Authorised Financial Services Provider – FSP No: 859

Economic Developments - Speed Bump or Prolonged Pain..? Presented by: Dawie Roodt 13 November 2008

International Credit Crises

Nasdaq Bubble U.S. Interest Rate Source: I-Net, Efficient Research, 2008 Subprime Market Emerges….

Subprime Housing Market ‘Subprime’ = –A loan that is offered at a rate above prime (0.1% - 0.6% higher) to individuals who do not qualify for prime rate loans. …… “NINJA” loans

It’s All In The Packaging Subprime Loan RISK CAPITAL Sell Re-sell Sell

Subprime Bubble Bursts Credit Crises Nasdaq Bubble U.S. Interest Rate Inflation Source: I-Net, Efficient Research, 2008

Consequences….. U.S. Institutions –Bear Sterns, Lehman Brothers, Merrill Lynch bankrupt or taken over –AIG, Fannie Mae, Freddie Mac bailed out U.K. & Europe –Northern Rock Iceland = Bankrupt Credit Market Freeze……

Emergency Rescue Plans U.S. –$700bn bailout package –Additional Interest rate cuts (100bp) –Fed buys commercial paper –Fed doubles its auctions to banks ($900bn) –Etc. U.K. & Europe –U.K. £50bn purchase of preference shares –BOE & ECB Interest rate cut ( bp) & more to follow.. –Guarantees private & retail deposits G20 Meeting IMF Germany €400bn China, India Cuts i% $$$

Will It Work…..? Financial Markets Real Economy

What About Us?

Excellence in SA Banking Sector SA Banks Locally: No Direct Exposure International: Limited Exposure Thorough Assessment by Registrar of Banks in July 08 : “financial system is sound” International Comparison on Safety of Banks : SA is 15 th out of 134

Where Will It Impact?

Dollar Strength Source: I-Net, 2008

Commodity Prices Source: I-Net, 2008

Rand Weakness Source: I-Net, 2008

Slowing International Demand Source: SARS, 2008 Other 8.0% Recession?? Slower Growth??

What Do We Export? Source: SARS, 2008 Mining Manufacturing

Balance of Payments Source: SARS and own calculations

Source: SARB, 2008 C/A Deficit Funding “Hot Money” -DANGER-

Interest Rate Advantage Source: Efficient Research, 2008

Still Positive on SA Growth Source: StatsSA and own calculations Average: 3.0%

South Africa:

Economic Overview M3 (average)23.1%23.7%18.4% PSCE (average)27.6%22.2%18.8% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%15.5% Current Account: Nom-R111.0bn-R138.2bn-R164.0bn Current Account: GDP-6.4%-7.3%-7.2% R/$ (end of year)R7.04R6.84R7.80 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.3%

Household debt to disposable income Source: SARB and own calculations 44.5% 50.2% 56.9% 59.4% Q208: 76.7%

Savings to disposable income of households Source: SARB and own calculations 9.2% 5.4% 2.6% 0.5% Q208: -0.5%

Economic Overview M3 (average)23.1%23.7%20.7% PSCE (average)27.6%22.2%18.2% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%15.5% Current Account: Nom-R111.0bn-R138.2bn-R164.0bn Current Account: GDP-6.4%-7.3%-7.2% R/$ (end of year)R7.04R6.84R7.80 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.3%

Source: StatsSA and own calculations CPI Average: % Inflation: Old Basket

Economic Overview M3 (average)23.1%23.7%20.7% PSCE (average)27.6%22.2%18.2% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%16.0% Current Account: Nom-R111.0bn-R138.2bn-R167.0bn Current Account: GDP-6.4%-7.3%-8.1% R/$ (end of year)R7.04R6.84R7.80 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.3%

Economic Overview M3 (average)23.1%23.7%20.7% PSCE (average)27.6%22.2%18.2% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%16.0% Current Account: Nom-R111.0bn-R138.2bn-R164.0bn Current Account: GDP-6.4%-7.3%-7.2% R/$ (end of year)R7.04R6.84R9.00 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.3%

Economic Overview M3 (average)23.1%23.7%20.7% PSCE (average)27.6%22.2%18.2% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%16.0% Current Account: Nom-R111.0bn-R138.2bn-R164.0bn Current Account: GDP-6.4%-7.3%-7.2% R/$ (end of year)R7.04R6.84R7.80 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.3%

Eskom: R343bn (5 yrs) Transnet: R78bn (3 yrs) 80 New Capital Projects – R336.1bn (2008 to June) 50% higher than 2007’s total R224bn Government’s Infrastructure Spend Source: Budget Review 2008/09; Nedbank, 2008

Fixed Capital Investment Source: SARB, 2008

Economic Overview M3 (average)23.1%23.7%20.7% PSCE (average)27.6%22.2%18.2% CPIX (average)4.6%6.5%11.6% Prime (end of year)12.5%14.5%16.0% Current Account: Nom-R111.0bn-R138.2bn-R164.0bn Current Account: GDP-6.4%-7.3%-7.2% R/$ (end of year)R7.04R6.84R7.80 GDP (full year)5.4%5.1%3.0% Budget Surplus/(Deficit): GDP (0.3%)0.7%0.1%

Background Gold Deficit Surplus

Theory versus Practice FISCAL SURPLUS e x pa n sio n ary

Spending Priorities Social Spending

Social Grants Beneficiary Numbers Grant Type (‘000) (projected) % Change Old Age Grant2,0222,1442,1952,22510% Disability Grant9531,3191,4221, % War Veterans Grant % Foster Care Grant % Care Dependency Grant (disabled) % Child Support2,6307,0457,8638, % Total5,80810,91811,99112, % Source: 2008 Budget 2007: 11,9m recipients 25.0% of SA population

Is SA the next Zim? Institutional Approach

Institutional Approach to Answer Private Property Rights Freedom of Press Independent Judiciary Independence Central Bank Democratic Process

Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Negative Impact on Investment Savings Confidence UNDERMINES Economy Take from the “Haves” (non-supporters) Give to the “Have-Nots” (supporters) IGNORES Private Property Rights

Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “Haves” (non-supporters) Give to the “Have-Nots” (supporters) Negative Impact on Investment Savings Confidence Media & Press: Report on Disapproval and Objections by Public BANS Freedom of Press Court & Legal System: Public tries to find Justice through legal system DESTROYS Independent Judiciary Start to Print Money Capital Dwindles…. DESTROYS Independence Central Bank IGNORES Private Property Rights UNDERMINES Economy Inflation: 200,000,000% ??

Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “Haves” (non-supporters) Give to the “Have-Nots” (supporters) Negative Impact on Investment Savings Confidence Media & Press: Report on Disapproval and Objections by Public BANS Freedom of Press Court & Legal System: Public tries to find Justice through legal system DESTROYS Independent Judiciary Start to Print Money Capital Dwindles…. DESTROYS Independence Central Bank IGNORES Private Property Rights Voting System: Public tries to vote dictator out DESTROYS Democratic Process UNDERMINES Economy Democracy: Mugabe-Style 1 Man, 1 Vote, 1 Candidate!

Institutions in SA

Destruction of Institutions in SA? Private Property Rights 2008: Land Expropriation Bill

Freedom of Press Destruction of Institutions in SA? “Mbeki received R30m”

Independent Judiciary Destruction of Institutions in SA? Zuma’s Mauritius Papers

Independence Central Bank Destruction of Institutions in SA? interest rate SARB Hikes 10 Times!

Democratic Process POLOKWANE Destruction of Institutions in SA?

Is SA the Next Zim? Economic Approach

ZimBOBwean Economy: Breakdown

South African Economy: Breakdown Source: StatsSA, Q108

Authourised Financial Services Provider – FSP No: 859