1. OUTLOOK FOR THE SA ECONOMY IN THE CURRENT GLOBAL ENVIRONMENT July SABITA Rob Jeffrey Managing Director

2. OVERVIEW Global economic outlook Domestic economic outlook
Significant trends affecting policy
China and Africa
Economic trends and forecasts
Conclusion

3. INTERNATIONAL TRENDS 3

4. THE GLOBAL ECONOMY Premier of China
Unsustainable low savings and high consumption
Excessive expansion of financial institutions
Lack of self discipline
Failure of supervision and regulation

5. PRIVATE EXCESS CREDIT AND BORROWING

6. GLOBAL IMBALANCE

7. INEQUALITY AND GREED

8. LOOSENING MONETARY POLICY LEADS TO ASSET INFLATION
Inflation in asset prices, not goods prices
First equities, then housing, finally commodities 8

9. SLUMP AND RECOVERY

10. REQUIRED DOMESTIC & INTERNATIONAL POLICY SHIFTS
Major realignment of exchange rates
Cultural changes
Lower consumption higher saving in West
Higher consumption lower saving in East
Curbing profligate politicians dependent on:
Pet projects and populism for power
Debt levels need to be reduced
Past excess debt and current stimulatory debt

11. APPREHENSION REGARDING SUSTAINABILITY OF UPSWING
Traditionally, rallies following severe bear markets have averaged 70%, S & P up 83% already since March 2009
China tightening up on lending to slow speculation
Could be a precursor to global rise in interest rates?
Could be a precursor to slowdown in Chinese economy
Obama acting to prevent banks from speculating with their own money
Interference in market system
Unknown impacts
Concerns with Greek debt default possibility
Fear of impact on Euro integrity from contagion
Increased fiscal prudence to slow European recovery

12. SPECTRE OF RISING WORLD DEBT
How do governments in advanced economies extricate themselves from rising debt levels? Greece now, who’s next?
Hope that sustained growth will eventually generate revenues to rein in government debt

13. GLOBAL RECESSION: V-SHAPE OR W-SHAPE?
Massive stimulus is having effect
Huge build up of cash balances
Risk of unsustainable rally in asset prices, commodity prices & economic activity or 13 13

14. SOUTH AFRICAN ECONOMIC TRENDS14

15. THE SOUTH AFRICAN ECONOMY
Unsustainable low savings and high consumption
Excessive imports insufficient exports 15

16. EXCESSIVE CONSUMPTION16

17. EXCESSIVE IMPORTS 17

18. Public debt as % of GDP

19. Gross general government debt as % of GDP19

20. BALANCED SECTORAL GROWTH IN SA POLICY REQUIREMENTS
Create environment to increase domestic and foreign investment in manufacturing & mining sectors
Increase investment in export orientated mining, processing & manufacturing industries
Increase investment in import replacement industries 20

21. CRITICAL FACTORS AFFECTING FUTURE SOUTH AFRICAN ECONOMIC GROWTH21

22. The age of globalisation

23. GLOBALISATION & GROWTH
Irreversible trend
Prices will be influenced by world pricing trends
Long term costs follow international costs
Environmental issues will grow
Domestic & foreign investment are essential
Technological trends will influence development
Intervention and protectionism are dangers 23

24. GLOBAL SUCCESS REQUIREMENTS
Growing influence of market forces and capital movements
Efficiency must be measured in global terms.
Critical mass is important in the global market
High quality required to be competitive
Important to offer new technologies
Critical size often means
A dominant local player
Producing for export
Government should foster an environment for global success

25. FORECASTS OF SA ELECTRICITY GENERATING CAPACITY REQUIREMENTS25

26. SOURCES OF ELECTRICITY26

27. ENVIRONMENTAL & OTHER TRENDS
Market share of fossil fuels will decline & the share supplied by sustainable clean electricity will grow
Share of oil from traditional sources will decline but oil from alternative sources such as tar sands & coal will increase
The cost of electricity will increase as the true environmental costs are factored in to cost structures
The cost of alternative sources of electricity will reduce & they will become more competitive
Alternative electricity sources (such as solar, wind & wave) will continue to have limited large-scale viability
Coal and nuclear power currently only technologies available to offer large-scale electricity source for global economy. 27

28. ENERGY CONSUMPTION AND INCOME28

29. SECTORAL ELECTRICITY INTENSITY29

30. SECTORAL ELECTRICITY INTENSITY30

31. LONG TERM ECONOMIC GROWTH OBJECTIVES31

32. ESKOM FORECAST CAPACITY32

34. THE CHINDIA FACTOR SUBSTANTIAL IMPACT ON AFRICA AND SA

36. CHINA FUTURE GIANT

37. THE CHINA FACTOR The long term objective Plays a long game (Hong Kong)
Has 1,3 billion people
Requires commodities & markets
Unorthodox business practice

39. LONG TERM DEMAND TREND

40. AFRICA AND CHINA Africa produces more than 60 minerals
Africa hosts 30% world’s mineral resources
Africa’s market share of world mineral production <10%

41. ECONOMIC TRENDS AND FORECASTS

42. Forecasts for World Growth Revised Upwards
Assume economic recovery will be sustained
Revisions of IMF Forecasts for 2010
Sep 08
Feb 09
Apr 09
Jul 09
Oct 09
Jan 10
Apr 10
World Output
4.2
3.0
1.9
2.5
3.1
3.9
Sub-Saharan Africa
6.5
5.0
3.8
4.1
4.3
4.7
South Africa
2.3
1.7 na
2.6
Latest IMF Forecast Growth in GDP
(%)
2009
2010
2011
World
-0.6
4.2
4.3
Advanced economies
-3.2
2.3
2.4
China
8.7
10.0
9.9
Sub-Saharan Africa
2.1
4.7
5.9
South Africa
-1.8
2.6
3.6
IMF, World Economic Outlook Database, April 2010

43. IMF Forecasts for Growth of Sub-Saharan Countries
2010
2011
Angola
7.1
8.3
Nigeria
7.0
7.3
Mozambique
6.5
7.5
Botswana
6.3
5.1
Tanzania
6.2
6.7
Malawi
6.0
Zambia
5.8
Uganda
5.6
6.4
Democratic Republic of Congo
5.4
Ghana
4.5
20.1
Kenya
4.1
Mauritius
4.7
Senegal
3.4
Côte d'Ivoire
3.0
4.0
Lesotho
2.8
South Africa
2.6
3.6
Zimbabwe
2.2
0.0
Namibia
1.7
Swaziland
1.1
2.5
Source: IMF WEO, Apr 10

44. Rand Remains Vulnerable
Still benefiting from carry trade & low money supply growth
However, weakening relative to other emerging markets
Fears of left-wing shift (bluster meant to mask lack of service delivery)
Concerns with lack of leadership (presidency) of country & of economy (who is in charge of economic policy?)
Growing underperformance of SA Economy

45. Net Foreign Reserves ($bn) *
Emerging Markets
07 June 2010
China
2447.1
Russia
435.6
Taiwan
357.6
South Korea
278.9
Hong Kong
259.2
India
256.4
Brazil
242.6
Singapore
203.4
Thailand
141.1
Mexico
101.3
Malaysia
94.0
Poland
84.7
Indonesia
75.8
Turkey
69.5
Israel
62.1
Argentina
45.5
Hungary
Philippines
40.7
Czech Republic
38.8
South Africa **
36.7
Egypt
32.5
Chile
25.5
Colombia
24.9
Venezuela
17.3
* Excluding gold, except Singapore and China
Source : The Economist
**Source: SARB

46. 46

47. Estimated Principal Areas of Government Expenditure (% Growth)
2009/ /13
General Public Services
2.4
Defence
6.3
Public Order & Safety
8.2
Economic affairs
-2.1
Housing & Community Amenities
11.6
Health
7.1
Education
8.4
Social protection (Welfare)
9.5
Interest
21.8
Total

55. 55

56. SA Economic Growth Forecasts (Growth %)
2009
2010
2011
2012
2013
Gross Domestic Product
-1.8
3.1
3.5
2.6
4.5
Year End (Q4)
-1.6
3.7
2.9
4.8
Gross Domestic Expenditure
4.4
3.6
2.5
4.1
-1.2
5.4
2.7
Private Consumption
-3.1
1.9
2.3
3.3
-2.9
3.0
3.9
Fixed Investment
2.4
2.0
5.3
-1.3
5.7
6.5
Government Expenditure
4.7
4.0
3.8
Current A/C Balance As % of GDP
-4.0
-3.2
-4.2
-3.5

58. Underperformance of SA Economy Increasing
Lack of competitiveness & high import dependence due to:
Skills & education deficiency
Wages high relative to productivity
Lack of sufficient market size & economies of scale
Economic concentration in hands of “Golden Triangle”
Lack of entrepreneurship
Stifling regulatory environment

59. GLOBAL ECONOMY CONCLUSION
Current slide arrested
Second economic slowdown
Slower growth
Correction of imbalances
Reduction of debt
Cultural changes take time
Time span of recovery: 3 to 8 years
South Africa will be affected
South Africa cushioned in short to medium term