SA’s Macroeconomic Situation:- Mole Heap or Volcano?

Presented by:Dawie Roodt22 June 2006

Mole Heap

GDP

GDP

-3

-2

-1

0

1

2

3

4

5

6

7

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

%

GDP

GDP per capita '00

20000

20500

21000

21500

22000

22500

23000

23500

24000

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

R

Percentage of World GDP ‘04

1%2%2%

2%4%

5%5%7%

11%

28%

33% South Africa

Russia

Brazil

India

UK

China

France

Germany

Japan

USA

Rest of the World

Source: UNAIDS

GDP

Africa, South Africa, World GDP per Capita

0

1000

2000

3000

4000

5000

6000

7000

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

$

Source: UN

Countries Compared to Provinces

Country and Province GDP 2004 ($ Bn)

0 20 40 60 80 100 120 140 160 180 200 220

South AfricaEgypt

AlgeriaNigeria

GautengMorocco

KwaZulu-NatalWestern Cape

TunisiaAngolaSudan

Libyan ArabEastern CapeCote d'Ivoire

CameroonMpumalanga

KenyaLimpopo

North-WestFreestateTanzania

GhanaBotswana

EthiopiaUgandaSenegal

GabonDRC

MozambiqueMauritius

NamibiaZambia

Northern CapeMali

ZimbabweBurkina Faso

CongoBenin

MadagascarChad

GuineaSmallest 20

Source: UN

State Finances

Deficit:GDP

-8

-7

-6

-5

-4

-3

-2

-1

0

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

%

State Finances

Government Debt:GDP

25

30

35

40

45

50

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

%

Debt trapRecovery

Normal Normal

Inflation

CPI

0

3

6

9

12

15

18

21

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

%

14.619.91%

5.15%

Inflation

CPIX

2

3

4

5

6

7

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

%

4.5%

Conclusion

Solid GDP growth Sustainable state debt Benign inflation outlook: CPIX within target for

32 months Strong consumer confidence Strong business confidence

Volcano

Exchange rates

R/$ and R/Euro

5

6

7

8

9

10

11

12

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

Rand

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

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

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

%

Rand Valuation

Gold $800

Rubicon

Stock exchange crash

ANC, Reds fall

Election Exchange controls

Asian

crises

Wakefordgate

Rus, Zim, Arg

Fin Rand

NOFP + NOFP -

Private Sector Credit Extension

Private Sector Credit Extension (PSCE)

8

10

12

14

16

18

20

22

24

26

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

%

Disposable income of households

Change in disposable income of households

-4

-2

0

2

4

6

8

10

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Household debt to disposable income

Household debt to disposable income of households

30

35

40

45

50

55

60

65

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Savings to disposable income of households

Ratio of saving by households to disposable income of households

0

2

4

6

8

10

12

14

1970

1972

1974

1976

1978

1980

1982

1984

1986

1988

1990

1992

1994

1996

1998

2000

2002

2004

%

Source: SARB

Debt Servicing Cost

Debt payment cost % of disposable income

0

2

4

6

8

10

12

14

16

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

%

Interest rates

Prime

9

11

13

15

17

19

21

23

25

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

%

De Kock

Stals

Mboweni

Interest rates

Prime

10.00

10.25

10.50

10.75

11.00

11.25

11.50

11.75

Jan-04 Jan-06

%

Commodity Prices

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

0

100

200

300

400

500

600

700

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

10

20

30

40

50

60

70

80 $Cent

s

Commodity Prices

Gold Price: Rand and Dollar (spot per ounce)

500

1000

1500

2000

2500

3000

3500

4000

4500

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

Rand

0

100

200

300

400

500

600

700 $

Balance of Payments

Balance of Payments

Current Account vs Financial Account

-8

-6

-4

-2

0

2

4

6

8

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

% GDPBarclays/Absa

De Beers delisting

Sanctions liftedDebt Standstill

AIDS

People infected with Aids

20%

68%3%1%

4%

4%

Asia Africa Eastern Europe & Central Asia Caribbean Latin America High Income Countries

Source: UNAIDS

Conclusions

Currency exposed to global volatility Alarming increase in PSCE Stellar household debt/disposable income Lack of ‘savings culture’ by households Unexpected interest rate movements (on household budgets) Commodity prices – effect on businesses and inflation outlook Large current account deficit Labour productivity Effects of illnesses (AIDS, etc.) on workforce Transparency of Monetary Policy Authorities – CPIX targets 2010 and beyond…?

Mistakes made in Africa

Private Property RightsRegulated PricesIdolise LeadersMarketing BoardsNepotismIncompetenceCorruptionPoor Fiscal DisciplinePoor Monetary PolicyUnrealistic Projects

?

???

Asset Allocation

Reason

Equities ( ) Demand/Rand/International

Bonds Inflation/Supply

Cash Short Interest rates

Property Property Cycle

– Heavy Overweight

– Overweight

– Neutral

– Underweight

– Heavy Underweight

Local Equities, 2005

Economic Sector All JSE Sector

Agri, Forestry and Fishing Food Prod

Mining and Quarrying Mining, Platinum, Gold, Coal

ManufacturingAuto, Basic Ind, Beverages, Chem, Elect, IT Hard, Pharm & Bio, Steel & Other

Electricity, gas and water Oil & Gas

Construction Const & Build

Trade, hotels and restaurantsCyc Cons, Food & Drug, Gen Retail, House Goods, Non-cyc Cons

Transport, storage and comm. Telecomm, Transport

Finance, prop and bus. servBanks, Insurance, Life Ass, Media & Pht, IT, Property, Support Serv

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

www.efgroup.co.za