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South Africa:- A Socio-Economic Perspective
Presented by:Dawie RoodtSAIIE Conference13 September 2007
Through the Eyes of the World
Source: The Economist
January 20-26, 2007
Full page advertisements
(Est. Cost: £87,500)
The Oppositionp. 15
The Home Teamp. 17
Value for Money?Macedonia South Africa
Taxes
Efficiency
Competitive labour
Access to markets
Stability
Infrastructure
Property rights -
But why say it?
2007:Economic Overview
GDP at Market Prices
GDP market prices, q:q seasonal
-1
0
1
2
3
4
5
6
7
8
1994 1996 1998 2000 2002 2004 2006
%
Source: StatsSA and own calculations
GDP per capita '00
20000
21000
22000
23000
24000
25000
26000
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
R
GDP
Source: StatsSA and own calculations
Relative size to GDPIndustry Weights 2000 Weights 2007 (Q2) Change (%)
Manufacturing 18.1 16.4 -9.4%
Finance, real estate and business services
17.4 19.8 13.8%
Government Services 13.1 12.6 -3.8%
Wholesale and retail trade; hotels and restaurants
12.7 14.0 10.2%
Transport and communication
10.1 9.9 -2.0%
Mining and quarrying 5.5 5.6 1.8%
Agriculture, forestry and fishing
3.9 2.0 -48.7%
Other 19.2 19.7 2.6%
Total 100.0 100.0
Source: StatsSA and own calculations
Fiscal Policy
Background
Revenue & Expenditure:GDP
20
21
22
23
24
25
26
27
28
29
30
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
Trevor’s reign!
Gold
Background
Deficit:GDP
-8
-7
-6
-5
-4
-3
-2
-1
0
1
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
Source: SARB and own calculations
Background
State Debt:GDP
25
30
35
40
45
50
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008
%
Good/Stable
Debt Trap Recovery
Monetary Policy
Interest rates
Prime
9
11
13
15
17
19
21
23
25
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
%
De Kock (16.5%)
Stals (18.9%)
Mboweni (13.1%)
Interest rates
Prime
10.0
10.5
11.0
11.5
12.0
12.5
13.0
13.5
14.0
2005 2006 2007
%
CPIX above 6%
Inflation
Inflation
Inflation bracket
CPI & CPIX
0
3
6
9
12
15
18
21
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
%
Source: StatsSA and own calculations
14.6%
10.0%
5.2%
Debt Levels
Credit Extension
Private Sector Credit Extension excl Bill & Investments
8
10
12
14
16
18
20
22
24
26
28
Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07
%
Source: SARB and own calculations
Household debt to disposable income
Household debt to disposable income of households
40
45
50
55
60
65
70
75
1970 1975 1980 1985 1990 1995 2000 2005
%
Source: SARB and own calculations
44.5%
50.2%
56.9%
59.4%
Savings to disposable income of households
Ratio of saving by households to disposable income of households
-2
0
2
4
6
8
10
12
1970 1975 1980 1985 1990 1995 2000 2005
%
Source: SARB and own calculations
9.2%
5.4%
2.6%
0.5%
Balance of Payments
Balance of Payments
Current Account vs Financial Account
-8
-6
-4
-2
0
2
4
6
8
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006
% GDPBarclays/Absa
De Beers delisting
Sanctions liftedDebt Standstill
Source: SARS and own calculations
Business and Employment
Average Wage Settlements and the Inflation Rate, 1985-2004
Wage Settlements and the inflation rate, 1985-2004
0
2
4
6
8
10
12
14
16
18
20
1985 1987 1989 1991 1993 1995 1997 1999 2001 2003
%
Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications
Mandays Lost as Result of Strikes and Lockouts, 1980-2004Mandays Lost as a Result of Strikes and Lockouts, 1980-2004
0
2
4
6
8
10
1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004
Million
Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications
Two large strikes in mining and transport sectors
Strikes by Sector,% of Total Manday Lost (2004)
74.5%
5.9%
4.2%
9.5%
5.9%
State Transport Other Food Mining
Source: South Africa Survey 2004/2005; Andrew Levy Employment Publications
Capital Expenditure
First Picture of Cape Town’s New Stadium:
Capital Expenditure Institute
Time Horizon
Planned Capital Expenditure (Rbn)
Sasol 2013 62.0
Eskom 2011 150.0
World Cup 2010:
Gautrain
Acsa
Stadiums
2010
2011
2010
24.0
20.0
8.4
Transnet (Rail, Ports, Pipelines)
2012 78.0
State (National Budget)
2009 372.0
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)
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
South Africa, Africa and the Rest
Percentage of World GDP ‘063%
30%
3%3%
4%5%5%6%
6%
9%
26%
Africa Rest of the World Spain CanadaItaly France UK ChinaGermany Japan USA
Source: World Bank
GDP per Capita, 1970-2006
Africa, South Africa, World GDP per Capita
0
1000
2000
3000
4000
5000
6000
7000
8000
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1996
1998
2000
2002
2004
2006
$
Source: UN
Productivity LevelsOutput per worker, constant US$2000 (PPP)
Productivity Level, output per worker, PPP 1996 2005 2006*
World 15,824 19,150 19,834
Developed Economies & European Union 52,876 61,759 62,952
Central & South-Eastern Europe (non-EU) &
CIS
11,787 17,088 18,121
East Asia 6,347 11,552 12,591
South-East Asia & the Pacific 8,068 9,067 9,419
South Asia 5,418 7,531 7,998
Latin America & the Caribbean 17,652 18,250 18,908
North Africa 12,967 14,292 14,751
Sub-Saharan Africa 4,490 4,935 5,062
Middle East 22,130 21,630 21,910
Source: ILO Global Employment Trends Model
*2006 preliminary ILO estimates
Socio-Economic Development
Close-up on South AfricaCategory 2004 2006
Total population (000) 46.6mil 47.4mil
Annual population growth rate (%) 1.1% -0.4% ?
Population 0-14 years(%) 33% 32%
Rural population (%) 41
Total fertility rate (births per woman) 2.8 2.7
Infant mortality rate (1,000) 53 60
Life expectancy at birth (years) 46 42
HIV rate (%) in adults (15-49 years) 15.6 18.8%
Poverty (% of pop. on less than $2 a day) 34
GDP per capita (PPP) US$ 11 192 12 760
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
Social Services Expenditure
Social Services Expenditure
Budget 2006/07 Budget 2007/08
Functional allocation R260.9bn R296.6bn
% of Total Expenditure 59.2% 59.0%
% of GDP 14.6% 15.4%
Expected Overrun R2.5bn
Social Services Expenditure as % of Total Expenditure
Social Services Expenditure
40
44
48
52
56
60
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% Expenditure
Source: Various Budgets and own calculation
Human Poverty Index (HPI): Developing Countries (HPI-1),2004
Source: Human Development Report, 2006 (undp.org)
Human Poverty Index, Developing Countries (High value = High Poverty)
0
10
20
30
40
50
60
70
0 20 40 60 80 100Countries
Value
South Africa 2004
Cuba
Mali
Average: 30
Median: 27
South Africa(1998)
Health
Healthy Spending… ?
Budget 2006/07 Budget 2007/08
Functional allocation R53.5bn R60.3bn
% of Total Expenditure 12.1% 12.0%
% of GDP 3.0% 3.1%
Expected Overrun R0.1bn
2007 Budget: R7.2bn more for HIV-Aids, hospitals and salaries of health workers
Healthy Spending as % GDP
Health Spending from 1995
2
3
4
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% GDP
Source: Various Budgets
Public Expenditure on Health Comparison (2003-04)
Source: Human Development Report, 2006 (undp.org)
Public Health Expenditure as % GDP
0
1
2
3
4
5
6
7
8
9
0 20 40 60 80 100 120 140 160Countries
% GDP
South Africa (‘04&’06)
Myanmar
Iceland
Average: 3.5
Median: 3.0
CubaMalawi
South Africa (’07)
Male Life Expectancy at Birth, 2004
Source: Africa Development Indicators, World Bank, 2006
Male Life Expectancy at Birth, 2004
30
35
40
45
50
55
60
65
70
75
0 10 20 30 40 50Countries
Age
Sierra Leone
Average: 51
South Africa
Swaziland
Tunisia
South Africa (2006)
Public Health Expenditure (2003) vs. Life Expectancy at Birth (2000-05)
Health Spending vs Life Expectancy
0
4.5
9
30 60 90
Life Expectancy (years)
Hea
lth E
xpen
ditu
re (%
GD
P)
Malawi
South Africa ('07)Cuba
Singapore
Namibia
South Africa
Source: Human Development Report, 2006 (undp.org)
Physicians
Source: Human Development Report, 2006 (undp.org)
Physicians 1990-2004
0
100
200
300
400
500
600
0 20 40 60 80 100 120 140 160 180
Countries
per 100,000
South Africa 2004Malawi
Average: 147.0
Cuba
Median: 109.0
South Africa(2001)
Public Health Expenditure (2003) vs. Physicians 2004)
Health Spending vs Physicians
0
4.5
9
0 300 600
Number of Physicians, per 100,000
Hea
lth E
xpen
ditu
re (%
GD
P)
Malawi
Cuba
Saint Lucia
Canada
South Africa 2004
South Africa (2001)
Source: Human Development Report, 2006 (undp.org)
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
HIV Prevalence (% Ages 15-49)
0
5
10
15
20
25
30
35
0 20 40 60 80 100 120 140 160 180
Countries
%
South AfricaJapan
Swaziland
Average: 2.0
Zimbabwe
Number of HIV Positive and Cumulative HIV Deaths
Total HIV+ and Cumulative Aids Deaths
0
1
2
3
4
5
6
Jan-90 Jan-95 Jan-00 Jan-05 Jan-10 Jan-15
Mil
Total HIV+ Cumulative Aids Deaths
Projection
Currently 250 000 on antiretrovirals- Shortfall 800 000! ( Economist)
Source: Centre for Actuarial Research and South African Medical Research Council, 2004
Estimated HIV Prevalence Amongst Antenatal Clinic Attendees, by Age
Age group (years)
2000 prevalence
%
2001 prevalence
%
2002 prevalence
%
2003 prevalence
%
2004 prevalence
%
2005 prevalence
%
<20 16.1 15.4 14.8 15.8 16.1 15.9
20-24 29.1 28.4 29.1 30.3 30.8 30.6
25-29 30.6 31.4 34.5 35.4 38.5 39.5
30-34 23.3 25.6 29.5 30.9 34.4 36.4
35-39 15.8 19.3 19.8 23.4 24.5 28.0
40+ 11.0 9.8 17.2 15.8 17.5 19.8
Source: Avert international AIDS charity
AIDS
People infected with Aids
20%
68%3%1%
4%
4%
Asia Africa Eastern Europe & Central Asia Caribbean Latin America High Income CountriesSource: UNAIDS
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!
Eddjucation
Bas(e)ing the Outcome…
Budget 2006/07 Budget 2007/08
Functional allocation R92.0bn R104.7bn
% of Total Expenditure 19.5% 20.8%
% of GDP 5.2% 5.4%
Expected Overrun R1.5bn
2007 Budget: R8.1bn more for additional teachers
Education expenditure comparison (2002-2004 as available)
Source: Human Development Report, 2006 (undp.org)
Expenditure on education as % GDP
0
1
2
3
4
5
6
7
8
9
10
0 20 40 60 80 100 120
Countries
% G
DP
South Africa (’06 & ’07)
Equatorial Guinea
Lesotho
Average: 4.7
Zimbabwe
Education Spending as % GDPEducation : GDP
4
5
6
7
8
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007
% GDP
Source: Various Budgets
Pass Rate of SCE and Education Spending
Pass Rate and Education Spending
40
45
50
55
60
65
70
75
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
%
5
6
7
8
% GDP
Pass Rates Education Spending
Source: HSRC
Learners and Educators in Ordinary Schools
Learners and Educators
11.6
11.8
12.0
12.2
12.4
2001 2002 2003 2004 2005
Number (mil)
350
360
370
380
390Number ('000)
Learners Educators
Source: 2001-2005 SNAP Survey (www.education.gov.za)
Number of Schools and Educators in Ordinary Schools
Number of Schools and Educators
26.0
26.5
27.0
27.5
28.0
2001 2002 2003 2004 2005
Number ('000)
350
360
370
380
390
Number('000)
Schools Educators
Source: 2001-2005 SNAP Survey (www.education.gov.za)
Pass Rate of SCE and Matriculation Exemption
Pass Rate vs Matric Exemption
8.0 8.26.2 6.4 6.4
8.19.3
11.713.9 12.9 11.6
16.6
0
20
40
60
80
1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006
%
Pass Rates Matriculation Exemption
Source: HSRC
Learners Presenting For Standard and Higher Grade Exams
Subject Year SG HG HG as % Tot
Accounting 2002 100199 41216 29.1
2003 106621 39548 27.1
2004 112948 43442 27.7
2005 120129 42727 26.2
Biology2002 200608 98468 32.9
2003 199432 86813 30.3
2004 204073 96081 32.0
2005 219838 111619 33.6
English (Second language)2002 22408 362534 94.2
2003 18535 355965 95.1
Source: HSRC / Department of Education
Learners Presenting For Standard and Higher Grade Exams
Subject Year SG HG HG as % Tot
Mathematics2002 226295 35518 13.6
2003 223156 35994 13.9
2004 236155 39939 14.5
2005 259099 44053 14.5
Physical Science2002 103044 51047 33.1
2003 100166 52215 34.3
2004 105245 55969 34.7
2005 119491 62337 34.3
Source: HSRC / Department of Education
Case Study: Flow of Pupils from Grade 1 to Grade 12
Source: HSRCNote: Repeaters and drop outs not indicated
Flow Through for 1991 Pupils
100.0 99.095.5
88.8 89.4
80.678.0
85.8
75.9
69.3
58.8
40.3
30
40
50
60
70
80
90
100
1991Gr1
1992Gr2
1993Gr3
1994Gr4
1995Gr5
1996Gr6
1997Gr7
1998Gr8
1999Gr9
2000Gr10
2001Gr11
2002Gr12
1 207 066 learners
486 786 learners
Home Schooling?
1995 to 2006: 31.7% 31.7
Flow in Secondary Schools
Source: Dept Education
Flow of Pupils in Secondary Schools
500
600
700
800
900
1000
1100
2002 (Gr 7) 2003 (Gr 8) 2004 (Gr 9) 2005 (Gr 10) 2006 (Gr 12)
Number ('000)
1.3%- 6.4% 17.0%
Repeaters?
- 49.3%
Adult Literacy Rate (2005)
Source: Human Development Report, 2006 (undp.org)
Adult Literacy Rate
10
20
30
40
50
60
70
80
90
100
0 20 40 60 80 100Countries
% o
f P
op
ula
tio
n
South Africa: 82.2
Mali
EstoniaAverage: 79.5
Median: 87.4
South Africa (1991): 82.1
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
Fiscal Efficiency
Revenue Sources (Est. 2006/07)
29%
25%28%
4%
4%
10%
Individual Tax
Company Tax
VAT
Excise Duties
Fuel Levy
Other
Contribution to Fiscus
Budget Revenues (per $ GDP) by Country, 2006
Dollar Revenue per Dollar GDP
0.0
0.2
0.4
0.6
0.8
1.0
1.2
0 20 40 60 80 100 120 140 160Countries
$
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%
Company Tax Rate, per Country (2006)
Company Tax Rates
0
5
10
15
20
25
30
35
40
45
0 10 20 30 40 50 60
Countries
%
Source: worldwide-tax.com
South Africa
Bulgaria
Egypt
Average: 26.6%
Median: 29.0%
Ireland
USA
South Africa + STC (’06)
South Africa + STC (’07)
Individual Tax Rate, per Country (2006)
Individual Marginal Tax Rates
10
20
30
40
50
60
0 10 20 30 40 50
Countries
%
Source: worldwide-tax.com
South Africa
Russia
Denmark
Average: 35.4%
Median: 36.0%
USA
Ireland
VAT Rate, per Country (2006)
VAT Rates
0
10
20
30
0 10 20 30 40 50
Countries
%
South Africa
Ireland
Denmark
Singapore
Source: worldwide-tax.com
Average: 16.7%
Median: 18.0%
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
Price Theory
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
Cuppa’ – Impossible to Make
Price of Cappuccino- With Cream
Price of Cappuccino with Cream
9.09.5
10.010.511.011.512.0
R
Source: www.ideate.co.za / Own Research
Price of Cappuccino
Price: Maximum 12.00 Minimum 10.00 Mean 10.94 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
Self Discrimination “I love it when you talk foreign”
Cappuccino R11.50
Hot Chocolate R10.50
Caffe Mocha R12.50
White Hot Chocolate R16.90
Caramel Hot Shot R19.90
Cappuccino – no frills R11.50
Hot Chocolate – no frills R10.50
Mix them together – I feel special R12.50
Use different powder – I feel very special
R16.90
Use different powder – I feel greedy R19.90
Translation:
Source: Tim Harford. The Undercover Economist / www.muggandbean.co.za
Price of Milk - Clover Full Cream
Price of Milk, 2L Full Cream (Plastic Bottle)
12.5
13.0
13.5
14.0
14.5
15.0
15.5R
Source: Own Research
Price of Milk - Clover Full Cream
Price (2L, plastic): Maximum 15.45 Minimum 12.99 Mean 14.28 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
Other Rare Delicacies
Know Your Choices…
Name Perks Price (R), All night
Zelna Montana 2,000
Air Hostess Mile High Club… 1,800
Dirk’s Debbie ? 1,300
Chinese Queen 24-7 1,300
Cute Jade Boeremeisie, hunting weekends
1,200
Natasha Not Nights (Married?) 800
Source: Own Research
Pretoria and Surrounding Areas
Get Your Price Right!
Price (R): Maximum 2000.0 Minimum 800.0 Mean 1400.0 Standard Dev 433.6 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
…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…
www.efgroup.co.za