Global Economic Outlook - Fasset...Global Economic Outlook – May/June 2012 3 Acronyms and...

Global Economic Outlook – May/June 2012

1

Global Economic Outlook

May/June 2012

Workbook

Facilitated by KPMG Services (Pty) Ltd.

The views expressed in this workbook are not necessarily reflective of the official

views of Fasset.


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GLOBAL ECONOMIC OUTLOOK

CONTENTS

ACRONYMS AND ABBREVIATIONS ....................................................................................................... 3

INTRODUCTION ............................................................................................................................................... 4

SESSION ONE: THE WORLD ..................................................................................................................... 5

The World: The current state of the global economic environment ............................ 5

Global outlook: .............................................................................................................................................. 5

Changes in global economic threats: ..................................................................................................... 7

United States: ................................................................................................................................................ 9

Europe: .......................................................................................................................................................... 10

Japan: ............................................................................................................................................................ 10

Emerging Markets (EM): .......................................................................................................................... 10

BRICS: ........................................................................................................................................................... 11

The Next 11: ................................................................................................................................................. 12

Africa: Where are we now? ........................................................................................... 14

Overview: ...................................................................................................................................................... 14

Sub-Saharan Africa: .................................................................................................................................. 14

North Africa: ................................................................................................................................................. 16

Africa: Where are we going? ........................................................................................ 18

Future trends: .............................................................................................................................................. 18

South Africa and the global economy .................................................................................................. 20

South Africa: Where are we now? ................................................................................ 21

A challenging environment: ..................................................................................................................... 21

South African competitiveness relative to peers: ............................................................................. 23

South Africa: Where are we going? ............................................................................. 24

Tackling unemployment, poverty and education: ............................................................................. 24

Addressing the concerns of investors: ................................................................................................. 26

The New Growth Path, IPAP2 and the policy direction: ................................................................. 26

The State of the Nation Address, 2012/13 Budget and the MTEF: ............................................ 27

And now for implementation: .................................................................................................................. 29

CONCLUSION ................................................................................................................................................. 31


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Acronyms and Abbreviations

BRIC Brazil, Russia, India, China

BRICS Brazil, Russia, India and South Africa

ECB European Central Bank

EIU Economic Intelligence Unit

EM Emerging Market

EU European Union

FED United States Federal Reserve Bank

FDI Foreign Direct Investment

GDP Gross Domestic Product

HDI Human Development Index

IDZ Industrial Development Zone

IMF International Monetary Fund

IPAP Industrial Policy Action Plan

MTEF Medium Term Expenditure Framework

N11 Next 11

NDP National Development Plan

NPC National Planning Commission

OECD Organisation for Economic Co-operation and Development

SEZ Special Economic Zone

WEO World Economic Outlook


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Introduction

The global economy is on a narrow path of slow and fragile recovery. Many countries are

struggling with a massive debt burden and high unemployment persisting to bog down their

economies and hampering growth. Oil and commodity prices will potentially remain high and

will continue to put further pressure on the global economy. The continued weak demand will

eventually cause commodity prices to stabilise or recede and global inflation is expected to

ease in 2012.

South Africa‟s robust financial institutions as well as its relatively moderate fiscal and

external debt allowed fiscal flexibility to withstand the impact of the global downturn to an

extent. However, with the Euro zone being South Africa's largest trading partner, the

prevailing financial pressures from that region, have reduced demand for the country‟s

goods. In addition, the current world economic situation is, to some extent, driving away

potential and existing investors from riskier emerging market assets such as South Africa, as

investors become more risk averse in their investment behaviour and subsequently move

their assets from emerging markets to saver investment environments.

As a new member of the BRICS, South Africa has to compete with the existing BRIC

countries as well as other developing economies, including those in the so-called “Next 11”

(N11) for a piece of the investment pie of the rest of the world. South Africa is now firmly part

of the developing economies of the world; the ones that are looked at to shape the future of

the global economic environment.

However, South Africa faces various challenges when it comes to global competitiveness.

Our financial markets and business institutions fare well if viewed against its peers.

However, there are areas the country needs to improve on in order to become more

competitive and attract more investment. More specifically, the country needs to address its

structural challenges including, unemployment, education and inequality in order to be a

global economic player.


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Session one: The World

The World: The current state of the global economic environment

Global outlook: The global economy is on a narrow path of slow and fragile recovery. Many

countries are struggling with a massive debt burden and high unemployment persisting to

bog down their economies and hampering growth. Europe‟s debt troubles is expected to

continue to threaten through 2012 but preventative policy decisions such as the recent

Greek bailout package have helped to calm market fears to some extent. The following

figure depicts the collective GDP growth rates for different geographic regions in the world.

Figure 1: GDP Growth by region

Source: Economic Intelligence Unit, March 2012

The US economy looks poised for slightly better growth this year than previously expected,

but will remain low. Emerging Market (EM) economies will be adversely affected by

economic and market threats in developed nations (more importantly the resulting drop off in

demand) and this has caused growth forecasts to be adjusted downwards for 2012. China‟s

economy has slowed down more than expected during the first quarter of 2012, although

exports are said to have been relatively stable amidst a dip in investment and consumption.

According to the Economist Intelligence Unit‟s (EIU) March economic outlook, world GDP is

expected to grow by 2.1% on a market exchange rates basis in 2012, slowing down

• Asia

• Australasia

• North Africa and Middle East

• Sub-Saharan Africa

• Western Europe

• and • North America

• and • Latin America

3.5%4.3% 4.6%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

4.3%

3.6%

4.2%

3.0%

3.5%

4.0%

4.5%

2011 2012 2013 -2016

3.1%

4.0%

4.7%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

4.4% 3.8%4.8%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

1.7%

-0.3%1.3%

-1.0%

0.0%

1.0%

2.0%

2011 2012 2013 -2016

1.8% 1.9%2.2%

0.0%

1.0%

2.0%

3.0%

2011 2012 2013 - 2016


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markedly from the previous two years. In addition, global demand has remained weak, which

has made trading difficult for many countries. The table below indicates selected

macroeconomic indicators from the EIU for some of the important developed economies

during 2011.

Table 1: Macroeconomic indicators – developed economies

Source: Economic Intelligence Unit

Oil and commodity prices remain high and will continue to put further pressure on the global

economy. The continued weak demand will eventually cause commodity prices to stabilise

or recede and global inflation is expected to ease in 2012. Barring a significant deterioration

in current European conditions, a further global recession seems unlikely. Below is a graph

indicating the EIU‟s March price forecast for Brent crude oil.

Figure 2: Brent Crude oil price forecast, (US$/b)

Source: EIU Commodity price forecast data, March 2012

2011 Figures Australia Germany JapanUnited

KingdomUS

Real GDP (US$) 271.8 49.3 301.8 2 359.1 6.4

Real exports of G&S (US$) 324.0 61.3 264.6 2 055.2 7.8

Real imports of G&S (US$) 1.0 1.0 1.0 1.0 1.0

Exchange rate LCU:US$ (av) 1.0 0.7 79.8 0.6 1.0

Public debt (% of GDP) 26.8 81.8 211.7 86.3 67.7

Consumer prices (%) 3.4 2.3 -0.3 4.5 3.1

Population (Million) 22.5 81.7 126.5 62.7 313.1

Unemployment rate (%) 5.1 6.0 4.6 8.1 9.0

GDP per head (US$) 66 000.0 43 820.0 46 420.0 38 520.0 48 200.0

Terms of trade (1990=100) 149.4 94.1 108.3 100.0 93.1

72.71

97.66

61.86

79.63

111.01

110

103.63

108.25

104

110

60

70

80

90

100

110

120

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016


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The global economy will have to balance productivity growth with job retention and manage

the current demand inefficiencies. Sound and well-communicated policy action is required to

align the global economy on its road to a sustained recovery.

Changes in global economic threats: The global economic climate, although somewhat

brighter, remains uncertain as some of the diminishing threats are being replaced by new

challenges. The Greek debt restructuring deal was agreed upon in February and alleviated

market fears to a certain extent. Furthermore, cheap loans worth in excess of €I trillion was

pumped into European banks to reduce any immediate liquidity issues.

Figure 3: Overview of the production and consumption growth rate of oil

Source: Energy Policy Scenarios to 2050, World Energy Council (in mn tonnes)

However, the price of crude oil has started to climb as 2012 continues and tensions

surrounding Iran‟s nuclear programme are putting pressure on the global recovery. With

energy usage on the increase, these are worrying factors for all economies, now, and in the

future. Any further deterioration in these political situations will result in added stress on the

oil price with damaging economic consequences. The chart below indicates the trend in

energy intensity by geographic region.

-

500

1 000

1 500

2008 2020 2050

North American region

-0.9%

0

200

400

600

800

1000

2008 2020 2050

0

100

200

300

400

500

600

2008 2020 20500

200

400

600

800

2008 2020 2050 0

500

1000

1500

2000

2500

2008 2020 2050

0

500

1000

1500

2008 2020 2050

0

200

400

600

800

2008 2020 2050

Asia pacific region

Middle East region

African regionLatin America & the

Caribbean region

Greater Russia region

Europe region

0.9%

1.8%

-1.2%

-2.4%

1.2%

0.8%

Production (Mn tonnes)

Consumption (Mn tonnes)

Compounded annual

growth rate consumption

Legend


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Figure 4: Energy intensity by geographic region

Source: Economist Intelligence Unit, KPMG calculations

0

100

200

300

400

500

600

700

800

Sub-S

ahara

n A

fric

a

East

-Centr

al E

uro

pe

Mid

del E

ast

and N

ort

h A

fric

a

Asi

a a

nd A

ust

ralia

sia

Latin

Am

erica

Nort

h A

merica

West

ern

Euro

pe

World

1990 2000 2010 2015


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The following pie shows the global cumulative investment in energy infrastructure required

during 2011 to 2035 in order to sustain expected growth levels.

Figure 5: Cumulative investment in energy infrastructure

Source: World Energy Outlook 2011, (2010 real terms)

United States: The US economy grew by 1.7% in 2011, but grew by 2.8% in Q4 of 2011

(following a 1.8% rise during the previous quarter), largely attributed to inventory investment

and stronger consumer spending. The higher consumer expenditure however, directly

impacted on household savings rates, which decreased sharply over this period. The

inflation rate for 2011 increased to 3.2% from 1.6% in 2010. However, it is set to come down

gradually throughout 2012.

The unemployment rate came down in March 2012 to 8.2% from 8.3% in February, although

a smaller number of workers were hired. The reduction in unemployment may therefore be

attributed to an increase in discouraged workers for the month of March. It is expected that

the level of unemployment will come down slowly over time.

Growth prospects for Q1 2012 are around 2 to 2.2% on the back of a gain in consumer

confidence‟s subsequent retail sales and manufacturing. The growth rate for the whole of

2012 is anticipated to be around 2.2%. The sluggish housing market will continue to put

pressure on US households‟ balance sheets. Furthermore, the upcoming election makes

radical policy decisions improbable, as the two opposing parties use these matters for

strategic battles.

3% 1%

25%

26%

45%

Oil- $10.0 trillion

Natural Gas - $9.5 trillion

Bio-Fuels - $0.3 trillionCoal - $1.1 trillion

Power- $16.9 trillion


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Persistently high unemployment and risks of downturns in markets abroad will keep the

FED‟s policy rate at very low levels until even as late as 2014. If EU conditions worsen

further, another round of quantitative easing (QE3) is still a possibility.

Europe: European economic growth slowed during 2011 to 1.5% and is expected to contract

further in 2012 to -0.3%, before a modest recovery in 2013. Inflation should remain relatively

low and contract to around 2.2% in 2012 from the 2.7% observed in 2011.

The European Central Bank (ECB) has overturned their two interest rate increases earlier in

2011 through recent rate cuts, with the current level of 1% expected to be sustained

throughout 2012. The ECB has also shown flexibility by lengthened the term of its liquidity

facilities for banks experiencing funding stresses. These funding stresses are directly linked

to the foreign exchange market where the Euro is in danger of falling out of a recent trading

range of US$1.30 to US$1.40 to the Euro, moving to a range of US$1.23 – US$1.28 to the

Euro in the coming years.

The European debt crises threatened to derail global recovery for the last two years, recent

agreements regarding the Greek bailout and their debt restructuring in February 2012 have

contributed to a more stable outlook for the region. There are some more encouraging signs:

the cheap ECB money made available for three years through a special financing operation

last year in December, have brought some more relief.

However, it remains to be seen whether the half-trillion Euros provided by the ECB will help

to alleviate the region‟s financial ills rather than just masking the underlying problems.

Furthermore, severe unemployment throughout the Euro zone (around 10 – 11% on

average) remains widespread and is a growing worry.

Japan: Manufacturing in Japan is already experiencing a v-shaped recovery after the March

2011 earthquake and tsunami. After a 0.7% contraction in 2011, GDP is expected to grow at

around 1.5% in 2012 on the back of reconstruction activities and a recent upswing in

machinery exports and local consumption. The resurgent yen is strong and relatively stable,

but weak demand together with a sliding domestic savings rate, is expected to put pressure

on the Japanese currency and economic growth in the medium term, with inflation hovering

around the 0% mark in 2012.

Emerging Markets (EM): Fears surrounding an economic downturn have lead EM central

banks to either cut their interest rates or postpone monetary tightening during 2011. EM

currencies and asset markets have fallen, as the Euro zone crisis caused a loss of risk

appetite and weaker commodity demand from the West, impacting directly on manufacturing


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and other exports. This is true for Eastern Europe, Asia, Latin America and Africa. Some EM

countries, such as in Latin America, had to utilise monetary tightening measures to prevent

their economies from overheating as inflationary pressures mounted in early 2011, but have

since lowered rates again. Below are some macroeconomic indicators for some notable EM

economies around the world.

Table 2: Macroeconomic indicators – EM economies

Source: Economic Intelligence Unit, 2011

Market expectations are that EM countries will outperform developed countries in the

medium term (2013 – 2016), as interest rate differentials will favour investment into these

EM countries over that of the OECD economies. According to the EIU, Non-OECD

economies are set to grow at around 5.5% during 2012 versus growth prospects of about

1.2% for OECD economies as a whole.

BRICS: The BRICS countries refer to the original BRIC economies namely Brazil, Russia,

India, China, with the inclusion of South Africa. The BRIC countries are recognised as

having very large economies and populations, with unrivalled growth potential in foreseeable

years.

The Brazilian economy experienced rapid expansion in the last decade with strong economic

growth on the back of disciplined economic policy implementation and a favourable export

demand market. With the global downturn, growth declined and the economy expanded by

2.9% in 2011. The Brazilian government has since implemented flexible macroeconomic

policy measures to ensure a favourable economic environment and with an expanding

domestic demand, their economy is expected to grow by 3.3% in 2012.

Russia experienced strong economic growth over the past few years, but manufacturing and

foreign investment slowed since the global downturn which will have a negative impact over

2011 Figures Brazil China India RussiaSouth

Korea

Real GDP (US$) 280.4 29.5 46.7 3 284.0 0.1

Real exports of G&S (US$) 334.2 36.6 41.0 2 861.0 0.2

Real imports of G&S (US$) 1.0 0.6 0.2 1.4 0.0

Exchange rate LCU:US$ (av) 1.7 6.5 46.7 29.4 1 108.2

Public debt (% of GDP) 54.2 15.6 49.0 8.3 34.4

Consumer prices (%) 6.6 5.5 8.9 8.4 4.0

Population (Million) 192.8 1 320.0 1 202.0 141.5 49.6

Unemployment rate (%) 6.0 6.5 9.8 6.6 3.4

GDP per head (US$) 12 830.0 5 340.0 1 580.0 13 133.0 22 000.0

Terms of trade (1990=100) 173.2 101.0 136.6 244.8 41.5


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the medium term. However, the Russian economy has shown resilience with low levels of

inflation, unemployment and public debt. High oil prices will bolster the economy during 2012

which will result into large export revenues, buoyant fiscal revenues, and a bullish stock

market. Russia‟s GDP growth was 4.3% in 2011, and is expected to dip to 3.5% in 2012.

India has been able to capitalize on increased investment and demand via gains made in

productivity growth, resulting in very strong economic growth in the last decade. India‟s

GDP growth for 2011 is estimated to be 7.1%, and growth for 2012 is anticipated to be

around 7%.

The Chinese economy is anticipated to have grown by around 8.4% in Q1 2012, from a

growth rate of 8.9% observed in the previous quarter. Although this number is lower than

expected, the recent increase in US demand lead to increased exports and is accompanied

by positive economic indicators such as increased fixed asset investments, manufacturing

index and retail sales. However, the anticipated low demand from Europe and the US has

caused the EIU to report China‟s expected growth to be 8.3% in 2012, after the economy

grew by 9.2% in 2011.

Inflation was driven up to 3.6% for Q1 2012 by increasing food prices, and although

surprisingly high, it is still within the government‟s targeted band of 4%. The Chinese

government might consider another stimulus package to ensure liquidity in the

manufacturing industry and allow more infrastructure expenditure. This will be a dangerous

The Next 11: This group consist of South Korea, Iran, Mexico, Turkey, Philippines,

Indonesia, Egypt, Nigeria, Pakistan, Vietnam and Bangladesh. These economies are smaller

in size than the BRIC countries, but with its large population size and growth rates of above

the global average, promise favourable opportunities for future investment and market

growth.

In summary, it is useful to take a look at the trends that can be observed for the various

economic regions and groups over the last few years as well as their expected growth

outlooks.


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Figure 6: GDP growth by region, graph 1

Source: Economic Intelligence Unit, March 2012

Figure 7: GDP growth by region, graph 2

Source: Economist Intelligence Unit, March 2012

3.0

2.31.6

4.2

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GD

P g

roth

(%

p.a

)

World North America

Western Europe Asia & Australasia (incl Japan)

Latin America

3.0

3.8

4.9

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016

GD

P g

roth

(%

p.a

)

World Transition economies Middle East & North Africa Sub-Saharan Africa


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Session Two: Africa

Africa: Where are we now?

Overview: Structural changes in Africa enabled significant increased labour productivity

over the last decade, moving to 2.7% during 2000 to 2010 from -0.2% between 1990 and

2000 and -0.5% from 1980 to 1990. Rapid urbanisation is allowing increased access to

markets and it is expected that by 2030, 50% of Africans will be living in cities.

However, an overarching theme in Africa has been the inability of economic growth to create

employment to a sufficient degree. Furthermore, most countries are still too reliant on their

natural resource endowments and need to diversify their economies which will allow for a

more enabling environment for job creation and investment. Rising food and oil prices will

continue to put pressure on these economies.

Increasing water stress and loss of habitat and biodiversity are further areas of concern, with

constrained agricultural production and food insecurity increasing. Investment in health and

education is crucial for the continent to lift its population out of poverty.

Improvement in physical, legal and governmental infrastructure, together with the reduction

of corruption, crime and unfair business practices are needed to allow for an enabling

environment able to attract investment. A decrease in bureaucratic impediments and

revisions in tax codes will also go a long way in ensuring ease of doing business and

increase foreign direct investment.

Intra-African trade has been lacking, and will benefit greatly from these improvements. At

this stage, South African trade comprise 50% of total African trade, with only 11% of this

number being intra-African.

Sub-Saharan Africa: Sub-Saharan Africa is considered as a growth point in coming years,

with the EIU expecting a growth rate of 3.8% for 2012 after an estimated rate of 4.4% in

2011 for the region. In this region, Angola, Congo, Ethiopia, Ghana, Mozambique, Nigeria

and Zambia are considered to be the countries with the most growth potential. The global

downturn did not affect these countries as much at first, but as a result of dried up trade

credit and the reduced demand for their exports from developed economies, the region has

since felt the impact. The slowdown of the Chinese economy will also have a major impact

on growth and investment, but as commodity prices rise, GDP growth will slowly tick up.


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The following graphic indicates the forecasted growth rates of countries with the highest

growth potential up to 2015. As one can see from the figure below, an overwhelming number

of these are Sub-Saharan countries:

Figure 8: Historic and future growth trends of countries with high growth potential

Source: IMF World Economic Outlook, 2012

Angola‟s increased oil output contributes about 85% of GDP and recent natural gas

developments will result in a high GDP growth rate. The country is also well endowed with

gold, copper and diamonds, but its heavy reliance on oil as a driver of economic growth

however, holds a risk for their largely undiversified economy.

Congo (or the Democratic Republic of Congo), though incredibly richly endowed with natural

resources, remain one of the countries which citizens are among the poorest in the world.

The country is marred with political conflict, violence, crime and corruption and lack of

infrastructure, which does not bode well for attracting potential investors. The country also

suffers from s very high rates of inflation. However, the agriculture industry – employing

more than 75% of the working population - is gradually increasing on the back of

improvements in infrastructure. The mining sector, producing mainly copper, cobalt and gold,

is also set to expand and contribute greatly to GDP growth.

Ethiopia has been one of the fastest growing African countries in the past few years as a

result of some modest economic reforms, but as with Congo, its large population suffers

2001 - 2010 2011 – 2015 : Forecast2

00

1 -

20

10

20

11

-2

01

5

China9.5

Nigeria6.8

Zambia6.9

Tanzania7.2

India8.2

Congo7.0

Vietnam7.2

Angola11.1

Rwanda7.6

Cambodia7.7

Nigeria8.9

Kazakhstan8.2

Ethiopia8.4

Myanmar10.3

China10.5

Chad7.9

Mozambique7.9

Ethiopia8.1

Mozambique7.7

Ghana7.0


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from extreme poverty and a soaring inflation rate. The country is Africa‟s largest exporter of

coffee and second largest maize producer, as well as a big producer of livestock. Ethiopia

boasts the biggest water reserves in Africa but has failed to utilise this resource efficiently

and have fallen victim to ravaging droughts over the years, impacting heavily on human

mortality and development.

Ghana remains one of the world‟s biggest gold producers and other exports include cocoa,

natural gas, timber and diamonds. Oil production recently started which will further boost

their GDP growth. The country is politically stable, and the government is prioritising its

commitment to infrastructure spending to further strengthen its economic and investment

potential.

Mozambique is a resource rich country, producing food, beverages, chemicals, aluminium,

petroleum products – set to increase after the recent discovery of LNG fields off the coast -

and more. The agriculture sector is also increasing its output and with political will towards

transparent economic governance, the country provides an attractive environment for

economic growth. Infrastructure development, especially electricity, is necessary to increase

output and create more investment opportunities.

Nigeria‟s vast population size and well developed financial and communications sectors

continue to attract mobile phone networks and banks looking to capitalise on the large

amount of unbanked individuals. Oil and gas production will continue to dominate GDP

growth, but infrastructure and political unrest serves as threats to further investment and

future growth.

Zambia is a large producer and processor of copper and this hard commodity is its main

export, with agriculture being an important pillar of the economy. The country held

democratic elections in September 2011 and this improved its democracy index significantly,

providing a substantial boost in attracting foreign investment.

North Africa: Political stability will be the most important risk factor for the region. The

turbulent political atmosphere of the Arab Spring has dominated 2011 and impacted heavily

on the economic conditions throughout the North African and Middle Eastern region. It is

expected that 2012 will bring a substantial recovery in a number of the countries significantly

affected by the political unrest such as Tunisia, Libya and Egypt, which will be welcomed by

all neighbouring economies. The region‟s oil exporting countries will find it easier to return to

previous growth levels than their importing counterparts, who will feel the sting of the recent

price increases observed in this commodity.


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Algeria is renowned for its oil and gas reserves, and these resources have dominated its

export industry and continue to contribute greatly towards the country‟s GDP. In addition,

Algeria‟s agriculture sector produces olives and a wide variety of fruit and vegetables. The

country was largely stable throughout the political unrests of its neighbouring countries and

continued to record steady economic growth, but more attention should be given to structural

reforms in order to diversify the economy, reduce unemployment and attract sustainable

private investment.

Egypt experienced a period of accelerated growth following reforms to stimulate investment

during the last five years. Their economy is based on agriculture as well as exports of their

natural resources including oil, coal, natural gas and hydro power. The Egyptian government

has also invested in infrastructure and communications, and implemented economic

liberalisation and privatisation measures to attract foreign direct investment. However,

unemployment remains high, as with inflation, placing a massive burden on its citizens. The

country‟s economic growth is currently very much dependent on the pace and ease of

transition to a new, stable government rule, and the implementation of policies to address

structural inefficiencies.

Libya is slowly recovering from a crippling civil war and like some of its neighbouring

countries, is dependent on a smooth transition to a new government and the accompanying

and necessary structural policy reforms to be successfully implemented. The country relies

almost entirely on its massive hydrocarbon production and export sector which has

recovered to more than half of the output levels observed before the start of the revolution.

Unemployment and inflation are a twin evil which needs to be addressed to alleviate the

social burden on its citizens.

Morocco stood firm during the global financial crisis and while the political turmoil unfolded

around the countries‟ borders as a result of the successful implementation of structural and

social reforms by the government. Morocco is the world‟s largest exporter of phosphorus and

mining, construction and manufacturing make up just over half of the country‟s GDP. The

economy is quite diversified however, with sectors such as agriculture, tourism, telecoms, IT

and textiles showing substantial growth over recent years. The high import cost of oil will

continue to put pressure on the Moroccan economy as the price continues to remain high.

Unemployment and inflation is relatively low, but urban and youth unemployment remains

high and is something that needs to be addressed.


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Tunisia‟s economic activity was severely altered during the populist uprisings as well as the

following conflict in neighbouring Libya. The country has a diversified economy, ranging from

mining, agriculture, manufacturing and petrochemicals to tourism which was heavily

impeded on during the revolt. Although inflation remains relatively moderate, Tunisia also

suffers from high levels of unemployment, especially among its youth.

Africa: Where are we going?

Future trends: Infrastructure expansion and network growth are areas of development in

the future, speeding up national processes and connecting Africa to the rest of the world. An

increase in banking facilities will allow a vast amount of individuals to start businesses and

foster a new idea regarding wealth creation and protection.

According to the World Bank, Africa currently spends $45 billion per annum on infrastructure,

when it should be spending about $93 billion in order to catch up with other developing

regions in the next ten years. The challenges Africa face with regards to infrastructure

improvement, includes the high costs faced relative to other economies, as well as a shortfall

in funding for electricity.

Figure 9: Current and future trends in Africa

Source: African Economic Outlook, Economist Intelligence Unit, United Nations

Currently, Africa is a net importer of food and unable to meet local demand. With 60% of the

world‟s uncultivated arable land and low crop yields, Africa has enormous potential for a

Current

22

The number of people per square kilometre (population density) (UN)

6%

Old age dependency ratio (UN)

> 1 billion Africa‟s population (UN)

5.5% Sub-Sahara GDP growth rate in 2011 (f) (AEO)

The future

60

The number of people per square kilometre (population density) by 2050 (UN)

10% Old age dependency ratio of 10% by 2050 (UN)

>1.8 billion

Africa‟s population by 2050 (UN)

4.9%

Sub-Sahara GDP growth rate in 2015 (EIU)


19

“green revolution” similar to those seen in Asia and Brazil. Various stages of benefication

exist and it is within this value chain where the number of linkages can lead to job creation.

Challenges remain regarding production inefficiencies and political will to support agriculture.

Furthermore, the impact of climate change could be severe, seeing that 96% of Africa‟s

agriculture is extremely rainfall dependent.


20

Session Three: South Africa

South Africa and the global economy: It‟s been 18 years living in a democratic South

Africa. We as South Africans have seen many changes and many challenges over this time

and we have certainly come a long way. Our population has grown by more than 10 million

people, from just short of 40 million in 1994 to over 50 million in 2011. The size of our

economy, measured by the change in real GDP, has grown by 67% from R1 100 bn in 1994

to R1 834 bn in 2010. Individually, South Africans are also better off: Real GDP per capita

has grown by 28% from R28 536 in 1994 to R36 591 per capita in 2010, while the real

disposable income of households per capita has grown by 32.6% from R17 775 in 1994 to

R23 569 in 2010.

South Africa‟s robust financial institutions as well as its relatively moderate fiscal and

external debt allowed for fiscal flexibility to withstand the impact of the global downturn to a

large extent. However, with the Euro zone being South Africa's largest trading partner, the

prevailing financial pressures have reduced demand for the country‟s goods. In addition, the

current world economic situation is, to some extent, driving away potential and existing

investors from riskier emerging market assets such as South Africa as investors become

more risk averse in their investment behaviour and subsequently move their assets from

emerging markets to saver investment environments.

Demand affects the currencies of trade partners, and as a consequence of the lower global

demand, especially in the advanced economies, the rand has experienced a prolonged

depreciation. The slowdown in the Chinese economy will have a similar impact on South

Africa‟s economy, being a large trading partner of the country. In addition, cost push

inflationary pressures coming from food and oil prices, as well as sustained structural

inefficiencies such as the high unemployment level continue to impact negatively on the

South African economy.

The economy grew by 3.1% during 2011 but is expected to expand by only 2.3% in 2012,

with inflation expected to average around 5.3% according to the EIU.

As a new member of the BRICS, South Africa has to compete with the existing BRIC

countries as well as other developing economies, including those in the so-called “Next 11”

(N11) for a piece of the investment pie of the rest of the world. South Africa is now firmly part

of the developing economies of the world; the ones that are looked at to shape the future of

the global economic environment.


21

A major advantage lies in South Africa‟s geographical location. With the great interest in Sub

Saharan Africa and its growth potential, South Africa offers the convenient link for countries

such as China to gain its foothold in these developing economies.

Combined with that, the fate of Africa has also changed significantly, and with South Africa

being regarded as the economic powerhouse of Africa, we have a role to play in the future

development of the continent we are part of. Even in 2012, a year that is expected to be a

difficult one for the global economy with global growth expected to average around 3%,

Africa‟s GDP growth is estimated to reach almost 6%.

Foreign investors also appreciate how far the country has come and we are ranked amongst

the best in the world with regards to our financial sector, the strength of our reporting and

auditing standards, the protection of investor rights and our legal framework. The country

also benefits from the relatively large size of its economy, in particularly in comparison with

the rest of Africa. If compared to the rest of the world, South Africa also does well in areas

such as business sophistication, innovation, benefiting from good scientific research

institutions and the strong collaboration that exists between the business sector and

universities.

South Africa: Where are we now?

A challenging environment: Europe‟s financial crisis is expected to continue through 2012

and adversely affect world economic growth especially in Emerging Market (EM) countries,

where growth is set to be lower than what was previously anticipated in late 2011. Although

a bail-out package for Greece was finally agreed upon on 21 February 2011, the extent of

the European crisis will continue to weigh down financial markets and hamper global

economic growth. It remains to be seen whether the half-trillion Euros provided by the ECB

will help to alleviate the region‟s financial ills rather than just masking the underlying

problems.

South Africa, however, is in a unique situation if compared with its peers: As a small open

economy and with the Euro zone being South Africa‟s largest trading partner, the prevailing

financial crisis has reduced demand for South Africa‟s goods and has, to some extent, driven

away potential and existing investors from riskier emerging market assets, as they become

more risk averse in their investment behaviour. As a result, the South African economy is

expected to grow by around 2.8% in 2012.


22

Table 3: South Africa - Macroeconomic overview

Source: National Treasury, Budget Review 2012/13

It will take time for Europe to recover and it is expected that the economic landscape will

never be the same as it was before. From this perspective, South Africa will have to change

its traditional focus to trade with China and India, and with the rest of Africa. In addition, we

have seen some significant structural changes in our economy: As is typically the case with

economies going through the transitional phases of development, there has been a

significant shift towards the services sector becoming a major contributing sector to our

GDP. In fact, the share of the finance, real estate and business services sector has grown

from just over 16% to over 20% of GDP. During the same time, the country has seen a

decline in the role of traditionally important sectors such as the mining sector and agricultural

sector.

Employment in both these sectors has declined, with agriculture employment declining from

1.3 m in 2000 to 630 000 in 2011, and mining employment declining from 431 000 in 2000 to

327 000 in 2011. Given the size of the country, the assumption would be that South Africa

should be able to provide for its own food resources. However, with only 12% of the country

being suitable for the planting of crops, we will have to rethink our approach to agriculture to

improve food security. South Africa can take a page from Brazil‟s book and the success that

the country achieved in turning the traditional agricultural sector into part of the

manufacturing sector through optimising beneficiation opportunities.

South Africa holds the world‟s largest natural reserves of gold, platinum-group metals,

chrome ore and manganese ore. There is substantial potential for the discovery of further

deposits in areas yet to be explored. For the mining sector, the importance of certainty

around Government‟s views and approach towards nationalisation cannot be

underestimated if we are to take full advantage of the abundant natural resources in the

country. These structural changes, of course, come with their own challenges: a services

Actual Estimate

2010 2011 2012 2013 2014

Final household consumption 3.7 4.9 3.6 3.8 4.2

Final government consumption 4.9 4.6 4.1 4.1 4.1

Gross fixed capital formation -1.6 4.3 4.1 4.5 6

Gross domestic expenditure 4.2 4.1 3.9 4.2 4.9

Exports 4.5 6 2.9 5.8 6.6

Imports 9.6 9.4 7.2 7.1 8.3

Real GDP growth 2.9 3.1 2.7 3.6 4.2

Headline CPI inflation 4.3 5 6.2 5.3 5.1

Forecast Percentage


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economy requires specific skills. This once again places South Africa in a challenging

position: certain sectors of the economy are experiencing skills shortages, whilst

unemployment levels are comparatively very high.

South African competitiveness relative to peers: South Africa faces various challenges

when it comes to global competitiveness. While our financial markets and business

institutions fare well if viewed against its peers, there are a number of vital areas the country

needs to improve on in order to become more competitive and attract more investment. This

is even more apparent when one looks at the peer countries listed and their relative position

regarding global competitiveness.

Out of the ten countries listed below in the two graphs, South Africa fares as follows:

Overall ranking (4th), Institutions (1st), Infrastructure (5th), Macroeconomic environment

(6th), Health and primary education (9th), Labour market efficiency (8th) and Market size

(9th).

These rankings are depicted in the two charts below, measured against economic peers.

Figure 10: Competitiveness index of South Africa vs selected peers, chart 1

Source: WEO Global Competitiveness report, 2011 - 2012

Figure 11: Competitiveness index of South Africa vs selected peers, chart 2

53

66

56

26

50

46

58

12

7

24

59

87

68

10

1

32

13

1

64 69

14

0

15

758

3

65

81

36

95

94

11

4

70 76

13

3

10

8 3 2

25

15

12

34

11 17

0

20

40

60

80

100

120

140

160

Brazil Russia India China South Africa

Indonesia Mexico Nigeria South Korea

Turkey

Rank o

ut of 142 c

ountr

ies

Overall Ranking Health and primary education Labour Market efficiency Market size

53

66

56

26

50

46 5

8

12

7

24

59

77

12

8

69

48

46

71

10

3

11

1

65

80

64

48

89

44

62

76

66

13

5

9

51

11

5

44

10

5

10

55

23

39

12

1

6

69

0

20

40

60

80

100

120

140

160

Brazil Russia India China South Africa

Indonesia Mexico Nigeria South Korea

Turkey

Rank o

ut of 142 c

ountr

ies

Overall Ranking Institutions Infrastructure Macroeconomic environment


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Source: WEO Global Competitiveness report, 2011 - 2012

South Africa‟s business institutions are very well regulated and stable and the country is

ranked 4th on financial market development. Furthermore, an overall ranking of 38 (out of

142 countries) for business sophistication, 32 for goods market efficiency and 41 for

innovation is achieved. These positive areas have been responsible for a large amount of

South Africa‟s foreign direct investment.

However, other than the criteria listed above, the WEO Global Competitiveness Report lists

inefficient government bureaucracy, inadequately educated workforce, restrictive labour

regulations, corruption and crime/theft as the 5 most problematic factors for doing business

in South Africa. Inadequate supply of infrastructure and a poor work ethic in the national

labour force are also cited as further obstructions. Higher education and training also lag

behind our efficiency enhancers, ranking 73rd out of the 142 countries.

Another worrying factor, is that the GDP growth rates foreseen for South Africa over the next

few years are around half of what is expected in countries such as China, India, Nigeria, and

the other associated peer countries. Continued lower growth rates will widen the gap

between South Africa and its peer countries to a point where the country will fall behind too

far to be competitive. In addition, the country‟s relatively small market size and population,

as well as recent political tensions in the ruling party, impact negatively on South Africa‟s

image as a growth market with the BRIC and N11 countries.

South Africa has a number of advantages and areas of strength relative to its peers and the

NDP has accurately addressed the areas that need improvement. If South Africa can mend

the disconnect that exists between its areas of excellence and its areas of relative

weakness, the economy will flourish, creating jobs, attracting foreign investment and ensure

a dignified existence for all its citizens.

South Africa: Where are we going?

Tackling unemployment, poverty and education: The unemployment rate peaked in 2001

at 31%, but through sustained economic growth from 1997 to 2008, a drop in the

unemployment rate to 23.2% was achieved in 2008. However, the global economic downturn

had a negative impact on economic and employment growth after 2008, and by 2010 the

unemployment rate had increased to 25.4%. On the positive side, a decrease in the

unemployment rate had been observed in the fourth quarter of 2011, with the rate

decreasing to 23.9%.


25

When examining the unemployment figures in a bit more detail, two key trends jump out: the

issue of discouraged work-seekers – i.e., people that gave up looking for a job and the high

rate of youth unemployment. The broad rate of unemployment, which includes discouraged

work-seekers, was measured at 35.4% for 2011Q4, down from the 36% of the previous

quarter, and has been at or above 34% since 2009Q3. The number of the not economically

active population increased by 134 000 during 2011Q4, of which 111 000 were discouraged

work-seekers, which affected the observed drop in the unemployment rate to 23.9%.

Unemployment largely affects the youth in South Africa, with roughly 71% of all unemployed

individuals being between the ages of 15 and 34 in 2011Q4. The unemployment rate for

youths between the ages of 15 – 24 years stood at 49.2% in 2011Q4, decreasing from

51.3% observed in 2010. Youth unemployment for the 25 – 34 age category was 27.8% in

2011Q4 and also decreased from the 29.1% of 2010. The education sector in South Africa

has not been successful in addressing the skills challenges of the country.

The quality of education received by learners in disadvantaged areas remains of a poor

standard and is reflected in the statistics. According to a study done by Professor Tim

Simkins in 2005, South Africa‟s literacy and numeracy test scores are low by African and

global standards, although government dedicates nearly 6% of GDP on education and that

South Africa‟s teachers are among the highest paid in the world (in purchasing power parity

terms)5. In 2010, only 15% of learners who sat the matriculation exam achieved an average

mark of 40 percent or more. This is masked by the 67.8% pass rate number cited in the

2010 matriculation results. Infrastructure shortages at public schools also remain highly

unequal and many schools still do not have toilets, electricity, desks and chalkboards.

Although South Africa is considered an upper-middle income country because of a relatively

high GDP per capita figure, the reality is that the country is an extremely unequal society:

South Africa‟s Gini coefficient was 0.67 in 2005. This translates to the poorest 20 percent

only earning 2.3 percent of national income, while the richest 20 percent earns more or less

70 percent of income. The National Development Plan document has identified these three

areas as the areas of highest priority.

Currently, 39% of the population lives under the Commission‟s recommended poverty line of

R418 (in 2009 prices) per person per month. The National Planning Commission looks to

bring this number of people down to zero by 2030. Poverty alleviation and job creation

therefore go hand in hand. As it stands now, the country needs to create an additional 11

million jobs in the next 20 years and grow by about 5.4 percent on average over this period

to achieve this objective. Currently, a poor education system is debilitating South Africa‟s

growth potential and prevents South Africans from escaping a life of poverty and inequality.


26

It is important to notice that the document emphasises the implementation of all aspects of

the National Development Plan in order to solve South Africa‟s unemployment problem.

Addressing the concerns of investors: In order to put South Africa‟s economic growth on

a different trajectory, we cannot get away from the importance of Foreign Direct Investment

(FDI). Although it should be taken into account that a few large merger and acquisition

transactions as well as the global economic downturn have played a role in South Africa‟s

FDI, the country has seen some dramatic ups and downs in its FDI trends over the last few

years: $9 billion in 2008, $5.4 billion in 2009 and $1.6 billion in 2010. However, if we want to

attract more investment and be the preferred destination in Africa and become one of the

preferred investment destinations amongst our counterparts in the developing world, we

need to do more to address the concerns of investors, some of which are reflected in

2011/2012 Global Competitiveness Report:

Investors have ranked the impact of government bureaucracy, the inadequate skills of the

work force, South Africa‟s restrictive labour legislation, corruption and crime and theft as

their most significant concerns and impediments for doing business in South Africa.

South Africa is seen as a country with low levels of labour market efficiency and we are

ranked amongst the worst in the world when considering the rigidity of our hiring and firing

practices.

Foreign investors are also concerned with the lack of flexibility that exist with regard to

companies‟ ability to determine wages and the tensions that exist with labour unions.

Investors also indicate that the relatively poor health of our labour force is a worrying factor

when they consider investments in the country.

Although our infrastructure seems to be in a relatively good condition if compared to the

rest of Africa, investors are worried about infrastructure maintenance and are of the opinion

that our infrastructure needs upgrading.

The poor security situation and the impact and cost of violence and crime for business are

a cause for concern and we are ranked amongst the worst in world on this aspect.

The New Growth Path, IPAP2 and the policy direction: The New Growth Path document,

released in December 2010 by the Economic Development Minister Ebrahim Patel in

December 2010, has set job creation as a country priority, aimed at reducing unemployment


27

by 10 percentage points by 2020, down from the current rate of 23.9 per cent. The New

Growth Path has fixed six priority areas to job creation: infrastructure development,

agriculture, mining, manufacturing, the „green‟ economy and tourism. In addition, the

government states its commitment to implement the policy through:

A comprehensive drive to enhance both social equity and competitiveness

Systemic changes to mobilise domestic investment around activities that can create

sustainable employment

Strong social dialogue to focus all stakeholders on encouraging growth in employment-

creating activities.

The 2010/2011 – 2012/13 Industrial Policy Action Plan (IPAP2) was released in February

2010 and provides a strategy plan to diversify, intensify and enhance the competitiveness of

the South African industrial sector. The IPAP2 document builds from the first IPAP document

dating back to August 2007. This original document outlined „easy-to-do‟ actions that have

been largely implemented. The new mandate has now shifted to „need-to-do‟ action

necessary to generate a structurally new industrialisation path.

This document sets out these objectives, as well as ways to promote a more labour

absorbing industrialisation path in order to combat the country‟s unemployment problem and

to increase the participation of historically disadvantaged people and marginalised regions in

the core of the industrial economy. The Department of Trade and Industry stated that IPAP2

is “a radical shift to grow a developmental economy by taking deliberate decisions to ensure

that investment targets production sectors of the economy and to arrest the decline in

manufacturing and accelerate skilled employment creation.”

The State of the Nation Address, 2012/13 Budget and the MTEF: In the recent State of

the Nation Address, the 2012/13 Budget Speech and the Medium Term Budget Policy

statement of October 2011, two of the nine key issues identified in the NDP, infrastructure

and job creation, received much of the attention.


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Figure 12: NDP: 9 key issues

Source: National Development Plan, 2011

In the State of the Nation Address, five different infrastructure programmes were announced.

These programmes have an integrated approach and a geographical focus mainly in the

mining, transport and agricultural sectors. In the 2012/13 Budget speech, infrastructure

investment expansion was listed as a priority, with approved and budgeted Medium Term

Expenditure Framework (MTEF) plans of R845 bn. There was also a R2.3 bn allocation to

the support for industrial development and special economic zones.

There was also a particular focus on the unemployed youth of the country, even though

there was a welcome recovery as unemployment decreased from 25% in 2011Q3 to 23.9%

in 2011Q4. An additional R4.8 bn was allocated to expanded public works programme and

the New Jobs fund that began operating in June of 2011, received over 2500 applications

and committed over R1 bn in allocations to various projects. Below is a table with a summary

of the South African consolidated budget for 2012/13.

Table 4: South African consolidated budget 2012/13


The Budget Speech also indicated that Government was taking some steps to improve the

conditions for investors. In order to ensure that the South African economy remains on a

path of rapid and inclusive growth, the Government aims to support both the Industrial

Development Zone (IDZ) and Special Economic Zones (SEZ). Government allocated R2.3

Job creationInfrastructure

expansion

Transition to a low carbon economy

Transformation of urban and rural spaces

Education and training

Providing quality health

care

Building a capable state

Fighting corruption

Transformation and unity

R million 2011/12 2012/13* 2013/14** 2014/15**

Total receipts 830 210 904 830 1 005 871 1 118 183

Total payments 972 547 1058321 1 149 125 1 239 699

Budget balance -142 337 -153491 -143 255 -121 156

% of GDP -4.8% -4.6% -4.0% -3.0%


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bn of the R15.8 bn to economic services and environmental protection to the IDZs and

SEZs. The Minister of the dti has drafted legislation pertaining to the creation of the SEZs

which highlights various considerations for business that are willing to invest in these zones.

The elements under consideration include tax relief for those businesses who invest in these

zones, a reduction in the corporate income tax rate, and support for employment and training

expenses. Below is a summary of the tax proposals for 2012/13.

Table 5: South African tax proposals 2012/13


After receiving comments, Treasury recognises that there are barriers to investment that

exist for both foreign and domestic investors. In line with the Government‟s commitment to

an environment that will encourage business investment, the Minister of Finance indicated

that Treasury will consult and explore how it can lower these barriers and costs to all

investments in South Africa. The chart below indicates South Africa‟s budget balance as a

percentage of GDP.

Figure 13: Budget balance as a percentage of GDP


And now for implementation: The tricky part for Government is the implementation of

these initiatives, which require large capital outlays. Even though large portions of the

budget have been set aside for infrastructure and job creation projects, the Government

aims to reduce the projected 2012 /13 budget deficit from 4.6% to 3% in 2014/158. This

Tax proposals 2012/13

Personal income tax -4 300

Business tax -6 350

Indirect tax 8 342

National budget revenue after tax proposals 904 830

-3.0%

1.3%1.7%

-1.0%

-7.3%

-5.3%-4.8% -4.6%

-4.0%

-3.0%

-8.0%

-7.0%

-6.0%

-5.0%

-4.0%

-3.0%

-2.0%

-1.0%

0.0%

1.0%

2.0%

3.0%

2005/06 2006/07 2007/08 2008/09 2009/10 2010/11 2011/12 2012/13 2013/14 2014/15

% o

f G

DP


30

reduction could only be achieved through a reduction in spending, a clampdown on

corruption and graft, and the improvement of financial management and reporting.

As a nation, we have always been praised for our policymaking, the only criticism being the

implementation or lack of implementation thereof. In the 2012 Budget, it was announced that

corruption and fraud would be dealt with through new procurement policies and practises as

well as tighter enforcement of the existing laws. The National Treasury has issued new

regulations to the departments regarding the tender process and it will appoint a Chief

Procurement Officer who will be responsible for monitoring procurement.

Credit rating agencies will be watching with a keen eye the ability of the South African

government to remain in charge of its finances and its fiscal and monetary policy. At the end

of 2011, Fitch changed South Africa‟s credit rating outlook from neutral to negative, mainly

as a result of the increased government debt levels and concerns about the impact that

reduced spending might have on socio-economic stability in the country.

Moody‟s has also downgraded the credit rating of the five largest South African commercial

banks due to their perception of the South African government‟s reduced ability to support

these financial institutions if necessary. However, the Minister of Finance has indicated that

retaining a good credit rating remains one of his top priorities. When considering the

country‟s medium term growth outlook, a cause for concern is that the South African

economy relies heavily on the rest of the world in the form of trade and investment.

The European Union, our largest trading partner (25.1% of total trade) is currently embroiled

in a sovereign debt crisis and there are upside risks to inflation due to an increase in the oil

price as well as a potential weakening of the Rand. All these elements will hamper local

economic growth and make achieving these set objectives all the more difficult, unless we

are able to adjust our approach and align our manufacturing sectors to increase trade with

the rest of the developing world and the rest of Africa.

While on the topic of trade with the rest of Africa, South Africa‟s best chance of taking

advantage of being the „Gateway to Africa‟ is now. If we do not make use of this opportunity,

we might miss out on the growth and returns that Africa is presenting. In order to do this, we

will have to decide how we are going to implement changes that address the concerns of

investors.


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Yet, despite the challenges we are faced with, we as a nation have managed to weather the

storm better than most developed countries. Economic growth in 2012 will remain positive at

just below 3%10 and we remain one of the most attractive investment options on the

continent. In 2012, the plan is to move on and move forward and, with the NDP and the

programmes proposed and funded by the State of the Nation Address and the 2012 Budget,

we can do just that.

Conclusion

The challenging global economic environment translates to a significant slowdown in

demand from developed economies, directly affecting developing and export markets the

world over. Commodity and oil price increases will put further pressure on the global

economy, and prudent macroeconomic policies should be followed by different countries to

ensure a stable, albeit slow, road to recovery of the global economy. Although South Africa

has made significant progress since becoming a democratic country 18 years ago, structural

inefficiencies must be addressed in order to stake a claim as a competitive developing

economy on the world stage.

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