1. Challenges Facing The South African & Global Economy Dr
Challenges Facing The South African & Global Economy Dr. Azar Jammine Director & Chief Economist of Econometrix Insurance Institute of South Africa 24 February 2017

4. Percentage distribution of population by province
2002
2016
Gauteng
22.7
24.1
Kwa-Zulu Natal
19.9
19.8
Eastern Cape
13.1
12.6
Western Cape
11.0
11.3
Limpopo
10.6
10.4
Mpumalanga
7.8
7.7
North West
6.8
Free State
5.8
5.1
Northern Cape
2.3
2.1
Total
100
Source: Mid-Year Population Estimates

5. 2002 Actual 2016 Change 2002-2016 % of Total 45454 55909
Proportion of Population by Group
2002
Actual
2016
Change
% of Total
Black
35474
45110
9636
78.0
80.7
Coloured
3918
4897
979
8.6
8.8
Indian
1122
1386
264
2.5
White
4555
4516
-39
10.0
8.1
Total
45454
55909
10455
100
Source: Stats SA, Mid-year Population Estimates

6. Median Age by Population Group
1996
2001
2011
Black 21 22
Coloured 23 24 26
Indian/Asia 29 32
White 33 35 38
Source: Census 2011

7. Black Coloured Indian/Asian White Total
Proportion of Population by Race between 15 and 24 years old
Black
Coloured
Indian/Asian
White
Total
2002
82.9
8.2
2.2
6.7
100
2015
83.5
8.6
2.0
5.9
Source: General Household Survey

9. Key Points Cloud of state capture hanging over Treasury
Economic growth for a change to improve
Big tax increases as promised
Increased tax burden falling heavily on upper income groups
Fiscal discipline sustained
Much rhetoric about radical economic transformation
Improvement in management of SOEs?
Encouraging emphasis on need for structural reform, especially improved education, reducing concentration of business power, encouraging small business & defusing tensions between employers & workers
Significant focus on public/private cooperation
However, little definite to encourage much higher growth

12. Factors needed to prevent downgrade
Fiscal consolidation
To tame rise in public debt & debt servicing costs
Improvement in running SOE’s
To limit government’s potential liability (R475bn in guarantees)
Better economic growth requiring structural reforms
To improve revenue growth as a way of reducing budget deficits & public debt
Deficits theoretically need to be less than growth rate of GDP

13. Treasury's Macro-Economic Outlook MTBPS 2016 vs February 2017 % Change
2016
2017
2018
2019
Gross Domestic Product
0.5
1.3
2.0
2.2
Household Consumption
0.6
0.9
1.9
2.3
Gross Fixed Capital Formation
-2.9
-3.6
1.1
1.5
2.6
1.6
3.1
2.8
*MTBPS 2016
Source: National Treasury

14. Short Term Positive Factors for SA Economy
Hopefully, the drought is over?
Electricity supply constraint has dissipated
Inflation turning out lower than expected
Interest rates unlikely to rise
Businesses still have solid balance sheets
Commodity prices have recovered somewhat from January 2016 lows
Rand still cheap & costs rising at slow pace, providing wonderful opportunity for exports

18. Total Tourist Arrivals 2015 Growth (%) 2016 Growth (%)
2015 Growth (%)
2016 Growth (%)
Total
-6.8
12.8
Overseas
-2.0
18.0
Europe
-4.6
16.0
North America
-5.8
14.9
Central & South America
-26.9
34.3
Australasia
-10.8
10.9
Middle East
2.6
32.2
Asia
-9.5
30.4
Africa
-7.5
11.2
unspecified
-9.3
-12.1
Source: Statistics South Africa

19. Market Exchange Rates Change % vs Dollar 1 Jan 2015 - 18 Jan 2016
18 Jan Feb 2017
8 Nov Feb 2017
Japan
2.6
Russia
37.1
11.2
Taiwan
-5.4
Brazil
31.8
4.4
China
South Africa
30.0
3.0
India
-5.8
Chile
13.6
2.2
Singapore
-8.0
Australia
11.1
1.8
Czech Republic
-8.2
9.3
Britain
0.5
-8.8
South Korea
5.6
-0.2
-9.0
Indonesia
3.9
Thailand
-0.3
3.7
-0.7
-10.1
3.5
Hungary
-10.5
1.1
-1.1
Euro
-10.8
1.0
-1.8
Poland
-13.6
0.4
-2.1
-14.6
Argentina
-16.5
-2.4
-3.7
Mexico
-18.8
-2.5
-3.8
Turkey
-23.6
-4.1
-3.9
-27.1
-10.9
-4.8
-31.5
-12.6
-33.3
-12.7
-8.6
-36.3
-17.3
*R 16.85
*R 12.96
Source:Bloomberg & Econometrix

20. Exchange Rate Forecasts
2015
2016
2017
2018
2019
2020
R / $
12.75
14.71
13.91
14.66
15.32
15.96
Year End (Q4)
14.18
13.89
14.17
14.97
15.58
16.22
R / €
14.14
16.28
14.43
15.63
16.89
18.00
15.54
14.74
16.17
17.30
18.32
R / £
19.48
19.98
16.94
18.04
19.07
20.07
21.51
17.25
17.14
18.56
20.43
R/Yen
9.54
7.40
8.23
7.43
7.28
7.45
8.56
7.89
7.94
7.27
7.49
7.32
$ / €
1.11
1.04
1.07
1.10
1.13
1.08
Source: Omega; Econometrix

23. Source: SARB

25. The Trump Factor & Brexit
Rising inequality over two decades has precipitated rise in populism
Uncertainty about impact of Brexit on SA.
Scepticism abounds with regard to the ability of the Trump administration to see through its programmes.
Contradictions in Trump policies
Trump’s infrastructural investment plans & corporate tax cuts will risk a further escalation of debt to new record highs (unsustainable in the longer term).
US public debt is already at a record level of more than 100% of GDP (3times level of 1980’s).
Unclear whether Congress and the Senate, even if Republican-controlled, will accede to Trump's ideas.
Higher short term US growth could put upward pressure on Dollar
Increased protectionism to boost inflation
Increased antagonism worldwide not conducive to growth
Trump seems to be wanting to take US economy back 50 years
It is therefore possible that the mood of optimism currently prevailing could suddenly turn dramatically negative at some point in time during the year or in 2018.

28. Dollar millionaires in South Africa 2007 2014 2015 Number % of Total
Number
% of Total
Total
42800
46800
38500
100
Whites
36900
32100
21200
86.2
68.6
55.1
Indian, Asian and Coloureds
3600
9800
17300
8.4
20.9
44.9
Black Africans
2300
4900
5.4
10.5
Source: South Africa 2016 Wealth Report by New World Wealth

29. The 80 : 20 Principle of Income Distribution
CPI weights by Income Group (2016 prices)
Expenditure Quintile
Weight
% of approximate households
Current Inflation Rate %
1: up to R29 475
1.63
50.6
7.9
2: R up to R56 909
4.70
18.2
7.5
3: R up to R94 884
9.54
12.9
6.8
4: R up to R
19.21
6.5
5: Over R
64.92
Source: StatsSA

36. Consolidated government expenditure MTBPS vs Feb-17
Avg Annual Growth 16/17 -19/20
MTBPS
Feb-17
Basic education
7.1%
7.3%
Health
8.2%
8.3%
Defence, public order and safety
5.8%
Defence and state security
4.7%
Police services
6.8%
Law courts and prisons
6.2%
Home affairs
1.0%
0.2%
Post-school education and training
9.2%
Economic affairs
4.9%
6.6%
Industrial development and trade
6.4%
Employment, labour affairs and social security funds
2.3%
5.3%
Economic infrastructure and network regulation
5.9%
7.8%
Science, technology, innovation & the environment
6.0%
Human settlements & municipal infrastructure
8.0%
Agriculture, rural development & land reform
4.8%
General public services
4.1%
2.6%
Social protection
Debt-service costs
10.1%
10.5%
Consolidated total expenditure
7.6%
7.9%
Source: National Treasury

37. Tax Changes 2017/18 R million
Budget 2017/18 proposals
28,024
Taxes on individuals and companies
Personal income tax
16,516
Revenue from not fully adjusting for inflation
12,148
- Revenue if no adjustment is made
14,628
- Bracket creep adjustment
-2,480
New top marginal income tax bracket
4,369
Dividend withholding tax
6,822
Increase in dividend withholding tax rate
Taxes on property
-448
Transfer duty decrease
Indirect taxes
5,133
Increase in general fuel levy
3,197
Increase in excise duties on tobacco products
656
Increase in excise duties on alcoholic beverages
1,280
Source: National Treasury

38. Income Tax by Income Group 2017/18
Taxable Bracket
Taxable income R billion
No. of Taxpayers
Proportion of Taxpayers
Proportion of Population
Proportion of Tax Paid
R70,000 - R250,000
630.0
4,416,170
59.6
7.9
9.8
R250,000 - R500,000
680.2
1,984,066
26.8
3.5
24.2
R500,000 - R1m
500.0
754,849
10.2
1.4
27.5
R1m - R1.5m
178.4
152,604
2.1
0.3
12.2
More than R1.5m
319.0
103,353
0.2
26.3
Total
2307.6
7,411,042
100.0
13.3
Source: National Treasury, Econometrix

39. Change in Average Tax Rates (with an 6.0% salary increase)
Income (R's annual)
Change in Avg Tax Rate (%)
2016/17
2017/18
100,000
106,000
0.6
200,000
212,000
0.7
300,000
318,000
500,000
530,000
0.8
750,000
795,000
1,000,000
1,060,000
0.4
1,500,000
1,590,000
0.5
2,000,000
2,120,000
1.4
3,000,000
3,180,000
2.3
5,000,000
5,300,000
3.0
Source: National Treasury; Econometrix

40. Average Annual Growth Rate in GDP (%) by Sector
Agriculture *
0.6
1.2
3.7
-0.4
Mining *
-0.2
-0.6
0.0
0.2
Manufacturing *
3.1
3.8
Electricity *
3.5
1.8
Construction
-2.8
10.0
3.2
Trade Sectors
0.7
3.9
4.4
2.5
Transport & Comms
0.8
6.7
5.9
2.1
Financial Services
2.0
4.7
6.6
2.9
Personal Services
2.6
1.0
General Government
0.1
3.3
TOTAL
* Export oriented sectors
Source: Stats SA

46. SA Economic Forecast Growth (%)
2015
2016
2017
2018
2019
2020
Gross Domestic Product
1.3
0.4
1.5
1.7
2.0
2.1
Year End (Q4)
0.2
0.8
1.8
2.2
Gross Domestic Expenditure
-0.4
1.1
2.3
0.9
0.1
1.4
2.5
Private Consumption
0.7
1.2
1.9
Fixed Investment
-4.1
2.4
2.6
-4.7
Government Consumption
1.6
Current A/C Balance As % of GDP
-4.3
-3.9
-3.5
-2.5
-3.1
-2.4
Source: SARB; Econometrix

47. - Thank you - 47