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OVERVIEW

OUTLOOK FOR THE SA ECONOMY IN THE CURRENT GLOBAL ENVIRONMENT July 2010 SABITA Rob Jeffrey Managing Director. OVERVIEW. Global economic outlook Domestic economic outlook Significant trends affecting policy China and Africa Economic trends and forecasts Conclusion. INTERNATIONAL TRENDS.

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OVERVIEW

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  1. OUTLOOK FOR THE SA ECONOMY IN THE CURRENT GLOBAL ENVIRONMENTJuly 2010SABITARob JeffreyManaging Director

  2. OVERVIEW Global economic outlook Domestic economic outlook Significant trends affecting policy China and Africa Economic trends and forecasts Conclusion

  3. INTERNATIONAL TRENDS

  4. THE GLOBAL ECONOMYPremier of China Unsustainable low savings and high consumption Excessive expansion of financial institutions Lack of self discipline Failure of supervision and regulation

  5. PRIVATE EXCESS CREDIT AND BORROWING

  6. GLOBAL IMBALANCE

  7. INEQUALITY AND GREED

  8. LOOSENING MONETARY POLICY LEADS TO ASSET INFLATION • Inflation in asset prices, not goods prices • First equities, then housing, finally commodities

  9. SLUMP AND RECOVERY

  10. REQUIRED DOMESTIC & INTERNATIONAL POLICY SHIFTS Major realignment of exchange rates Cultural changes Lower consumption higher saving in West Higher consumption lower saving in East Curbing profligate politicians dependent on: Pet projects and populism for power Debt levels need to be reduced Past excess debt and current stimulatory debt

  11. APPREHENSION REGARDING SUSTAINABILITY OF UPSWING Traditionally, rallies following severe bear markets have averaged 70%, S & P up 83% already since March 2009 China tightening up on lending to slow speculation Could be a precursor to global rise in interest rates? Could be a precursor to slowdown in Chinese economy Obama acting to prevent banks from speculating with their own money Interference in market system Unknown impacts Concerns with Greek debt default possibility Fear of impact on Euro integrity from contagion Increased fiscal prudence to slow European recovery

  12. SPECTRE OF RISING WORLD DEBT • How do governments in advanced economies extricate themselves from rising debt levels? Greece now, who’s next? • Hope that sustained growth will eventually generate revenues to rein in government debt

  13. GLOBAL RECESSION: V-SHAPE OR W-SHAPE? Massive stimulus is having effect Huge build up of cash balances Risk of unsustainable rally in asset prices, commodity prices & economic activity or 13

  14. SOUTH AFRICAN ECONOMIC TRENDS

  15. THE SOUTH AFRICAN ECONOMY Unsustainable low savings and high consumption Excessive imports insufficient exports

  16. EXCESSIVE CONSUMPTION

  17. EXCESSIVE IMPORTS

  18. Public debt as % of GDP

  19. Gross general government debt as % of GDP

  20. BALANCED SECTORAL GROWTH IN SAPOLICY REQUIREMENTS Create environment to increase domestic and foreign investment in manufacturing & mining sectors Increase investment in export orientated mining, processing & manufacturing industries Increase investment in import replacement industries

  21. CRITICAL FACTORS AFFECTING FUTURE SOUTH AFRICAN ECONOMIC GROWTH

  22. The age of globalisation

  23. GLOBALISATION & GROWTH • Irreversible trend • Prices will be influenced by world pricing trends • Long term costs follow international costs • Environmental issues will grow • Domestic & foreign investment are essential • Technological trends will influence development • Intervention and protectionism are dangers

  24. GLOBAL SUCCESS REQUIREMENTS • Growing influence of market forces and capital movements • Efficiency must be measured in global terms. • Critical mass is important in the global market • High quality required to be competitive • Important to offer new technologies • Critical size often means • A dominant local player • Producing for export • Government should foster an environment for global success

  25. FORECASTS OF SA ELECTRICITY GENERATING CAPACITY REQUIREMENTS

  26. SOURCES OF ELECTRICITY

  27. ENVIRONMENTAL & OTHER TRENDS Market share of fossil fuels will decline & the share supplied by sustainable clean electricity will grow Share of oil from traditional sources will decline but oil from alternative sources such as tar sands & coal will increase The cost of electricity will increase as the true environmental costs are factored in to cost structures The cost of alternative sources of electricity will reduce & they will become more competitive Alternative electricity sources (such as solar, wind & wave) will continue to have limited large-scale viability Coal and nuclear power currently only technologies available to offer large-scale electricity source for global economy.

  28. ENERGY CONSUMPTION AND INCOME

  29. SECTORAL ELECTRICITY INTENSITY

  30. SECTORAL ELECTRICITY INTENSITY

  31. LONG TERM ECONOMIC GROWTH OBJECTIVES

  32. ESKOM FORECAST CAPACITY

  33. THE CHINDIA FACTOR SUBSTANTIAL IMPACT ON AFRICA AND SA

  34. CHINA FUTURE GIANT

  35. THE CHINA FACTOR • The long term objective • Plays a long game (Hong Kong) • Has 1,3 billion people • Requires commodities & markets • Unorthodox business practice

  36. LONG TERM DEMAND TREND

  37. AFRICA AND CHINA • Africa produces more than 60 minerals • Africa hosts 30% world’s mineral resources • Africa’s market share of world mineral production <10%

  38. ECONOMIC TRENDS AND FORECASTS

  39. Forecasts for World Growth Revised Upwards • Assume economic recovery will be sustained

  40. Rand Remains Vulnerable • Still benefiting from carry trade & low money supply growth • However, weakening relative to other emerging markets • Fears of left-wing shift (bluster meant to mask lack of service delivery) • Concerns with lack of leadership (presidency) of country & of economy (who is in charge of economic policy?) • Growing underperformance of SA Economy

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