Transcript View - Sarma

The state of the South
African economy
With perspectives on commodities, the
exchange rate, Brexit & the status of
SA bonds
Dr Roelof Botha
August 2015’s reasons for modest optimism (15 of them)
• Private sector competitiveness
• Expansion of infrastructure
• Fiscal stability (budget deficit & debt/GDP ratios)
• Opportunities in high-growth sub-Saharan Africa
• Capital gains on the JSE
• Balance of payments stability
• Relatively low interest rates
• Low household debt/disposable income ratio
August 2015’s reasons for modest optimism (15 of them)
- continued
• Growth in private sector credit extension
• Employment growth
• New record for real retail sales
• Real growth in salaries & wages
• Real growth in household expenditure
• New record high for real GDP per capita
• New record high for household net wealth/disposable
income
Commodities
& notes
on Africa
The Southern African economy
Prospects for
sustained growth
Demographic trends (South Africa)
(Source: Stats SA)
25
Million people
20
Other
15
Black rural
Black urban
10
5
0
1970
1980
1990
2000
2010
2014
Top-10 agriculture export trade growth partners in Africa
(annual avg. 2010 – ʹ15)
(Sources: SARS; own calc.)
Algeria
Congo
Zambia
Nigeria
Mozambique
%
Malawi
Seychelles
Angola
DR Congo
Mauritius
5
10
15
20
25
30
35
40
45
Total demand for gold reaches second highest quarterly
level in history
(Source: WGC)
1.25
‘000 tonnes
1.2
1.15
1.1
1.05
1
0.95
0.9
Q
1'
16
4
3
2
Q
1'
15
4
3
2
Q
1'
14
4
3
2
Q
1'
13
4
3
2
Q
1'
12
0.85
Gold consumer demand being driven largely by emerging markets,
where populations & incomes are growing
China
India
US
Germany
Thailand
Tonnes
(2015)
Saudi Arabia
Turkey
Iran
Vietnam
Indonesia
UAE
Hong Kong
0
Source: WGC
150
300
450
600
750
900
New gold kids on the block – increase in reserves
2000 to 2016
(Source: WGC)
India
Saudi Arabia
Kazakhstan
Singapore
Mexico
South Korea
Tonnes
Iraq
Thailand
Argentina
Belarus
0
30
60
Note: China no.1 (1,400 t) & Russia no.2 (1,000t)
90
120
150
180
Top-10 economies in SSA in terms of GDP – 2015
(total $1.2 trillion)
(Source: IMF)
South Africa
Nigeria
Angola
Ethiopia
Kenya
Tanzania
$ bn
DR Congo
Ghana
Côte d'Ivoire
Cameroon
0
50
100
150
200
250
300
2nd top-10 economies in SSA in terms of GDP - 2015
(total $154 billion)
(Source: IMF)
Uganda
Zambia
Mozambique
Gabon
Zimbabwe
Senegal
$ bn
Mali
Botswana
Namibia
Mauritius
10
12
14
16
18
20
22
24
Price trends – Brent crude oil & SA coal
(Source: World Bank)
120
$/barrel/mt
105
90
Coal
75
60
45
Oil
6
Q
2'
1
6
Q
1'
1
5
Q
1'
1
4
Q
1'
1
3
Q
1'
1
2
Q
1'
1
1
Q
1'
1
0
Q
1'
1
9
Q
1'
0
8
Q
1'
0
7
Q
1'
0
6
Q
1'
0
5
1'
0
Q
Q
1'
0
4
30
FNB/BER indices of building & civil construction confidence
210
Index; Q3 2010=100
190
3 month moving avg.
Building
index
170
Construction index
150
130
110
90
2
4
Q
1'
16
3
2
4
Q
1'
15
3
2
4
Q
1'
14
3
2
4
Q
1'
13
3
2
4
Q
1'
12
Q
3'
11
70
Value of building plans passed & new buildings completed
(in real terms) – seasonally adjusted
(Source: Stats SA)
115
Index; Q3 2010=100
Plans passed
3 month moving avg.
110
Completed
105
100
95
90
2
4
Q
1'
16
3
2
4
Q
1'
15
3
2
4
Q
1'
14
3
2
4
Q
1'
13
3
2
4
Q
1'
12
Q
3'
11
85
Hardware sector sales & building materials sales index
(in real terms)
(Source: Stats SA)
150
Index; Q3 2010=100
Hardware
140
130
Building mat.
120
110
100
2
4
Q
1'
16
3
2
4
Q
1'
15
3
2
4
Q
1'
14
3
2
4
Q
1'
13
3
2
4
Q
1'
12
Q
3'
11
90
The economy
- what went wrong (inter alia)
Speculation over downgrade fuelled by the increase in total
public sector gross debt as % of GDP since the recession…
%
45
40
35
30
19
98
19
99
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
25
The initial decline and volatility of the rand exchange rate since
the end of 2015 also remains a concern…
17
R/$
16.5
16
15.5
15
14.5
14
Ju
ne
'16
18
Ju
16ly'1
6
24-Au
-A g
ug
6
24
ay
'1
M
18
2
Ap
ril
'16
21
4
22
ar
ch
'16
M
7
'16
Fe
b
25
8
'16
Ja
n
28
11
c'1
5
De
30
14
16
No
v'1
5
13.5
…which was out of synchronisation with the performance vs. the
US $ of the 11 largest emerging markets with floating currencies
between Dec 2015 and March 2016…
Indonesia
Malaysia
Poland
% change
Thailand
Philippines
Turkey
Taiwan
India
Brazil
Mexico
South Africa
-10
-7.5
-5
-2.5
0
2.5
…leading to a significant under-valuation of the real effective
exchange rate (RRER) of the rand at the end of June 2016 (25%)…
115
Foreign currency unit/R; Index; 2010 = 100
110
105
REER
100
Avg. (94.18)
95
90
85
80
75
70
Q
2
Au '1 6
g'1
6
20
14
20
12
20
10
20
08
20
06
20
04
20
02
20
00
19
98
19
96
19
94
19
92
19
90
65
…resulting in higher inflation (induced by the weak currency,
administered prices & the effects of the drought), followed by an
increase in the repo rate
7
%
6
5
Real prime rate
4
3
2
1
Q 4
2'
16
3
2
Q 4
1'
15
3
2
Q 4
1'
14
3
2
3
2
Q 4
1'
12
3
2
Q 4
1'
11
3
2
Q 4
1'
10
0
Q 4
1'
13
Real GDP
3q moving avg.
Money market interest rates in South Africa currently
amongst the highest in the world (nominal)
(Source: EIU)
South Africa
India
Mexico
Malaysia
China
Australia
Poland
%
US
Hong Kong
UK
Japan
Euro area
-1
0
1
2
3
4
5
6
7
8
Leading business cycle indicators – SA & key trading partners
(Source: SARB)
Index, 2010 = 100
125
US
115
Other
105
95
SA
85
75
2003
2004
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
e'0
6
De
Ju c
ne
'15
De
c
Ju
n'1
6
De
Ju c
ne
'13
De
Ju c
ne
'14
De
Ju c
ne
'11
De
Ju c
ne
'12
De
Ju c
ne
'09
De
Ju c
ne
'10
De
Ju c
ne
'07
De
Ju c
ne
'08
Ju
n
The Absa house price index continues to climb in nominal
terms…
500
Index, 2000=100
450
400
350
300
250
…and in real terms the SA property market seems to have
recovered from the low of 2012
590
Real index, 2000=100
570
550
530
510
490
De
Ju c
ne
'15
De
c
Ju
n'1
6
De
Ju c
ne
'13
De
Ju c
ne
'14
De
Ju c
ne
'11
De
Ju c
ne
'12
De
Ju c
ne
'09
De
Ju c
ne
'10
De
Ju c
ne
'07
De
Ju c
ne
'08
Ju
n
e'0
6
470
Positive GDP growth trend (24 quarters) comes to a halt in
Q1 2016…
(Source: Stats SA)
Year-on-year %
4.5
3
1.5
-1.5
-3
3
Q
1'
16
Q
1'
15
3
Q
1'
14
3
Q
1'
13
3
Q
1'
12
3
Q
1'
11
3
Q
1'
10
3
Q
1'
09
3
Q
1'
08
0
…caused mainly by the commodity price declines over the past
five years
(Source: World Bank)
Cotton
Iron ore
Sugar
Coal
Maize
Platinum
%
decline
Bananas
Aluminium
Oranges
Gold
0
10
20
30
40
50
60
Why South Africa’s
The Southern African economy
sovereign debt remains at
Prospects for
investment
grade
sustained growth
Ratings agencies often ignore a number of fundamental
indicators, such as the recovery of taxation revenue (at constant
2015 prices)…
1000
Rb
900
800
700
600
500
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
…and the existence of a highly diversified composition of taxation
revenue by emerging market standards (FY 2016/17- Rb)…
Total R 1.2 trillion
Individuals 443
Fuel & elec. 73
Companies 200
Skills levy 18
Dividend tax 25
Excise duties 44
Property tax 16
Customs duties
55
VAT 301
…furthermore, government’s borrowing requirement as % of total
gross debt continues to decline (fiscal years, National Treasury
forecasts for 2017-’19)…
20
%
18
16
14
12
10
8
6
4
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
…as well as, arguably, the most important gauge of a country’s
creditworthiness – the total public debt/GDP ratio, where South
Africa compares favourably with most key trading partners
USA
Singapore
UK
Germany
India
Brazil
Malaysia
%
South Africa
China
Australia
Mexico
Russia
0
20
40
60
80
100
Fiscal stability is also reflected in a budget deficit/GDP ratio that
is only marginally above 3% and forecast to decline further
1.5
% (fiscal years)
0
'00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17 '18
-1.5
-3
-4.5
-6
-7.5
According to the World Economic Forum, South Africa remains the
most competitive large economy in sub-Saharan Africa - out of 144
countries
Mauritius
Ranking
South Africa
Rwanda
Botswana
Namibia
Ivory Coast
Zambia
Kenya
Gabon
Ethiopia
30
40
50
60
70
80
90
100
110
South Africa possesses balance of payments stability, due to a
huge financial account surplus
(Source: SARB)
250
R billion
200
150
Financial account
100
50
0
-50
'03
'04
'05
'06
'07
'08
'09
'10
-100
-150
-200
-250
Current account
'11
'12
'13
'14
'15
Democracy delivers
a substantial
economic dividend
The recession is over – prepare
for higher growth
Dr Roelof Botha
Progress with meeting basic needs
•
•
•
•
•
•
•
•
•
3 million RDP houses
2000 new health clinics
Access to clean water for 10 million people
New sanitation facilities for 7 million people
4.5 million new electricity connections
Free education
Redistribution of 3 million hectares of land
Primary School Nutrition Programme for 5 million children
16 million new social grant beneficiaries (BIG?)
Cumulative number of fatalities in global armed conflict
(start date in parenthesis)
(Source: Wikipedia)
Afghanistan (1978)
DR Congo (1987)
Iraq (2003)
Somalia (1991)
Syria (2011)
Colombia (1964)
Myanmar (1948)
‘000
Sudan (2003)
Indonesia (1963)
Mexico (2006)
Peru (1980)
Philippines (1969)
0
200 400 600 800 1000 1200 1400 1600 1800
Average annual rates of return on a selection of
investments (2011 to 2015)
LT Insurer
Fund Manager
Bank
JSE
SA bonds L/T
SA bonds M/T
%
Property
Money market
US bonds
Euro bonds
0
2
4
6
8
10
12
14
GDP & National Income
3500
R billion
3000
1994
2500
2014
2000
1500
1000
GNI
GDP
Some reasons
for an imminent
revival of higher
growth
Undervalued currency promises correction, imminent lower
inflation & no more repo rate hikes
(Sources: SARB; own calc.)
390
Index, 1995 = 100
R/$
340
290
?
CPI
240
190
140
90
'95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16
Rampant Eskom tariff increases have ended (for now)
(Sources: Eskom; SARB)
30
%
25
Eskom
20
15
10
5
CPI
0
2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
Capital formation by government & public corporations
at constant 2014 p
(Source: SARB)
150
Rb
Public corp.
130
110
Govt.
90
70
50
'1
4
20
15
'1
3
'1
2
'1
1
'1
0
'0
9
'0
8
'0
7
'0
6
'0
5
'0
4
'0
3
2
'0
1
'9
9
20
00
30
Arrivals of tourists from overseas starts to recover during
the first quarter of 2016
(Source: Stats SA)
700
‘000 during 1st quarter
650
600
550
500
450
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
South African households have a lower debt/disposable income
ratio than most key trading partners
Australia
Sweden
South Korea
UK
Japan
US
%
France
Italy
Germany
South Africa
60
80
100
120
140
160
180
Average annual growth rates in credit extension to households
& businesses return to growth mode
%
20
H/holds
15
Business
10
5
0
1998-'03
2003-'07
2007-'09
2009 - Q1'16
Domestic current income surplus of SA long-term insurers
reaches new record annual high
(Source: SARB)
Rb
60
50
40
30
20
10
20
15
20
14
20
13
20
12
20
11
20
10
20
09
20
08
20
07
20
06
20
05
20
04
20
03
20
02
20
01
20
00
0
Domestic current income surplus of SA short-term insurers
reaches new record high
(Source: SARB)
R bn
12.5
10
7.5
5
2.5
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
0
-2.5
Coincident business cycle indicator – SA
(Source: SARB)
120
Index, 2010 = 100
110
100
90
80
70
2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Index of manufacturing volume
(Source: Stats SA)
Index, 2010 = 100
110
109
108
107
106
105
pr
il
M
ay
Ju
ne
A
b
ch
M
ar
Fe
'1
6
Ja
n
ec
D
ov
N
O
ct
ep
S
ug
A
ly
Ju
pr
il
M
ay
Ju
ne
A
ch
M
ar
b
Fe
Ja
n
'1
5
104
Value of mineral sales (seasonally adjusted)
(Source: Stats SA)
Rb
40
38
36
34
32
30
pr
il
M
ay
Ju
ne
A
b
ch
M
ar
Fe
'1
6
Ja
n
ec
D
ov
N
O
ct
ep
S
ug
A
ly
Ju
pr
il
M
ay
Ju
ne
A
ch
M
ar
b
Fe
Ja
n
'1
5
28
Early indications of a reversal of the commodity price cycle for
metals & minerals – good news for the SA economy
130
Price trends, index-based; April’15 = 100
120
Gold
110
100
Iron ore
90
80
Platinum
70
Apr'15
May
Jun
Jul
Aug
Sep
Oct
Nov
Dec
Jan'16
Feb
Aug
Real retail trade sales regularly reach new record highs, also in
Q2 2016…
126
123
Index; 2008 = 100
120
117
114
111
108
105
102
99
96
2
4
Q
2'
15
4
Q
2'
14
4
Q
2'
13
4
Q
2'
12
4
Q
2'
11
4
Q
2'
10
4
Q
2'
09
Q
4'
08
93
…explained by continued progress with employment creation in
South Africa (1.8 million jobs created since Q1 2010)…
Source: Stats SA
15.8
Million
15.55
15.3
15.05
14.8
14.55
14.3
14.05
Q 4
1'
16
Q
2'
15
4
Q
2'
14
4
Q
2'
13
4
Q
2'
12
4
Q
2'
11
4
Q
2'
10
4
Q
2'
09
13.8
…and real salaries per worker in the private & public sectors that
continue to climb
Source: Stats SA
Index; 2000=100
Average: R210k p/a
120
Private sector
115
110
Public sector
105
100
4
2
5
1'1
3
2
4
Q
Q
1'1
4
4
3
2
3
1'1
3
2
4
Q
Q
1'1
2
95
A final point not always fully appreciated: South Africa’s real GDP per
capita has reached a structurally higher level & the country is
classified by the UN as “upper middle income"
Source: SARB
74
R ‘000 (constant ‘15p)
71
68
65
62
59
56
53
50
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015
Leadership, smart policies
& teamwork required!