2. South Africa: - A Socio-Economic Perspective Presented by: Dawie Roodt SAIIE Conference 13 September 2007

3. Through the Eyes of the World Source: The Economist January 20-26, 2007 Full page advertisements (Est. Cost: £87,500)

4. The Opposition p. 15

6. The Home Team p. 17

9. Value for Money? MacedoniaSouth Africa Taxes  Efficiency  Competitive labour  Access to markets  Stability  Infrastructure  Property rights-  But why say it?

10. 2007: Economic Overview

11. GDP at Market Prices Source: StatsSA and own calculations

12. GDP Source: StatsSA and own calculations

13. Relative size to GDP IndustryWeights 2000Weights 2007 (Q2)Change (%) Manufacturing18.116.4-9.4% Finance, real estate and business services 17.419.813.8% Government Services13.112.6-3.8% Wholesale and retail trade; hotels and restaurants 12.714.010.2% Transport and communication 10.19.9-2.0% Mining and quarrying5.55.61.8% Agriculture, forestry and fishing 3.92.0-48.7% Other19.219.72.6% Total100.0 Source: StatsSA and own calculations

14. Fiscal Policy

15. Background Gold

16. Background Source: SARB and own calculations

17. Background

18. Monetary Policy

19. Interest rates

21. Inflation

22. Inflation bracket Source: StatsSA and own calculations 14.6% 10.0% 5.2%

23. Debt Levels

24. Credit Extension Source: SARB and own calculations

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

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

27. Balance of Payments

28. Source: SARS and own calculations

29. Business and Employment

30. Average Wage Settlements and the Inflation Rate, 1985-2004 Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications

31. Mandays Lost as Result of Strikes and Lockouts, 1980-2004 Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications Two large strikes in mining and transport sectors

32. Strikes by Sector, % of Total Manday Lost (2004) Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications

33. Capital Expenditure First Picture of Cape Town’s New Stadium:

34. Capital Expenditure Institute Time Horizon Planned Capital Expenditure (Rbn) Sasol201362.0 Eskom2011150.0 World Cup 2010: Gautrain Acsa Stadiums 2010 2011 2010 24.0 20.0 8.4 Transnet (Rail, Ports, Pipelines) 201278.0 State (National Budget) 2009372.0

35. Economic Impact of the 2010 FIFA World Cup  Direct expenditure of R30.4bn  R15.6bn to be spent by expected 350,000 tourists  Contribute R51.0 billion to the GDP of South Africa (2006-2010)  Generate the equivalent of 159 000 annual jobs  Additional R7,2 billion will be paid to Government in taxes. Source: Gauteng Tourism Authority and Grant Thornton (Financial mail)

36. Summary  Problems:  Debt Levels  Tax levels  Unemployment  Crime  AIDS  Skills  State inefficiency Positives:  Strong GDP growth  State debt at more sustainable level  More stable interest rate  Capital expenditure plans

37. South Africa, Africa and the Rest

38. Percentage of World GDP ‘06 Source: World Bank

39. GDP per Capita, 1970-2006 Source: UN

40. Productivity Levels Output per worker, constant US$2000 (PPP) Productivity Level, output per worker, PPP199620052006* World15,82419,15019,834 Developed Economies & European Union52,87661,75962,952 Central & South-Eastern Europe (non-EU) & CIS 11,78717,08818,121 East Asia6,34711,55212,591 South-East Asia & the Pacific8,0689,0679,419 South Asia5,4187,5317,998 Latin America & the Caribbean17,65218,25018,908 North Africa12,96714,29214,751 Sub-Saharan Africa4,4904,9355,062 Middle East22,13021,63021,910 Source: ILO Global Employment Trends Model *2006 preliminary ILO estimates

41. Socio-Economic Development

42. Close-up on South Africa Category20042006 Total population (000)46.6mil47.4mil Annual population growth rate (%)1.1%-0.4% ? Population 0-14 years(%)33%32% Rural population (%)41 Total fertility rate (births per woman)2.82.7 Infant mortality rate (1,000)5360 Life expectancy at birth (years)4642 HIV rate (%) in adults (15-49 years)15.618.8% Poverty (% of pop. on less than $2 a day)34 GDP per capita (PPP) US$11 19212 760 GDP growth rate (%)4.5%5.0% Children of primary school-age who are out-of-school (%)7 Source: Unesco and World Bank Development Indicators

43. Social Services Expenditure

44. Budget 2006/07Budget 2007/08 Functional allocationR260.9bnR296.6bn % of Total Expenditure59.2%59.0% % of GDP14.6%15.4% Expected OverrunR2.5bn

45. Social Services Expenditure as % of Total Expenditure Source: Various Budgets and own calculation

46. Human Poverty Index (HPI): Developing Countries (HPI-1),2004 Source: Human Development Report, 2006 (undp.org) South Africa 2004 Cuba Mali Average: 30 Median: 27 South Africa(1998)

47. Health

48. Healthy Spending… ? Budget 2006/07Budget 2007/08 Functional allocationR53.5bnR60.3bn % of Total Expenditure12.1%12.0% % of GDP3.0%3.1% Expected OverrunR0.1bn 2007 Budget: R7.2bn more for HIV-Aids, hospitals and salaries of health workers

49. Healthy Spending as % GDP Source: Various Budgets

50. Public Expenditure on Health Comparison (2003-04) Source: Human Development Report, 2006 (undp.org) South Africa (‘04&’06) Myanmar Iceland Average: 3.5 Median: 3.0 Cuba Malawi South Africa (’07)

51. Male Life Expectancy at Birth, 2004 Source: Africa Development Indicators, World Bank, 2006 Sierra Leone Average: 51 South Africa Swaziland Tunisia South Africa (2006)

52. Public Health Expenditure (2003) vs. Life Expectancy at Birth (2000-05) Source: Human Development Report, 2006 (undp.org)

53. Physicians Source: Human Development Report, 2006 (undp.org) South Africa 2004Malawi Average: 147.0 Cuba Median: 109.0 South Africa(2001)

54. Public Health Expenditure (2003) vs. Physicians 2004) Source: Human Development Report, 2006 (undp.org)

55. Percentage of People ages 15-49 Infected with HIV, 2005 Source: Human Development Report, 2006 (undp.org) from UNAIDS (Joint United Nations Programme on HIV/AIDS). 2006 South Africa Japan Swaziland Average: 2.0 Zimbabwe

56. Number of HIV Positive and Cumulative HIV Deaths Source: Centre for Actuarial Research and South African Medical Research Council, 2004

57. Estimated HIV Prevalence Amongst Antenatal Clinic Attendees, by Age Age group (years) 2000 prevalence % 2001 prevalence % 2002 prevalence % 2003 prevalence % 2004 prevalence % 2005 prevalence % <2016.115.414.815.816.115.9 20-2429.128.429.130.330.830.6 25-2930.631.434.535.438.539.5 30-3423.325.629.530.934.436.4 35-3915.819.319.823.424.528.0 40+11.09.817.215.817.519.8 Source: Avert international AIDS charity

58. AIDS Source: UNAIDS

59. Summary  Low/average spending on health  Very low life expectancy  Lack/losing skilled medical personnel  HIV and Tuberculosis:  Top prevalence rates in the world  Appears to escalate  Lack of commitment from Government (Department of Health)  Impact on economy  Serious competence and planning deficiency  PROBABLY THE WORST RUN DEPARTMENT!

60. Eddjucation

61. Bas(e)ing the Outcome… Budget 2006/07Budget 2007/08 Functional allocationR92.0bnR104.7bn % of Total Expenditure19.5%20.8% % of GDP5.2%5.4% Expected OverrunR1.5bn 2007 Budget: R8.1bn more for additional teachers

62. Education expenditure comparison (2002-2004 as available) Source: Human Development Report, 2006 (undp.org) South Africa (’06 & ’07) Equatorial Guinea Lesotho Average: 4.7 Zimbabwe

63. Education Spending as % GDP Source: Various Budgets

64. Pass Rate of SCE and Education Spending Source: HSRC

65. Learners and Educators in Ordinary Schools Source: 2001-2005 SNAP Survey (www.education.gov.za)

66. Number of Schools and Educators in Ordinary Schools Source: 2001-2005 SNAP Survey (www.education.gov.za)

67. Pass Rate of SCE and Matriculation Exemption Source: HSRC

68. Learners Presenting For Standard and Higher Grade Exams SubjectYearSGHGHG as % Tot Accounting 20021001994121629.1 20031066213954827.1 20041129484344227.7 20051201294272726.2 Biology 20022006089846832.9 20031994328681330.3 20042040739608132.0 200521983811161933.6 English (Second language) 20022240836253494.2 20031853535596595.1 Source: HSRC / Department of Education

69. Learners Presenting For Standard and Higher Grade Exams SubjectYearSGHGHG as % Tot Mathematics 20022262953551813.6 20032231563599413.9 20042361553993914.5 20052590994405314.5 Physical Science 20021030445104733.1 20031001665221534.3 20041052455596934.7 20051194916233734.3 Source: HSRC / Department of Education

70. Case Study: Flow of Pupils from Grade 1 to Grade 12 Source: HSRC Note: Repeaters and drop outs not indicated 1 207 066 learners 486 786 learners Home Schooling? 1995 to 2006: 31.7% 31.7

71. Flow in Secondary Schools Source: Dept Education 1.3% - 6.4% 17.0% Repeaters? - 49.3%

72. Adult Literacy Rate (2005) Source: Human Development Report, 2006 (undp.org) South Africa: 82.2 Mali Estonia Average: 79.5 Median: 87.4 South Africa (1991): 82.1

73. Summary  Above average spending on education  Below average teacher : pupil ratio  Ordinary schools, change between 2001-2005:  Learners: 4.1%  Educators: 7.9%  Schools: -3.2%  Weaker higher grade enrollment  Low critical subject enrollment Obvious efficiency problem but improving

74. Fiscal Efficiency

75. Contribution to Fiscus

76. Budget Revenues (per $ GDP) by Country, 2006 Source: Nationmaster: CIA, World Factbook Libya Kuwait Afghanistan South Africa Average: 0.32 Median: 0.29 Collection cost: 1.3% of revenue; US 0.5%

77. Company Tax Rate, per Country (2006) Source: worldwide-tax.com South Africa Bulgaria Egypt Average: 26.6% Median: 29.0% Ireland USA South Africa + STC (’06) South Africa + STC (’07)

78. Individual Tax Rate, per Country (2006) Source: worldwide-tax.com South Africa Russia Denmark Average: 35.4% Median: 36.0% USA Ireland

79. VAT Rate, per Country (2006) Source: worldwide-tax.com Average: 16.7% Median: 18.0%

80. Fiscal Efficiency: Revenue Summary  Average tax red tape  Individual tax rate: above average (high marginal rate, low threshold)  Company tax rate: above average  VAT rate: below average

81. Price Theory

82. Consumer and Producer Surplus at Equilibrium Price Quantity Market Supply (MSC) Market Demand (MSB) Equilibrium Price Equilibrium Quantity Consumer surplus Producer surplus - Optimal allocation of resources - Maximum social gains

83. Cuppa’ – Impossible to Make

84. Price of Cappuccino - With Cream Source: www.ideate.co.za / Own Research

85. Price of Cappuccino  Price:  Maximum 12.00  Minimum10.00  Mean10.94  Standard Dev 0.87  Price differential: 20.0%  Production costs example:  Estimated mark up of 150% on coffee (US)  40c to make $1 cup of drip coffee  <$1 to make latte that sells for $2.5 Source: Tim Harford. The Undercover Economist / Own Research

86. Self Discrimination “I love it when you talk foreign” CappuccinoR11.50 Hot ChocolateR10.50 Caffe MochaR12.50 White Hot ChocolateR16.90 Caramel Hot ShotR19.90 Cappuccino – no frillsR11.50 Hot Chocolate – no frillsR10.50 Mix them together – I feel specialR12.50 Use different powder – I feel very special R16.90 Use different powder – I feel greedyR19.90 Translation: Source: Tim Harford. The Undercover Economist / www.muggandbean.co.za

87. Price of Milk - Clover Full Cream Source: Own Research

88. Price of Milk - Clover Full Cream  Price (2L, plastic):  Maximum 15.45  Minimum12.99  Mean14.28  Standard Dev 0.88  Price Differential: 18.9%  Producer:  Average price received by farmer between R2.60 and R2.80 per litre (Eastern Cape)  National Average around R3.0 per litre – Clover CE Source: Landbouweekblad / Own Research

89. Other Rare Delicacies

90. Know Your Choices… NamePerksPrice (R), All night ZelnaMontana2,000 Air HostessMile High Club…1,800 Dirk’s Debbie?1,300 Chinese Queen24-71,300 Cute JadeBoeremeisie, hunting weekends 1,200 NatashaNot Nights (Married?)800 Source: Own Research Pretoria and Surrounding Areas

91. Get Your Price Right!  Price (R):  Maximum 2000.0  Minimum800.0  Mean1400.0  Standard Dev433.6  Price differential: 150.0%!  Married Men's Saving: R1400 * 3 * 4 = R16,800 p.m.  Value of woman:  At 10% discount rate, 50 years: Present Value (PV) = R2,0m  Over 50’s (10% discount, 20 years), PV = R1,74m  Tax deduction over 5 years: R400,000 p.a. Source: Jhb pharmacy, medical practitioner Price may vary

92. …But Some Uncomfortable Externalities  Medical Treatment:  doctor(R250)  STD (R240*3)  HIV (R700 p.m. ARV’s life long)  pathologists (R1000+)  antibiotics  related sickness  hospitalisation, etc…

93. www.efgroup.co.za