Structural Adjustments in the

South African Economy

Presented by:Dawie Roodt22 May

Contents

Fiscal Policy Monetary Policy Balance of Payments Economic Growth Employment Africa and Us Asset allocation

Fiscal Policy

State Finances

Revenue/Expenditure:GDP

20

21

22

23

24

25

26

27

28

29

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

%

State Finances

Deficit:GDP

-8

-7

-6

-5

-4

-3

-2

-1

0

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

% Almost Zero

State Finances

Government Debt:GDP

25

30

35

40

45

50

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

%

Debt trapRecovery

Normal

Results

Lower interest payments More social expenditure Better ratings Strong demand

Monetary Policy

PPP Cycle (R vs. USA$)

-70

-60

-50

-40

-30

-20

-10

0

10

20

30

Jan-80 Jan-83 Jan-86 Jan-89 Jan-92 Jan-95 Jan-98 Jan-01 Jan-04 Jan-07

%

Rand Valuation

Gold $800

Rubicon

Stock exchange crash

ANC, Reds fall

Election Exchange controls

Asian

crises

Wakefordgate

Rus, Zim, Arg

Fin Rand

NOFP + NOFP -

Inflation

CPI

0

3

6

9

12

15

18

21

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04 Jan-06

%

14.619.91%

5.15%

Interest rates

Prime

9

11

13

15

17

19

21

23

25

Jan-80

Jan-82

Jan-84

Jan-86

Jan-88

Jan-90

Jan-92

Jan-94

Jan-96

Jan-98

Jan-00

Jan-02

Jan-04

Jan-06

%

De Kock

Stals

Mboweni

Results

Interest rate stability Better business environment Lower cost of capital Strong demand

Balance of Payments

Balance of Payments

Manufactured Exports:Exports

5

10

15

20

25

30

35

40

45

50

55

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

%

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

Balance of Payments

Net Direct Investment vs Portfolio vs Other investments

-7-6-5-4-3-2-10123456789

1980 1985 1990 1995 2000 2005

% GDP

Results

Access to international capital World integration International competitive

Real Economy

GDP Components

-2

0

2

4

6

8

10

12

Mining and Quarrying

Finance, prop and bus. Serv

Manufacturing

Personal Service

Transport, storage and comm.

Trade, hotels and restaurants

Electricity, gas and water

Agri, Forestry and Fishing

Construction

2005 2006

GDP

GDP

-3

-2

-1

0

1

2

3

4

5

6

7

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006

%

GDP

BER/RMB Business Confidence Index

0

10

20

30

40

50

60

70

80

90

100

Jan-80 Jan-82 Jan-84 Jan-86 Jan-88 Jan-90 Jan-92 Jan-94 Jan-96 Jan-98 Jan-00 Jan-02 Jan-04

GDP

BER/FNB Consumer Confidence Index

-35

-30-25

-20

-15

-10-5

0

5

1015

20

Jan-82 Jan-85 Jan-88 Jan-91 Jan-94 Jan-97 Jan-00 Jan-03 Jan-06

GDP

GDP per capita '00

20000

20500

21000

21500

22000

22500

23000

23500

24000

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

R

Results

Job creation Increased prosperity

Labour

Labour

Average Number of employees in SA Firms(Source: UASA, SAER)

0

5

10

15

20

25

30

35

40

1980 1990 2000

Labour

2005 SA formal employment growth of 4.5% (best in years!)SA economy need to grow:– 6.5% to halve narrow unemployment by 2014– 9.3% to halve broad unemployment by 2014

Narrow definition: 4.25m unemployedTo halve this number by 2014:– 240 000 jobs per year

To generate 1% employment growth SA needs:– 2006: 2.3% GDP growth– 1980’s: 1.6% GDP growth

Labour

Labour Productivity Growth (Non-agricultural)

-2

-1

0

1

2

3

4

5

6

7

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

%

Labour

Unit Labour Costs (Non-agriculture)

0

5

10

15

20

25

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

%

Labour

EmploymentIndex: 2000 = 100

95

100

105

110

115

120

125

130

135

140

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

Results

Higher productivity Lower burden on state

A comparison

4% of African area

23% of African GDP

21.2% of African Exports

AIDS

People infected with Aids

20%

68%3%1%

4%

4%

Asia Africa Eastern Europe & Central Asia Caribbean Latin America High Income Countries

Source: UNAIDS

GDP

Africa, South Africa, World GDP per Capita

0

1000

2000

3000

4000

5000

6000

7000

1970 1972 1974 1976 1978 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004

$

Source: UN

Countries Compared to Provinces

Country and Province GDP 2004 ($ Bn)

0 20 40 60 80 100 120 140 160 180 200 220

South AfricaEgypt

AlgeriaNigeria

GautengMorocco

KwaZulu-NatalWestern Cape

TunisiaAngolaSudan

Libyan ArabEastern CapeCote d'Ivoire

CameroonMpumalanga

KenyaLimpopo

North-WestFreestateTanzania

GhanaBotswana

EthiopiaUgandaSenegal

GabonDRC

MozambiqueMauritius

NamibiaZambia

Northern CapeMali

ZimbabweBurkina Faso

CongoBenin

MadagascarChad

GuineaSmallest 20

Source: UN

Mistakes made in Africa

Idolise LeadersMarketing BoardsNepotismIncompetenceCorruptionPoor Fiscal DisciplineToo Relaxed Monetary PolicyUnrealistic Projects

?

???

Local Equities Allocation, 2006

0%

5%

10%

15%

20%

25%

30%

35%

40%

Mining and Quarrying

Finance, prop and bus. Serv

Manufacturing

Personal Service

Transport, storage and comm.

Trade, hotels and restaurants

Electricity, gas and water

Agri, Forestry and Fishing

Construction

Market Weight Portfolio Weight

www.efgroup.co.za