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1
South Africa: A captured economy
© 2018 Fair Isaac Corporation. Confidential. 2
The 9 wasted years
3
GDP
4,2
2,7
3,7
2,9
4,6
5,3
5,6 5,5
3,6
-1,5
3,1
3,5
2,5
1,9
1,51,3
0,3
0,80,6
0,1
0,60,8
1,5
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2020 2021
Average growth 2010 -2020 = 1.5%
4
GDP and Business confidence
0
20
40
60
80
100
-8
-4
0
4
8
12
1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017 2019
% q/q indexGDP (lhs) BER Business Confidence
6
Potential impact of selected NDP on GDP growth
0,5
0,6
0,6
0,30,2
0,0
0,5
1,0
1,5
2,0
2,5
3,0
3,5
4,0
4,5
5,0
Currentpotential growth
Improvement inconfidence
Telecomsreforms
Barriers to entry Transportreforms
Prioritisingtourism andagriculture
Potentialgrowth after
reforms
% Other policies and
reforms, such as
addressing the skills
constraint
Production-side
8
GDP: Production
Agriculture3%
Government 17%
Construction4%
Trade14%
Personal5%
Manufacturing12%
Electricity4%
Mining7%
Finance19%
Personal services6%
Transport9%
SAT – Global Market Report, 2019 9Copyright © 2019 — Confidential
Leakage at Stages of the Brand Journey | Barriers – 2019
Note: Based on all respondents (n=25,660); All market sizes are for the 'Never Visited' category in market; All calculations have been done using absolute values, and not the rounded off values. The %
figures at different stages are calculated based on those who have never visited South Africa, and the barriers are based on the leakages at those stages; The calculation for barriers is based on
marketing spend; 2019 onwards the percentages are direct values after applying filters at different stages without converting them to a sum of 100%
Source: SAT BrandTracker Feb,Jun and Nov-19 waves
Barriers
Concerns for my personal safety 42% 21% 24% 28%
Uncertain about political climate 33% 17% 20% 18%
Concern about health risks 20% 12% 11% 8%
Too expensive to get there 24% 29% 32% 29%
Too expensive once there 11% 14% 14% 12%
Another destination was more appealing 41% 31% 42% 40%
No particular reason 12% 17% 17% 15%
Too much time to get there 16% 15% 17% 16%
Don’t know anyone there 11% 9% 8% 7%
Not a relaxing destination 11% 4% 4% 4%
Nothing interesting to do there 8% 5% 2% 3%
Bad Climate 3% 4% 3% 4%
Difficult to get a VISA 3% 4% 3% 4%
2 543
Reduce Leakage Points 2, 5 and 4 followed by Point 1Points with Maximum Leakage Key Barriers
Sa
fety
Co
st
Oth
er
Leakage
5 8 %
4 8 %
2 1 %
3 8 %
4 0 %
A W A R E N E S S
P O S I T I V I T Y
C O N S I D E R A T I O N
S O U G H T I N F O
S H O R T - T E R M
C O N S I D E R A T I O N
N E V E R V I S I T E D 82%
51%
21%
17%
10%
5%
50.71mn
47.54mn
7.25mn
10.59mn
7.66mn
16.10million pax
26.69million pax
132.19million pax
8.44million pax
33.94million pax
81.48million pax
Market Size (million pax)
160.48
Update
d
Poverty, unemployment, Inequality
11
Adults living in poverty
49,2
0
10
20
30
40
50
60
70
80
RSA
Inequality in South Africa
• South Africa is known as one of the most unequal countries in the world, reporting a per-capita expenditure Gini coefficient 0,65
• According to the Palma ratio, the top 10% of the population spent 7.9 times more than the bottom 40%
13
Unemployment rate
29,1
20
22
24
26
28
30
Q2
20
08
Q3
20
08
Q4
20
08
Q1
20
09
Q2
20
09
Q3
20
09
Q4
20
09
Q1
20
10
Q2
20
10
Q3
20
10
Q4
20
10
Q1
20
11
Q2
20
11
Q3
20
11
Q4
20
11
Q1
20
12
Q2
20
12
Q3
20
12
Q4
20
12
Q1
20
13
Q2
20
13
Q3
20
13
Q4
20
13
Q1
20
14
Q2
20
14
Q3
20
14
Q4
20
14
Q1
20
15
Q2
20
15
Q3
20
15
Q4
20
15
Q1
20
16
Q2
20
16
Q3
20
16
Q4
20
16
Q1
20
17
Q2
20
17
Q3
20
17
Q4
20
17
Q1
20
18
Q2
20
18
Q3
20
18
Q4
20
18
Q1
20
19
Q2
20
19
Q3
20
19
Q4
20
19
% q/q
14
Total number of social grants by type
145
146 666 184 696
371 643
1 065 536
3 380 904
12 197 673
War Veteran's grant Care Dependency grant Grant in Aid Foster Child grant
Disability grant Old Age grant Child Support grant
15
Service delivery protests
© 2018 Fair Isaac Corporation. Confidential. 16
What is the cost of corruption in South Africa?
9/12
R506-billion was wiped off the value of SouthAfrican bonds and listed companies, where pensionfunds are heavily invested, after the midnight end-of-March 2017 Cabinet reshuffle that saw PravinGordhan and Mcebisi Jonas booted from thefinance ministry.
South Africa was downgraded to junk status by Fitch and Standard & Poor’s in April 2017, both citing institutional and political uncertainty in the wake of the Cabinet reshuffle, policy uncertainty, and possible changes of direction with regard to nuclear power and SOEs.
Over two days the market value of the country’s 17 biggest financial and property shares fell by R290-billion.
South African bonds lost 12% of their capital value (R216-billion)
R378-billion had been wiped out on the Johannesburg Stock Exchange (JSE) and some 148,000 jobs
Debt service costs were R5-billion higher than initially planned because of the impact of Nenegate
Government expenditure R1.95 trillion
State Capture in the past 4 years = R1.5 trillion
19
State of the State-Owned Entities
21
The BIGGEST liability to South Africa’s economy
ESKOM Revenues and Expenditure
Medupi Power Station
24
Cost escalations at Medupi Power Station
80
154
234
0
50
100
150
200
250
2007 2013 2019
R, Bn
SOEs: Not generating enough revenues to cover costs
• Eskom – given equity injection of R49bn in 2020, R56bn in 2021 and R33bn in 2022
• Transnet – net profit to R6bn in FY18/19, however, ratings agencies downgraded Transnet citing increased liquidity risk as a result of loan covenants triggered by an audit qualification
• SAA – in Business Rescue since Dec 2019 because it was unable to meet its financial obligations. Since 2008, SAA has incurred net losses of over R32bn. Govt has set aside R16.4bn to settle guaranteed debt.
• SAX – illiquid and insolvent and unable to settle short or long-term debt. Incurred losses of about R1.2bn over 10 years. Under involuntary Business Rescue
• Denel – faces serious illiquidity problems. Govt provided R1.8bn in FY18/19. Govt guarantee amount to R6.9bn. Additional funding of R576m allocated for FY20/21
• SABC – Govt allocated R3.2 in FY19/20. R2.1bn transferred and remainder R1.1bn to be transferred in March 2020
26BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn
is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
FINANCIAL SUPPORT FOR SOES
0
10
20
30
40
50
60
70
80
ESKOM SAA Denel SAX SABC
• Between 2008/09 and 2019/20, major SOCs received R162bn in financial support
⁻ Eskom accounts for 82 per cent of fiscal support to state-owned companies over past 12 years.
• Over the next three years, projected support amounts to a further R129 billion, mostly for Eskom.
The Fiscus
29
Budget2020
30
Gross debt-to-GDP
48,9
50,5
53
56,7
61,6
65,6
69,1
71,670,1
71,8
73,474,7
75,8
48,950,5
53
56,7
60,8
64,9
68,5
71,3
73,7
75,8
77,879,5
80,9
45
50
55
60
65
70
75
80
85
2019 Budget Gross loan debt without financial support for Eskom
Gross loan debt with financial support for Eskom
31BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn
is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
BUDGET EXPENDITURE
Education; 351,1
Economic Development
; 200,1
Health; 205,4
Security; 200,8
General public
services; 64
Community Development
; 196,3
Social Development
; 259,4
Debt service cost; 180,1
Education; 396,4
Economic Development;
211,5
Health; 229,7
Security; 217
General public services; 70
Community Development;
212,3
Social Development;
309,5
Debt service cost; 229,3
Composition on tax revenues
0,7
0,7
1,3
2,7
3,1
4
5,5
17,9
25,3
37,1
0 10 20 30 40
Electricity levy
Transfer duties
Skills development levy
Dividends withholding tax
Specific excise duties
Customs duties
Fuel tax
Companies
VAT
Persons and individuals
33
Distribution of taxes and spending by household income
34
Comparative standard VAT rates by country
0
7
14
21
Arg
en
tin
a
Un
ite
d K
ing
do
m
Ma
da
ga
sc
ar
Mo
roc
co
Ca
me
roo
n
OE
CD
Ind
ia
Ru
ss
ia
Tu
rke
y
Ivo
ry C
oa
st
Rw
an
da
Ta
nza
nia
Ug
an
da
Bra
zil
Ch
ina
Mo
zam
biq
ue
Ma
law
i
Me
xic
o
Ke
nya
Gh
an
a
Ma
uri
tiu
s
Na
mib
ia
Zim
ba
bw
e
So
uth
Afr
ica
Bo
tsw
an
a
Ind
on
esi
a
So
uth
Ko
rea
Ja
pa
n
Nig
eri
a
Sa
ud
i Ara
bia
%
35
Corporate income tax as a share of GDP
1
2
3
4
5
6
7
20
00
20
01
20
02
20
03
20
04
20
05
20
06
20
07
20
08
20
09
20
10
20
11
20
12
20
13
20
14
20
15
Pe
r c
en
t
OECD Africa South Africa
36
37BDO South Africa Services (Pty) Ltd, a South African company, is an affiliated company of BDO South Africa Incorporated, a South African personal liability company, which in turn
is a member of BDO International Limited, a UK company limited by guarantee, and forms part of the international BDO network of independent member firms.
WIDENING BUDGET DEFICIT
Source: National Treasury
• A widening gap between revenue and expenditure, with debt-service costs making up an increasing share of the budget deficit.
• The spike in the deficit in 2019/20 reflects lower economic growth, increased support to state-owned companies and a downward revision to nominal GDP.
38
National budget deficit as percentage of the GDP, 1990 to 2022
-6,8
-8
-7
-6
-5
-4
-3
-2
-1
0
1
2
199
5
199
6
199
7
199
8
199
9
200
0
200
1
200
2
200
3
200
4
200
5
200
6
200
7
200
8
200
9
201
0
201
1
201
2
201
3
201
4
201
5
201
6
201
7
201
8
201
9
202
0
202
1
202
2
39
PUBLIC SECTOR WAGES % OF CONSOLIDATED EXPENDITURE
32,6 32,6
32,932,7
33,2
35,2
36,5
36
35,735,6
34,6
35,5
35,6
32
32,5
33
33,5
34
34,5
35
35,5
36
36,5
37
R160bn to be raised in the next three years from slowing the rate of growth of the wage bill…But labour says its also being squeezed unnecessarily!
41
Ownership of domestic government bonds
31,7 30,6 28,3 26,6 25,8 24,924,7
36,132,4 36,0 41,4
37,7 37,1 37,3
14,717,6 17,8
15,016,1 16,7 16,8
8,2 8,3 7,2 6,76,4 6,1 6,1
8,7 10,3 10,3 9,9 13,6 14,7 14,5
0,0
10,0
20,0
30,0
40,0
50,0
60,0
70,0
80,0
90,0
100,0
2014 2015 2016 2017 2018 2019 Jan-20
Per
cent
Pension funds Foreign investors Monetary institutions
Insurers Other financial institutions Other
42
Ownership of domestic government bonds
43
Ratings of Long Term Debt Emerging Markets
Standard & Poors Moody's Fitch
Singapore AAA Aaa AAAChina AA- Aa3 A+Chile AA- Aa3 A+Czech Republic AA- A1 A+South Korea AA- Aa2 AA-Botswana A- A2 -Malaysia A- A3 A-Poland BBB+ A2 A-Taiwan AA- Aa3 A+Thailand BBB+ Baa1 BBB+Mexico BBB+ A3 BBB+Peru BBB+ A3 BBB+Colombia BBB Baa2 BBBPhilippines BBB Baa2 BBB-India BBB- Baa3 BBB-Indonesia BB+ Baa3 BBB-Turkey BB+ Baa3 BBB-Russia BB+ Ba1 BBB-South Africa BB+ (negative) Baa2 (negative) BB+ (stable)Hungary BB+ Ba1 BB+Brazil BB Ba2 BB+Nigeria B+ Ba3 BB-Kenya B+ B1 B+
Ghana B- B3 B
Egypt B- B3 B
Venezuela CCC Caa3 CCC
Argentina SD Caa1 RD