Transcript Diapositiva 1 - Cape Town Press Club

The SA Economy 2012:
Managing Crises or Unlocking Golden Opportunities
Presentation for:
Cape Town Press Club
21 February 2012
By
Dr Iraj Abedian
Pan-African Investment & Research Services (Pty) Ltd.
Outline
1. Stylized Facts of the SA Political Economy
2. Assessing the Fiscal Framework
3. Conditions for Unlocking the Golden Opportunities
4. Concluding Remarks
Slide # 2
Stylized Facts of SA Political Economy
Average GDP growth: SA vs. Peer Countries (2000-2010)
South Africa’s average growth has been lower than that of its
peer countries
Source: IMF & Respective Statistical Bureaus
Slide # 4
South Africa’s GDP Outdone by the BRIC
Countries
Source: IMF, RMB FICC Research, August 2011
Slide # 5
Unemployment –Global Comparison
Slide # 6
Public Backlog Needs
Decade-long Attention
Source: DBSA Barometer, 2008
Slide # 7
Rand Foreign Exchange Volatility
Peer Group Countries:
 Argentina
 Turkey
 Hungary
 Chile
 Poland
 Malaysia
 Philippines
 Mexico
 Israel
 Ukraine
 Korea
 Indonesia
 Russia
 Brazil
 Peru
 Colombia
 Thailand
Slide # 8
South Africa’s
Eroding Global Competitiveness
Administered Prices: 2000-2011
High administered prices, in particular the negative impact of the
ongoing surge in electricity prices, deplete South Africa’s
competitiveness
Source: IMF & Respective Statistical Bureaus
India: Fuel, Power, Light and Lubricants (2000-2009)
Brazil: Electricity
China: Electricity
Russia: Public Utilities
South Africa: Electricity
Slide # 10
Global Competitiveness Index
5
4.9
4.8
4.7
4.6
4.5
4.4
4.3
4.2
4.1
4
2005
2006
2007
OECD
2008
South Africa
Source: World Economic Forum, Competitiveness Report 2011/12
Slide # 11
2009
BRIC
2010
2011
De-Industrialisation
Declining Manufacturing Output and Contribution to GDP
22
(a) Contribution of
manufacturing to GDP (%)
(b) Growth of manufacturing output (%)
9
7
21
5
3
20
1
-1
19
-3
18
Expansion
due to
democracy
Contraction due to
Apartheid policies
-5
Contraction
due to
poor macro
policies
-7
17
-9
16
1970 1977 1984 1991 1998 2005
Contribution to GDP
Trend
-11
1970
1977
1984
1991
1998
Growth of manufacturing output
Source: SARB & PAIRS
Slide # 12
2005
Trend
Policy Environment:
Manufacturing Employment
NGP
IPAP
IPAP 1
IPAP 2
Slide # 13
Most Problematic Factors for Doing Business
in South Africa
Source: World Economic Forum, Competitiveness Report 2010/11
Slide # 14
Assessing SA’s Fiscal Framework
Financial , Economic and Effectiveness
Assessment of the Fiscal Framework
1. Financial Criteria: Deficit/GDP Ratio, Debt/GDP Ratio
Financial Sustainability Condition:
Rate of Debt Service Changes <= Rate of GDP Growth
(Tax Revenue)
2. Economic Criteria:
a) Financial Sustainability Condition
b) State of Economic Infrastructure Needed for
Sustainable Growth.
3. Effectiveness Criteria
Slide # 16
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
SA Government Debt as % of GDP
60
50
40
30
20
10
0
Forecast – 2011 -2014
Source: SARB
Slide # 17
SA Public Debt in Global Context :
Slide # 18
Public Sector Finances at a Glance
2010/11
2011/12
R billion
Outcome
Estimate
Revenue
758.4
814.2
890.0
994.5
1113.0
27.6
27.3
27.0
27.3
27.7
885.8
978.8
1062.3
1157.4
1247.0
32.2
32.9
32.2
31.8
31.0
-127.4
-164.6
-172.3
-162.9
-134.1
-4.6
-5.5
-5.2
-4.5
-3.3
2.8
3.1
3.4
4.1
4.3
2 664.3
2 931.8
3 208.2
3 555.0
3 930.5
Percentage of GDP
Expenditure
Percentage of GDP
Budget balance
Percentage of GDP
Real GDP growth (%)
GDP at current prices
Source: National Treasury
Slide # 19
2012/13
2013/14
2014/15
Medium-term estimates
Effectiveness Assessment
of the Fiscal Framework
1. Overall effectiveness of fiscal expenditure is poor- at
best.
2. The level of abuse and corruption is way too high.
a) Over R5 billion is under formal investigation!
b) Chronic annual audit qualification is the norm!
c) Four Provinces are subject to Section C100
d) The majority of municipalities are dysfunctional and
financially stressed due to abuse and incompetence.
3. The spirit and the skills needed for managing for
effectiveness are lacking.
Note: Fixing this is a pre-condition for poverty alleviation
and social development.
Slide # 20
The upshot……………..
1. Financial Criteria:
SA is doing fine subject to cyclical changes
2. Economic Criteria:
SA has a considerable and unsustainable deficit,
unfunded and largely neglected.
3. Effectiveness Criteria:
SA is facing a dangerous deficit! This is a real challenge,
if not a crisis, of fiscal efficacy! For social development
this is a pre-requisite.
Slide # 21
Unlocking The Economy’s
Golden Opportunities :
Unlocking SA’s Economic Potential
Key Sources of SA’s Growth and Job Creation Potential:
1. An integrated mineral beneficiation strategy;
2. A re-industrialisation policy;
3. An effective regional integration strategy.
Slide # 23
Urbanisation Fuelling Demand of Commodities
in the BRIC and elsewhere…..
Source: Standard Bank Research
Slide # 24
Mineral Beneficiation – A Narrow Perspective
Mining &
Production of Ore
Conversion of ore
into bulk tonnage
intermediate
goods (e.g.
metals and
alloys)
Source: PAIRS
Slide # 25
Conversion of the
intermediate
goods into a
refined product
for use by small
and sophisticated
Industries
Beneficiation Value Chain
Supply chain
industries
providing
equipment and
services to the
mining sector
Extraction and
mining activities
including
processing
Related industries
& multiplier effects
Source: PAIRS
Slide # 26
Industrial
applications,
utilization and
downstream
activities
Core vs Integrated Mineral Beneficiation
Source: PAIRS
Slide # 27
A significant business reality:
Mineral beneficiation
&
Re-industrialisation
are inseparable....
At present, SA enjoys a golden
opportunity for the second wave of reindustrialisation with significant and
meaningful political economy benefits....
An Econometric Illustration…
10-year cumulative effects of the economy-wide
impact of an increase in manufacturing output
3.4% growth
over 10 years
(baseline
scenario)
10% growth
over 10 years
(sustainable
scenario)
Change from baseline to
sustainable scenario
Output
R184 billion
R537 billion
191.85%
Employment
158,000
454,000
187.34%
Investment
R116 billion
R339 billion
192.24%
Household
consumption
R136 billion
R398 billion
192.65%
Real wages
R61 billion
R177 billion
190.16%
Fiscal revenue
R62 billion
R182 billion
193.55%
Exports
R52 billion
R151 billion
190.38%
Imports
R102 billion
R297 billion
191.18%
Exchange rate (R/$)
-1.43%
-4.08%
185.31%
Consumer inflation
-0.58%
-1.66%
186.21%
Source: PAIRS
Slide # 30
Employment effects (no. of jobs)
3.4% growth
over 10 years
(baseline
scenario)
10% growth
over 10 years
(sustainable
scenario)
Change from baseline to
sustainable scenario
Manufacturing
61,000
173,000
183.61%
Mining
8,700
25,300
190.80%
Agriculture
2,500
7,100
184.00%
Wholesale & retail trade
39,800
112,400
182.41%
Finance
16,600
47,500
186.14%
Construction
4,300
12,500
190.70%
Transport & Communication
2,800
8,200
192.86%
Electricity
7,400
21,800
194.59%
Source: PAIRS
Slide # 31
First things First:
some necessary urgent steps.....
To unlock the potential:
a. Professionalization/De-politicization of the key
technocratic layer of the pubic sector and its
SOEs as well as state agencies.
b. A radical reform of the education and human
resources development paradigm, even if this
entails a ‘terminal tax compact’
c. Re-industrialisation policy based on an
integrated mineral beneficiation strategy.
d. An active African integration policy, especially for
Sub-Saharan Africa.
Slide # 32
Concluding Remarks
In 2012, South Africa finds itself at a cross-road
again;
Key capabilities are built over the past 15 years,
Major fault-lines remain and need urgent
attention;
The solutions require a heavy mix of political
and technical inputs.
The speed with which we respond to the urgent
issues will define the trajectory and the pace of
the country’s democratization process and
global standing over the next decade.
Slide # 33
Concluding Remarks
Slide # 34
Thank you for your attention
[email protected]
Tel: 011 883 8036/7
Fax: 011 883 8038
Slide # 35
Global Competitiveness:
Global Competitive Index
South Africa is falling in its relative competitiveness.
Slide # 36
Most Problematic Factors for Doing Business in
South Africa
Labour
market
efficiency
Rank/142
Financial
Technological
Business
market &
Market size
Innovation
readiness
sophistication
development
Rank/142
Rank/142
Rank/142
Rank/142
Rank/142
Brazil
83
43
54
10
31
44
Russia
65
127
68
8
114
71
India
81
21
93
3
43
38
China
36
48
77
2
37
29
South
Africa
95
4
76
25
38
41
Source: World Economic Forum, Competitiveness Report 2011/12
Slide # 37
Most Problematic Factors for Doing Business in
South Africa
GCI 2011-12 GCI2010-11
Basic
Efficiency
Rank/142
Rank/139 Requirements enhancers
Innovation &
sophistication
factors
Brazil
53
58
83
41
35
Russia
66
63
63
55
97
India
56
51
91
37
40
China
26
27
30
26
31
South
Africa
50
54
85
38
39
Source: World Economic Forum, Competitiveness Report 2011/12
Slide # 38
Most Problematic Factors for Doing Business in
South Africa
Institutions Infrastructure
Rank/142
Rank/142
Macroeconomic
environment
Rank/142
Health and
primary
education
Rank/142
Higher
education &
Training
Rank/142
Goods
market
efficiency
Rank/142
Brazil
77
64
115
87
57
113
Russia
128
48
44
68
52
128
India
69
89
105
101
87
70
China
48
44
10
32
85
45
South
Africa
46
62
55
131
73
32
Source: World Economic Forum, Competitiveness Report 2011/12
Slide # 39
Reserves lower than IMF Adequacy Range
More Accumulation May Be Needed…
Source: Country Authorities & IMF staff estimates
Slide # 40
Skills Shortage
Overall poor ranking in Basic Education
Source: World Economic Forum, Competitiveness Report 2010/11
Slide # 41