SA economic review Kevin Lings August 2018
South Africa real GDP growth year-on-year %y/y 8 7 6 5 Ave 4.3% 4 Ave 2.5% 3 2 Ave 0.9% 1 0-1 -2-3 00 01 02 03 04 05 06 07 08 09 10 11 12 13 14 15 16 17 18 2
Growth in fixed investment spending by SOEs % year-on-year, 4-quarter moving ave 50 45 40 35 30 25 20 15 10 5 0-5 -10 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 3
SA rate of growth in household residential mortgages % year-on-year 33 30 27 24 21 18 15 12 9 Average inflation since 2006 6 3 0 06 07 08 09 10 11 12 13 14 15 16 17 18
South Africa vs emerging market manufacturing Index Emerging market industrial production at a record high 180 175 170 165 160 155 150 Emerging market industrial production 145 140 135 130 125 120 115 110 105 SA manufacturing 100 95 90 85 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 5
South Africa business confidence (BER) Index 95 85 75 65 55 45 35 25 15 Business confidence has been depressed for 10 years 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 6
5 IMMEDIATE ECONOMIC CHALLENGES FACING THE COUNTRY 1 Lift business confidence 2 Restore fiscal discipline 3 Reform SOEs Clarify transformation policies 4 5 Dramatically reduce corruption
41% SOUTH AFRICA S ECONOMIC TURNAROUND SCORE Below 30%: stagnation, risk of recession, weak confidence 30% to 50%: positive but sluggish growth, constrained budgets 50% to 70%: growth around 2% to 3%, improving fiscal position Above 70%: strong growth, vibrant labour market As at mid-august 2018
2 MAJOR STRUCTURAL CHALLENGES FACING THE COUNTRY 1 Poor education outcome 2 High unemployment rates
South Africa school enrolment HUGE DROPOUT OF STUDENTS 1.24 million 1.11 million 687 K GRADE 1 GRADE 10 GRADE 12 10
SA university graduation rates %, Percent graduation rate 30 25 20 15 Rhodes University University of JHB University of CT Stellenbosch University University of the Witwatersrand University of the Free State University of Pretoria University of KwaZulu-Natal 17% of students obtain their degree 10 UNISA 5 0 11
South Africa youth unemployment rate Q2 2018 Q2 2018 % 53.7% 67.1% Excluding discouraged workers Including discouraged workers
SA private sector could grow strongly if confidence improved
South Africa corporate deposits R billion 810 770 730 690 650 610 570 530 490 450 410 370 330 290 250 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 14
Emerging market corporate debt as % of GDP % of GDP, end 2017 China Korea Chile Israel Turkey Malaysia Hungary Czech Rep Russian Federation Thailand Saudi Arabia Poland India Brazil South Africa Colombia Mexico Indonesia Argentina 0 20 40 60 80 100 120 140 160 15
SA households debt as % of GDP % 46 44 42 40 Long-term average 38 36 34 32 30 07 08 09 10 11 12 13 14 15 16 17 16
Emerging market household debt as % of GDP % of GDP, end 2017 100 90 80 70 SA household debt relatively modest 60 50 40 30 20 10 0 Korea Thailand Malaysia China Chile Israel Poland South Africa Czech Rep. Colombia Brazil Hungary Turkey Indonesia Mexico Russian Federation Saudi Arabia India Kenya Argentina Egypt Ghana Ukraine Nigeria Pakistan 17
SA household debt servicing as % of disposable income % 15 14 13 12 11 10 9 8 7 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 18
Positive developments in the political economy SAA / ESKOM NATIONAL BUDGET MOODY S FOREIGN INVESTMENT INVESTMENT/ JOB SUMMIT
South Africa Poised for growth
SA link between employment and consumer spending Number of formal sector job gains at the ave monthly salary 100 000 1.1% 200 000 2.5% 300 000 3.4% 400 000 4.5% 500 000 5.6% 628 000 7.0% 700 000 7.8% 800 000 8.9% Growth in consumer spending 21
SA is heavily impacted by global developments
Breakdown of the world economy estimated in 2017 Canada 2.1% Germany 4.6% Euro-area 15.8% UK 3.3% Russia 1.9% China 15% Japan USA 24.3% 3.3% 6.1% Sub- Saharan Africa 1.9% India South America 7.4% Brazil 2.6% South Africa 0,4% Australia 1.7% 24
SA imports and exports as % of GDP % of total 60 55 50 SA is regarded as a very open economy 45 40 35 30 25 20 15 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 99 98 97 96 95 94 93 92 91 90 89 88 87 86 85 84 83 82 81 80 25
South Africa net foreign capital flows R billion (cumulative since 1984) 1750 1550 1350 1150 950 750 550 350 150-50 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002 2001 2000 1999 1998 1997 1996 1995 1994 1993 1992 1991 1990 1989 1988 1987 1986 1985 1984
SA rand/dollar week volatility Weekly change in the rand/dollar exchange rate, % 17 15 13 11 9 7 5 3 1-1 -3-5 -7-9 -11-13 -15 2018 2017 2016 2015 2014 2013 2012 2011 2010 2009 2008 2007 2006 2005 2004 2003 2002
GDP growth: South Africa vs World IMF, Stanlib %y/y 7 6 5 4 World growth 3 2 1 0 South Africa growth -1-2 -3 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 28
Consensus 2018 GDP forecast for US and euro area % year-on-year 3,0 2,8 2,6 US GDP forecast 2018 2,4 2,2 Euro area GDP forecast 2018 2,0 1,8 1,6 Sep-17 Oct-17 Nov-17 Dec-17 Jan-18 Feb-18 Mar-18 Apr-18 May-18 Jun-18 Jul-18 29
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