

General government 109,415 126,705 133,005 140,350 156,477 429,832 Eskom investment programme 58,815 76,141 72,107 68,016 64,934 205,057 Transnet investment programme 21,821 31,183 37,320 38,815 48,026 124,161

SANRAL2 5,683 2,012 1,785 1,620 2,669 6,074 Central Energy Fund 1,209 5,226 3,719 2,061 398 6,178 Trans-Caledon Tunnel Authority 1,191 1,659 1,230 3,068 1,871 6,169 Rand Water 1,514 1,352 2,108 1,966 1,820 5,894 Other state-owned companies 8,638 11,627 11,537 15,184 16,992 43,713

State-owned companies3 98,871 129,200 129,806 130,730 136,710 397,246 Total 208,286 255,905 262,811 271,080 293,187 827,078

Medium-term estimates

Source: SA National Treasury

Public-sector infrastructure expenditure by area of responsibility, 2011/12 – 2015/16

Findings on long term fiscal trends

• Projects expenditure trends over the next 15-25 years based on demographic and economic trends:– Current fiscal policy and spending mix is sustainable, but would remain

vulnerable unless government rebuilds fiscal space– Pressure that social grants place on the fiscus will begin to decline over the

next decade– Government spending on health will continue to rise as a share of GDP in

coming decades, even without reforms.– As the school-age population begins to decline, resource pressures on the

basic education sector will ease

• New projects like National Health Insurance will require much faster growth, expenditure shifts, or increases in taxes

18

19

4. Financing of borrowing requirement

Net borrowing requirement

20

• Funding to be raised largely from domestic bond market

• Net borrowing requirement to

moderate to R152 bn in 2015/16

• About $4.5 bn to be borrowed in the international market over the medium term

• Weekly bond auction amount increased to R2.35 bn in 2013/14

• Loan redemption projected

to R113 bn over the medium term

Financing of national government net borrowing requirement, 2011/12 – 2015/162011/12 2012/13 2013/14 2014/15 2015/16

R million Outcome Budget Revised

Domestic short-term loans (net) 18,725 22,000 22,000 23,000 24,000 24,000

Treasury bills 19,009 22,000 20,897 24,103 24,000 24,000

Corporation for Public Deposits -284 – 1,103 -1,103 – –

Domestic long-term loans (net) 138,501 119,998 126,448 143,610 132,292 137,032

Market loans (gross) 154,861 151,367 161,557 165,648 165,405 165,119

Loans issued for sw itches1 -753 – -3,790 -1,310 – –

Redemptions2 -15,607 -31,369 -31,319 -20,728 -33,113 -28,087

Foreign loans (net) 9,135 -7,492 -7,379 -4,335 964 9,724

Market loans (gross) 12,025 4,035 4,190 12,390 12,435 12,630

Arms procurement loan agreements (gross) 569 183 61 – – –

Redemptions (including revaluationof loans)

-3,459 -11,710 -11,630 -16,725 -11,471 -2,906

Change in cash and other balances 3 -21,743 34,343 35,228 15,772 9,902 -18,856Cash balances -21,270 30,743 26,728 11,272 5,402 -23,356

Other balances4 -473 3,600 8,500 4,500 4,500 4,500

Financing 144,618 168,849 176,297 178,047 167,158 151,900

1. Net of loans issued and redeemed in switch transactions

2. Domestic loan redemption figures in 2014/15 are net of anticipated switches of R11.9 billion

3. A negative change indicates an increase in cash balances

4. Net movement in national departments' bank balances due to differences between funds requested

and actual cash flows

Medium-term estimates

Source: SA National Treasury

Debt level to peak in 2015/16

21

  2009/10 2010/11 2011/12 2012/13 2013/14 2014/15 2015/16

R billion   Outcome   Estimate Medium-term estimatesTotal gross loan debt 805.0 990.6 1,187.8 1,342.5 1,522.1 1,704.1 1,903.8

Total net loan debt 673.1 820.4 989.7 1,165.1 1,357.3 1,544.5 1,719.8

As percentage of GDP:  

Total gross loan debt 32.8 36.2 39.9 41.8 43.2 43.9 44.6

Total net loan debt 27.4 30.0 33.3 36.3 38.6 39.8 40.3

Foreign debt as percentage of:  

Gross loan debt 12.4 9.9 9.8 8.7 7.4 6.7 6.7

Net loan debt 11.0 4.8 5.0 3.5 3.7 3.3 3.6

Total national government debt,1 2009/10 – 2015/16

• Debt levels more than doubled since the 2008 financial crisis

• Net loan debt to reach R1.7 trillion in 2015/16

• As percentage of GDP net loan debt is expected peak at 40.3% in 2015/16

Source: SA National Treasury

Debt maturity profile of government

22

R 0

R 20,000,000,000

R 40,000,000,000

R 60,000,000,000

R 80,000,000,000

R 100,000,000,000

R 120,000,000,000

R 140,000,000,000

R 160,000,000,000

R 180,000,000,000

R 200,000,000,000

Fixed-rate bonds Inflation-linked bonds ForeignT-Bills New Fixed-rate bonds New Inflation-linked bonds

Source: SA National Treasury

• Active management of refinancing risks• Average term-to-maturity extended to 13 years• Cash accumulation to deal with short-term refinancing

Financing of national government net borrowing requirement, 2011/12 – 2015/16

Holdings of domestic government bonds

• Non-residents supporting domestic government bonds

– non-residents holdings reached a record high of 38% (R366bn) in March 2013 following the inclusion in the World Government Bond Index

– attributed to global liquidity and attractive yield differential

• Local pension funds remain underweight bonds

• Holdings by banks relatively flat

Holdings of domestic government bonds (%) , 2007 – March 2013

Source: Share Transaction Totally Electronic LTD(Strate)

23

2007 2008 2009 2010 2011 201241334

0

20

40

60

80

100

120

47.2 43.9 39.9 36.5 33.0 29.8 29.0

10.6 12.813.8 21.8 29.1 35.9 38.0

16.5 18.0 18.317.7 16.3

17.0 14.311.6 13.7

12.414.1 11.6 9.4 8.8

12.2 10.2 13.2 8.1 8.0 5.8 6.7

Pension funds Foreign investors Monetary institutions Insurers Other financial Other

Per c

ent

24

5. Monetary policy

Source: SARB,QB March 2013

Inflation profile• Headline inflation has

trended higher but is expected to remain contained within target range, barring a temporary breach in 3Q2013

• Core inflation does not indicate any significant demand pressures

• Headline inflation is expected to average 5.9 per cent in 2013 and 5.3 per cent in 2014

25

Underlying measures of inflation

Source: SARB,QB March 2013

Balance of payments

26

Balance of payments: Overall balance Financial account

ZAR exchange rate

Source: Bloomberg

• The ZAR has decoupled from other emerging market currencies and the VIX index, reflecting domestic factors.

• On a trade-weighted basis, the ZAR has depreciated by over 5 per cent in the year to 4 April, and by 7.5 per cent against the USD.

27

Exchange rate movement

Growth in employment and output

Source: SARB, QB March 2013

• Wage settlements also pose an upside risk to inflation outlook and could have negative implications for employment growth

• Domestic growth prospects remain subdued, with the balance of risks tilted to the downside

• Consumer demand is constrained by slower growth in disposable income and rising inflation

28

Wage and employment growth

Gross domestic product versus expenditure

Source: SARB, QB March 2013

Monetary policy stance

• Monetary policy remains accommodative, while real interest rates have been in negative territory since late 2012

• The current monetary policy stance is deemed appropriate given the absence of any significant demand driven inflationary pressures and the existence of a negative output gap

29

Nominal and real purchase rate

30

6. Banking stability

31

Sound and stable banking system

• Total assets and gross loans and advances of the banking sector are growing at healthy levels

• South African banking sector remained adequately capitalised

• Banks continued to post healthy profitability numbers supported by generally improved quality of assets

• Although still growing, the sector’s total unsecured gross credit exposure remained only about 10% of total gross credit exposure

• Credit exposure to counterparties with legal jurisdiction in GIIPS remained insignificant

• Proposed amended Regulations Relating to Banks were published in August 2012

Capital adequacy ratio 15.9%Gross loans and advances R2.73 trnImpaired advances R112 bnImpaired advances to gross loans and advances 4.11%Return on assets 2.27%Return on equity 17.39%Cost to income ratio (smoothed) 54.8% *Liquid assets to total assets 8.52% *Liquid assets held to liquid-asset requirement 198%Source: SARB, December 2012. * June 2012

Total assets and gross loans and advances

Selected indicators of SA banks (Dec 2012)

32

Banking sector efficiency

• The cost-to-income ratio increased to above 50% in Sept 2009 to reach a peak of about 57% in June 2011; it has been declining steadily since then

• The growth rate in total expenses exceeded the growth rate in total income from November 2009 to November 2011

• By focusing on reducing operating expenses and targeting profitable areas:

– the ratio of growth in total income to growth in total expenses (jaws ratio) has been in positive territory since December 2011

Cost-to-income ratio and jaws ratio

-30

-20

-10

0

10

20

30

40

50

60

-15

-10

-5

0

5

10

15

20

Aug2009

Nov Feb May Aug Nov Feb May Aug Nov Feb May Aug2012

Jaws ratio Total Income Total Expenses Efficiency Ratio (RHS)

Source: SARB

DisclaimerThis presentation has been prepared by the National Treasury, Republic of South Africa (the “National Treasury”) solely for information purposes. No representation or warranty express or implied is made to, and no reliance should be placed on, the fairness, accuracy, completeness or correctness of the information or any opinion contained herein. The information contained in this presentation should be considered in the context of the circumstances prevailing at the time and will not be updated to reflect material developments that may occur after the date of the presentation. Neither the National Treasury nor any of its affiliates officers, directors or advisors shall have any liability whatsoever (in negligence or otherwise) for any loss arising from any use of this presentation or its contents or otherwise arising in connection with this presentation.

This presentation is being communicated only to persons who have professional experience in matters relating to investments and to persons to whom it may be lawful to communicate it. By reviewing this presentation you represent and agree that you and any customers you represent are: (a) a qualified institutional buyer (within the meaning of Regulation 144A under the U.S. Securities Act of 1933, as amended (the “Securities Act”); or (b) not a U.S. person and are outside of the United States and not acting for the benefit of a U.S. person. (as defined in Regulation S under the Securities Act).

This presentation does not constitute or form part of an offer, invitation or recommendation to purchase or subscribe for any securities and no part of it shall form the basis of or be relied upon in connection with any contract, commitment or investment decision in relation to any securities. No money securities or other consideration is being solicited, and, if sent in response to this presentation or the information contained herein, will not be accepted.The presentation may contain statements that reflect the National Treasury’s beliefs and expectations about the future. These forward looking statements are based on a number of assumptions about the future, some of which are beyond the National Treasury’s control. Such forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those contemplated by the relevant forward-looking statements to reflect events that occur or circumstances that arise after the date of this presentation.

Certain data in this presentation was obtained from various external data sources, and the National Treasury has not verified such data with independent sources. Accordingly, the National Treasury makes no representations as to the accuracies or completeness of that data, and such data involves risks and uncertainties and is subject to change based on various factors.

You agree to keep the contents of this presentation strictly confidential. All or any part of this presentation may not be taken way, reproduced, redistributed or retransmitted in any manner.

By attending this presentation you are agreeing to be bound by the foregoing limitations.

33