South Africa: State of the economy and economic scenarios to 2029 November 2016

SA lead indicator vs GDP growth 1960 – today Lead indicator is a near perfect predictor of SA’s GDP performance

REAL GDP GROWTH 1981-2015 Post-1994 two successes are achieved: volatility ends, until 2008 a very positive upward trajectory emerges

GDP FORECASTS AND ACTUALS The Treasury’s forecasting credibility is shot

4 EASY LEVERS HAVE BEEN PULLED: 1 of 4 INTEREST RATES Post-1994 interest rates fell more than 50%

10 YEAR GOVT BOND YIELDS: 2 of 4 Bond yields improved indicative of growing confidence in South Africa

GROWTH AND PUBLIC DEBT: 3 of 4 As growth has slipped debt levels have escalated

HOUSEHOLD DEBT/disposable income 4 of 4 Household debt levels have roughly doubled

MINING PRODUCTION y/y CHANGE Now in deepest post GFC slump

WEIGHTED MANUFACTURING PRODUCTION INDEX 2010=100 The trend is slowing production

Consumer spending and consumer confidence Confidence has reached near record lows and will pull spend down pinning GDP growth to sub-2%

REAL GDP PER HEAD Real GDP/head peaked in 1981. Took precisely 25 years to reach that level again. Then took off but slowed after 2008.

CONFIDENCE IN THE FUTURE AND HH INCOMES Only one thing will secure the popularity of a future government

INSTABILITY AND HH INCOMES Slowing of HH income growth correlates to more violent protest actions

HOUSEHOLDS AND ELECTRICITY Extraordinary progress was made in delivering basic services

LIVING STANDARDS RISING SHARPLY LSM’s confirm significant upward move in HH living standards

EMPLOYMENT Number of people with jobs doubled over 20 years but the unemployment rate has not changed

LABOUR MARKETS We anticipate sustained high levels of joblessness centred around young people

EDUCATION AND JOBS Level of educational achievement determines labour absorption

SCHOOLS AND MATHS The skills base in small, brittle, and leans away from hard sciences

THE RAND AND CHANGING GDP MAKE UP The outlook is for further currency weakness amidst declining manufacturing output

TAXPAYERS AND GOVERNMENT FINANCES Weak economic growth will dampen tax base expansion as government finances come under further strain

POLITICS As protest levels pick up confidence in the ruling party falls

POLITICS Change, no change?

SCENARIOS AND PROBABILITIES Only a reformist movement will save the ANC Market driven economic reform 1991-2007 WIDE ROAD popular mandate for market reforms NARROW ROAD forced market friendly reforms 2019- Governance with impunity Free open society ROCKY ROAD socialism amidst crumbling democratic institutions TOLL ROAD policy confusion amidst vibrant institutions 1985 2008-2016 Interventionist “development state”

OUR FORECASTS – WIDE/NARROW ROADS The post 2019 decade sees a dramatic economic reversal

OUR FORECASTS – TOLL ROAD SA enters and era of volatile stagnation

? OUR FORECASTS – ROCKY ROAD SA follows a Venezuela/Brazil/Zimbabwe style reversal ?

The IRR is a think-tank that promotes political and economic freedom. Media: Mienke@irr.org.za Bookings and access to reports: Sherwin@irr.org.za Frans Cronje: ceo@irr.org.za Web: www.irr.org.za The IRR is a think-tank that promotes political and economic freedom.