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Authorised Financial Services Provider – FSP No: 859
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Economic Developments - Speed Bump or Prolonged Pain..? Presented by: Dawie Roodt 13 November 2008
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International Credit Crises
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Nasdaq Bubble U.S. Interest Rate Source: I-Net, Efficient Research, 2008 Subprime Market Emerges….
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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
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It’s All In The Packaging Subprime Loan RISK CAPITAL Sell Re-sell Sell
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Subprime Bubble Bursts Credit Crises Nasdaq Bubble U.S. Interest Rate Inflation Source: I-Net, Efficient Research, 2008
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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……
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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 (50 - 150bp) & more to follow.. –Guarantees private & retail deposits G20 Meeting IMF Germany €400bn China, India Cuts i% $$$
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Will It Work…..? Financial Markets Real Economy
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What About Us?
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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
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Where Will It Impact?
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Dollar Strength Source: I-Net, 2008
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Commodity Prices Source: I-Net, 2008
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Rand Weakness Source: I-Net, 2008
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Slowing International Demand Source: SARS, 2008 Other 8.0% Recession?? Slower Growth??
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What Do We Export? Source: SARS, 2008 Mining Manufacturing
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Balance of Payments Source: SARS and own calculations
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Source: SARB, 2008 C/A Deficit Funding “Hot Money” -DANGER-
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Interest Rate Advantage Source: Efficient Research, 2008
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Still Positive on SA Growth Source: StatsSA and own calculations Average: 3.0%
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South Africa:
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Economic Overview 200620072008 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%
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Household debt to disposable income Source: SARB and own calculations 44.5% 50.2% 56.9% 59.4% Q208: 76.7%
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Savings to disposable income of households Source: SARB and own calculations 9.2% 5.4% 2.6% 0.5% Q208: -0.5%
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Economic Overview 200620072008 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%
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Source: StatsSA and own calculations CPI Average: 2008 11.9% Inflation: Old Basket
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Economic Overview 200620072008 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%
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Economic Overview 200620072008 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%
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Economic Overview 200620072008 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%
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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
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Fixed Capital Investment Source: SARB, 2008
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Economic Overview 200620072008 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%
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Background Gold Deficit Surplus
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Theory versus Practice FISCAL SURPLUS e x pa n sio n ary
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Spending Priorities Social Spending
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Social Grants Beneficiary Numbers Grant Type (‘000) 2003200620072008 (projected) % Change 2003-2008 Old Age Grant2,0222,1442,1952,22510% Disability Grant9531,3191,4221,40947.8% War Veterans Grant4322-50.0% Foster Care Grant138313400446223.2% Care Dependency Grant (disabled) 58949811089.7% Child Support2,6307,0457,8638,208212.1% Total5,80810,91811,99112,402106.5% Source: 2008 Budget 2007: 11,9m recipients 25.0% of SA population
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Is SA the next Zim? Institutional Approach
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Institutional Approach to Answer Private Property Rights Freedom of Press Independent Judiciary Independence Central Bank Democratic Process
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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
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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% ??
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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!
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Institutions in SA
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Destruction of Institutions in SA? Private Property Rights 2008: Land Expropriation Bill
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Freedom of Press Destruction of Institutions in SA? “Mbeki received R30m”
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Independent Judiciary Destruction of Institutions in SA? Zuma’s Mauritius Papers
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Independence Central Bank Destruction of Institutions in SA? interest rate SARB Hikes 10 Times!
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Democratic Process POLOKWANE Destruction of Institutions in SA?
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Is SA the Next Zim? Economic Approach
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ZimBOBwean Economy: Breakdown
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South African Economy: Breakdown Source: StatsSA, Q108
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www.efgroup.co.za Authourised Financial Services Provider – FSP No: 859
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