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The SA Economy 2012: Managing Crises or Unlocking Golden Opportunities Presentation for:

The SA Economy 2012: Managing Crises or Unlocking Golden Opportunities Presentation for: Cape Town Press Club 21 February 2012 By Dr Iraj Abedian Pan-African Investment & Research Services (Pty) Ltd. Outline. Stylized Facts of the SA Political Economy

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The SA Economy 2012: Managing Crises or Unlocking Golden Opportunities Presentation for:

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  1. The SA Economy 2012: Managing Crises or Unlocking Golden Opportunities Presentation for: Cape Town Press Club 21 February 2012 By Dr Iraj Abedian Pan-African Investment & Research Services (Pty) Ltd.

  2. Outline Stylized Facts of the SA Political Economy Assessing the Fiscal Framework Conditions for Unlocking the Golden Opportunities Concluding Remarks

  3. Stylized Facts of SA Political Economy

  4. Average GDP growth: SA vs. Peer Countries (2000-2010)South Africa’s average growth has been lower than that of its peer countries Source: IMF & Respective Statistical Bureaus

  5. South Africa’s GDP Outdone by the BRIC Countries Source: IMF, RMB FICC Research, August 2011

  6. Unemployment –Global Comparison

  7. Public Backlog Needs Decade-long Attention Source: DBSA Barometer, 2008

  8. Rand Foreign Exchange Volatility • Peer Group Countries: • Argentina • Turkey • Hungary • Chile • Poland • Malaysia • Philippines • Mexico • Israel • Ukraine • Korea • Indonesia • Russia • Brazil • Peru • Colombia • Thailand

  9. South Africa’s Eroding Global Competitiveness

  10. Administered Prices: 2000-2011High administered prices, in particular the negative impact of the ongoing surge in electricity prices, deplete South Africa’s competitiveness India: Fuel, Power, Light and Lubricants (2000-2009) Brazil: Electricity China: Electricity Russia: Public Utilities South Africa: Electricity Source: IMF & Respective Statistical Bureaus

  11. Global Competitiveness Index Source: World Economic Forum, Competitiveness Report 2011/12

  12. De-IndustrialisationDeclining Manufacturing Output and Contribution to GDP Contraction due to poor macro policies Expansion due to democracy Contraction due to Apartheid policies Source: SARB & PAIRS

  13. Policy Environment: Manufacturing Employment NGP IPAP IPAP 1 IPAP 2

  14. Most Problematic Factors for Doing Business in South Africa Source: World Economic Forum, Competitiveness Report 2010/11

  15. Assessing SA’s Fiscal Framework

  16. Financial , Economic and Effectiveness Assessment of the Fiscal Framework Financial Criteria: Deficit/GDP Ratio, Debt/GDP Ratio Financial Sustainability Condition: Rate of Debt Service Changes <= Rate of GDP Growth (Tax Revenue) Economic Criteria: a) Financial Sustainability Condition b) State of Economic Infrastructure Needed for Sustainable Growth. Effectiveness Criteria

  17. SA Government Debt as % of GDP Forecast – 2011 -2014 Source: SARB

  18. SA Public Debt in Global Context :

  19. Public Sector Finances at a Glance Source: National Treasury

  20. Effectiveness Assessment of the Fiscal Framework • Overall effectiveness of fiscal expenditure is poor- at best. • The level of abuse and corruption is way too high. • Over R5 billion is under formal investigation! • Chronic annual audit qualification is the norm! • Four Provinces are subject to Section C100 • The majority of municipalities are dysfunctional and financially stressed due to abuse and incompetence. • The spirit and the skills needed for managing for effectiveness are lacking. • Note: Fixing this is a pre-condition for poverty alleviation and social development.

  21. The upshot…………….. Financial Criteria: SA is doing fine subject to cyclical changes Economic Criteria: SA has a considerable and unsustainable deficit, unfunded and largely neglected. Effectiveness Criteria: SA is facing a dangerous deficit! This is a real challenge, if not a crisis, of fiscal efficacy! For social development this is a pre-requisite.

  22. Unlocking The Economy’s Golden Opportunities :

  23. Unlocking SA’s Economic Potential Key Sources of SA’s Growth and Job Creation Potential: An integrated mineral beneficiation strategy; A re-industrialisation policy; An effective regional integration strategy.

  24. Urbanisation Fuelling Demand of Commodities in the BRIC and elsewhere….. Source: Standard Bank Research

  25. Mineral Beneficiation – A Narrow Perspective Mining & Production of Ore Conversion of ore into bulk tonnage intermediate goods (e.g. metals and alloys) Conversion of the intermediate goods into a refined product for use by small and sophisticated Industries Source: PAIRS

  26. Beneficiation Value Chain Supply chain industries providing equipment and services to the mining sector Extraction and mining activities including processing Industrial applications, utilization and downstream activities Related industries & multiplier effects Source: PAIRS

  27. Core vs Integrated Mineral Beneficiation Energy Transport Water Telecom- munication CORE BENEFICIATION Logistics & Ports Engineering R&D Construction Source: PAIRS

  28. A significant business reality: Mineral beneficiation & Re-industrialisation are inseparable....

  29. At present, SA enjoys a golden opportunity for the second wave of re-industrialisation with significant and meaningful political economy benefits.... An Econometric Illustration…

  30. 10-year cumulative effects of the economy-wide impact of an increase in manufacturing output Source: PAIRS

  31. Employment effects (no. of jobs) Source: PAIRS

  32. First things First: some necessary urgent steps..... To unlock the potential: • Professionalization/De-politicization of the key technocratic layer of the pubic sector and its SOEs as well as state agencies. • A radical reform of the education and human resources development paradigm, even if this entails a ‘terminal tax compact’ • Re-industrialisation policy based on an integrated mineral beneficiation strategy. • An active African integration policy, especially for Sub-Saharan Africa.

  33. Concluding Remarks • In 2012, South Africa finds itself at a cross-road again; • Key capabilities are built over the past 15 years, • Major fault-lines remain and need urgent attention; • The solutions require a heavy mix of political and technical inputs. • The speed with which we respond to the urgent issues will define the trajectory and the pace of the country’s democratization process and global standing over the next decade.

  34. Concluding Remarks

  35. Thank you for your attention abedian@pan-african.co.za Tel: 011 883 8036/7 Fax: 011 883 8038

  36. Global Competitiveness: Global Competitive Index • South Africa is falling in its relative competitiveness.

  37. Most Problematic Factors for Doing Business in South Africa Source: World Economic Forum, Competitiveness Report 2011/12

  38. Most Problematic Factors for Doing Business in South Africa Source: World Economic Forum, Competitiveness Report 2011/12

  39. Most Problematic Factors for Doing Business in South Africa Source: World Economic Forum, Competitiveness Report 2011/12

  40. Reserves lower than IMF Adequacy Range More Accumulation May Be Needed… Source: Country Authorities & IMF staff estimates

  41. Skills ShortageOverall poor ranking in Basic Education Source: World Economic Forum, Competitiveness Report 2010/11

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