Dawie Roodt Financial Excellence

Authorised Financial Services Provider – FSP No: 859

Excellence in Finance

Dawie Roodt

19 September 2008

Presented by:

Presentation Overview

• Financial Non-Excellence - A Modern Day Example & the Role of Institutions

• Financial Excellence in SA? - Institutions - Monetary Policy - Fiscal Policy - International Flows - Economic Growth

Economic Sophistication: How did it happen?

Dawn of Democracy

Establishment of Institutions…

The Economic Role of Institutions

Private Property Rights

Freedom of Press

Independent Judiciary

Independence Central Bank

Democratic Process

An Example of Financial Non-Excellence:

Zimbabwe

Destruction of InstitutionsDemocracy:

New Leader AppointedEcstatic!

Change Economic Policy:More ‘democratic’

Negative Impact on

InvestmentSavings

Confidence UNDERMINES Economy

Take from the “Haves” (non-supporters)

Give to the “Have-Nots”(supporters)

IGNORES Private Property Rights






Negative Impact on

InvestmentSavings

Confidence

Media & Press:Report on

Disapproval and Objections by PublicBANS Freedom of PressCourt & Legal System:

Public tries to find Justice through legal system

DESTROYS Independent Judiciary

Start to

Print Money

CapitalDwindles….

DESTROYS Independence Central Bank


UNDERMINES Economy

Inflation: 200,000,000% ??






Negative Impact on

InvestmentSavings

Confidence





Start to

Print Money

CapitalDwindles….



Voting System:Public tries to

vote dictator out

DESTROYS Democratic Process

UNDERMINES Economy

Democracy: Mugabe-Style

1 Man,1 Vote,

1 Candidate!






Negative Impact on

InvestmentSavings

Confidence





Start to

Print Money

CapitalDwindles….



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


“Mbeki received R30m”

Independent Judiciary


Zuma’s

Mauritius Papers

Independence Central Bank


inte

rest

rate

SARB

Hikes

10 Times!

Democratic Process

POLOKWANE


Monetary Policy in SA

Excellence in Monetary Policy?

2006 2007 2008

M323.1% 23.7% 20.0%

PSCE27.6% 22.2% 19.9%

CPIX4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 15.5%

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

%


9.2%

5.4%

2.6%

0.5%

Q208:-0.5%

Excellence in Monetary Policy?

2006 2007 2008

M323.1% 23.7% 20.0%

PSCE27.6% 22.2% 19.9%

CPIX4.6% 6.5% 11.6%

Prime (end of year) 12.5% 14.5% 15.5%

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


CPI Average: 2008 9.4%

Inflation: New Basket(?)

Fiscal Policy in SA

Fiscal Excellence?

Revenue & Expenditure:GDP

20

21

22

23

24

25

26

27

28

29

30

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

%

Trevor’s reign!

Gold

Deficit

Surplus

Background

Deficit:GDP

-8

-7

-6

-5

-4

-3

-2

-1

0

1

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

%


Background

State Debt:GDP

20

25

30

35

40

45

50

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

%

Good/Stable

Debt Trap Recovery

Spending Priorities

Expenditure: Functional Classification (1994)

7%

17%

14%

17%2%

21%

8%

4%

10%

43%

Central Gov

Justice and Prot.

Eco. & Infra.

State Debt Cost

Other

Education

Social Dev.

Other Social Serv.

Health

Expenditure: Functional Classification (Est. 2007/08)

6%

16%

15%

9%1%

18%

16%

8%

11%

52%

Central Gov

Justice and Prot.

Eco. & Infra.

State Debt Cost

Other

Education

Social Dev.

Other Social Serv.

Health

Social Spending

Social Grants Beneficiary Numbers

Grant Type

(‘000)

2003 2007 2008 (projected)

% Change

2003-2008

Old Age Grant 2,022 2,195 2,225 10%

Disability Grant 953 1,422 1,409 47.8%

War Veterans Grant 4 2 2 -50.0%

Foster Care Grant 138 400 446 223.2%

Care Dependency Grant (disabled)

58 98 110 89.7%

Child Support 2,630 7,863 8,208 212.1%

Total 5,808 11,991 12,402 106.5%

Source: 2008 Budget

2007: 26.0% of SA population

Grant Type

(‘000)

2003 2007 2008 (projected)

% Change

2003-2008

Old Age Grant 2,022 2,195 2,225 10%

Disability Grant 953 1,422 1,409 47.8%

War Veterans Grant 4 2 2 -50.0%

Foster Care Grant 138 400 446 223.2%

Care Dependency Grant (disabled)

58 98 110 89.7%

Child Support 2,630 7,863 8,208 212.1%

Total 5,808 11,991 12,402 106.5%

Source: 2008 Budget

Incentive to Save Less/Not at All?

“Igrant Yokuhlupheka”?

Incentive for Girls to have Children?

Unintended Consequences

Increase Dependency on State

Rescuing Bankrupt Companies

SAA

Denel

Remain Bankrupt

Limit Market Competition

Denel’s

Track Record:

2006: -R1.3 bn

2007: -R549 m

2008: -R347 m

Qualified Audit Opinions: Department 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01

Independent Complaints Directorate

✓

Land Affairs ✓ ✓

Transport ✓ ✓

Labour ✓ ✓ ✓

Justice ✓ ✓ ✓ ✓

Parliament ✓ ✓ ✓

Health ✓ ✓ ✓ ✓

Defense ✓ ✓ ✓ ✓

Correctional Services ✓ ✓ ✓ ✓ ✓

Water Affairs & Forestry ✓ ✓ ✓ ✓ ✓

Home Affairs ✓ ✓ ✓ ✓ ✓ ✓

General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06

International Flows

Excellence in International Trade?

2006 2007 2008

Current Account

-R112.3bn -R145.0bn -R167.0bn

Current Account:GDP

-6.5% -7.3% -8.1%

Financial Account

R102.0 R167.0 R187.4

Funding Non-Excellence?

2006 2007 2008

Current Account

-R112.3bn -R145.0bn -R167.0bn

Current Account:GDP

-6.5% -7.3% -8.1%

Financial Account

R102.0 R167.0 R187.4

Balance of Payments

Current Account vs Financial Account

-10

-8

-6

-4

-2

0

2

4

6

8

10

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

% GDPBarclays/Absa

De Beers delisting

Sanctions liftedDebt Standstill

Source: SARS and own calculations

Economic Growth

Excellence in Growth?

GDP market prices, q:q seasonal

0

1

2

3

4

5

6

7

8

2002 2003 2004 2005 2006 2007 2008

%


Average:3.0%

GDP per Capita

Constant GDP @ cap vs. Current GDP @ capita

7,500

12,500

17,500

22,500

27,500

32,500

37,500

42,500

1990 1992 1994 1996 1998 2000 2002 2004 2006

R

GDP @ cap, constant GDP @ cap, current

Source: International Monetary Fund, WEO 2008

Economic Slowdown = Good??

• Get Rid of ‘Dead Wood’

• Prevent Asset Bubbles – Property Market US!

• Help to Cap/Prevent Inflation

• Diminishing Wealth Effect – Help with Consumers’ Debt Position

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

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”

www.efgroup.co.za

Authourised Financial Services Provider – FSP No: 859

Dawie Roodt Financial Excellence

Economy & Finance

Transcript of Dawie Roodt Financial Excellence