03 October 2013 Investment Attractiveness Southern Africa – An Economic Overview

 African Megatrends SA Laggard and Leader African Growth Paradox Global Externalities Mining Industry

Investment climate dominated by monetary policy …authorities may be trapped Source: INet

US M2 money supply: 1970 to present …growth exponential; Policy irresponsibility Source: INet

Global debt levels are accelerating May well have developed into a systemic PONZI scheme Systemic collapse Time Debt needed to sustain the system BCA: the debt super cycle Systemic instability Credit worthy capacity Debt Over-indebtedness – debt & commitments un-payable

Financial repression consequently on the rise…. Tools of Repression Inflation/Deflation Fiscal & Monetary Policy Red Tape Corruption Market Dominance Tax (Especially Wealth)

Investment Divide Dependent on Confidence Inherent Intrinsic Value Nature of Assets Policy Impact QE; LTRO; ZIRP Bonds Cash Property Precious Metals Industrial Equipment Yield Growth Solvency Indebted politically more powerful than the saver

 African Megatrends SA Laggard and Leader African Growth Paradox Global Externalities Mining Industry

Reality: Africa a challenging business environment …but the 2008 global financial crisis exposed a shift Infrastructure Governance Institutions Regulation

Critical African Growth Unlocks …Growth surge following the 1997/8 EM crisis Growth Drivers Growth Drivers Cellular Telephony Cellular Telephony Governance

 African Megatrends SA Laggard and Leader African Growth Paradox Global Externalities Mining Industry

Electricity production: Reflecting a longer term malaise Source: INet

SA Business Confidence vs JSE All Share Source: Bloomberg

SA Growth: 0.9% ….growth drivers weak SA Growth Drivers SA Growth Drivers Credit Expansion Credit Expansion Disposable Income & Costs Disposable Income & Costs Global Economy Global Economy Savings & Investment Savings & Investment Twin deficits and credit rating downgrade a risk ….but there are investment competitive advantages

SA: Current Account Deficit: major risk to the rand Widening despite slower growth Source: INet

The rand: weakening during a risk-on period

African growth: become a multi-sectoral phenomenon …South African skills, expertise, capital a catalyst Agriculture Financial Services Financial Services Technology Mining Telecoms Tourism Manufacturing Retailing Property Development Property Development

 African Megatrends SA Laggard and Leader African Growth Paradox Global Externalities Mining Industry

Macro-economic outcomes Improving macroeconomic management Proof of the pudding Inflation Growth 3.5% % % 8.2% % 3.6%

Budget Deficits: less problematic in Africa Source: CIA Factbook Angola +7.1% Gabon +4.6% Libya +4.4% Brazil +2.9% DRC +2.4% Switzerland +1.0% Sweden -0.2% Rwanda -0.4% CAR -0.5% Ethiopia -1.4% China -1.6% Equatorial Guinea -1.7 Ivory Coast -2.0% Madagascar -2.0% Cameroon -2.5% Germany -3.3% Zambia -3.3% Nigeria -3.4% Uganda -3.5% Russia -4.1% South Africa -4.1 Italy -4.6% Mauritius -4.6% World -5.3% Netherlands -5.3% India -5.6% Mozambique -5.8% Tanzania -6.1% Kenya -6.3% Namibia -6.5% Botswana -7.0% France -7.0% Ghana -7.6% Slovakia -7.9% Egypt -8.0% Japan -8.1% USA -8.8% Niger -8.9% Portugal -9.2% Spain -9.3% UK -10.3% Greece -10.4% Ireland -32.4% Data for 2010

Debt: aftermath of 2008 …rising and excessive Country Debt: GDP 2010 Japan197.5% Greece142.8% Iceland126.1% Italy119.1% Singapore105.8% Belgium100.9% Ireland96.7% Portugal93.0% Country Debt: GDP 2010 Canada84.0% Germany83.2% France82.4% UK76.1% Austria71.0% Netherlands62.6% US62.3% Spain60.1% Country BRICS Debt: GDP 2010 Brazil59.0% India51.9% SA32.3% China18.9% Russia9.0% Source: CIA Factbook

Africa: HIPC status now a receding legacy Country Debt: GDP 2010 Ivory Coast63.1 Mauritius57.7 Ethiopia48.3 Kenya47.7 Mozambique46.3 Tanzania34.4 Ghana34.0 South Africa33.4 Country Debt: GDP 2010 Zambia26.7 Uganda21.8 Angola21.4 Namibia20.1 Botswana19.9 Nigeria17.8 Cameroon16.1 Libya3.5 Source: CIA Factbook

Improving African Investment Case …in contrast to the developed world deterioration Africa’s Time Has Come Africa’s Time Has Come Economic Base Demographics Regeneration Sovereign Solvency Sovereign Solvency Improvement both relative and absolute The Public Teat The Public Teat

Africa: no longer off a low base Country GDP 2000 GDP 2012 South Africa Nigeria Angola Ghana Kenya Ethiopia Cameroon Ivory Coast Source: CIA Factbook Country GDP 2000 GDP 2012 Tanzania Zambia Botswana Gabon Uganda DRC Namibia Mozambique

Political Risk Rating agencies and investors Jurisdiction risk is changing....but Neither Africa nor Europe completely homogeneous Solvency Europe Africa Taxes Solvency Tax Burden

The 3 rd scramble for Africa China Factor China Factor Resource Security Resource Security Infrastructure Strategic Relationships Strategic Relationships Greater confidence; greater assertiveness Coordinated investment Investment competition Food Energy Commodities

Investment Timelines Getting longer YieldGrowthSolvency

 African Megatrends SA Laggard and Leader African Growth Paradox Global Externalities Mining Industry

Gold mining: in a state of crisis …SA now ranked #5 globally (2012) Source: INet However still ranked #1 in terms of reserves

Mining Production: lowest since 1970’s …strikes, regulation, taxes Source: INet SA still ranked #1 in terms of mining potential (Citibank)

Mining in South Africa …the importance of a supportive, enabling environment Issues Easy to Identify Issues Easy to Identify Legacy Transformation Competitiveness Social Impact Beneficiation Social Impact Beneficiation Minerals of no value if not extracted Critical Mass Skills Finance Logistics Critical Mass Skills Finance Logistics SA: 50/93 ito Attractiveness Lost leadership

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