Global Economic OutlookMay/June 2012

Agenda

Introduction

Introduction

Global Economic Outlook 2012

The global economy is on a narrow path of slow and fragile recovery

Oil and commodity prices remain high and will continue to put further pressure on the global economy

South Africa’s robust financial institutions and moderate fiscal and external debt absorbed the impact of the global downturn to a large extent.

However, the country needs to address its structural challenges including, unemployment, education and inequality in order to be a global economic player

Introduction

A significant decline in activity across the economy, lasting longer than a few months. It is visible in industrial production, employment, real income and wholesale-retail trade. The technical indicator of a recession is two consecutive quarters of negative economic growth as measured by a country's gross domestic product (GDP)

Refers to the market value of all officially recognized final goods and services produced within a country in a given period.

Is a sustained, long-term downturn in economic activity in one or more economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle.

The recurring and fluctuating levels of economic activity that an economy experiences over a long period of time. The five stages of the business cycle are growth (expansion), peak, recession (contraction), trough and recovery. At one time, business cycles were thought to be extremely regular, with predictable durations, but today they are widely believed to be irregular, varying in frequency, magnitude and duration.

Recession:

Gross domestic product (GDP)

Depression:

Business cycle:

Session 1: Global outlook

Global outlook

• Asia

• Australasia

• North Africa and Middle East

• Sub-Saharan Africa

• Western Europe

• and • North America

• and • Latin America

3.5%4.3% 4.6%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

4.3%

3.6%

4.2%

3.0%

3.5%

4.0%

4.5%

2011 2012 2013 -2016

3.1%

4.0%

4.7%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

4.4% 3.8%4.8%

0.0%

2.0%

4.0%

6.0%

2011 2012 2013 -2016

1.7%

-0.3%1.3%

-1.0%

0.0%

1.0%

2.0%

2011 2012 2013 -2016

1.8% 1.9% 2.2%

0.0%

1.0%

2.0%

3.0%

2011 2012 2013 - 2016

Source: Economic Intelligence Unit, March 2012

Global outlook

Source: Economic Intelligence Unit, March 2012

The global economy is on a narrow path of slow and fragile recovery. Many countries are struggling with a massive debt burden and high unemployment persisting to bog down their economies and hampering growth.

Oil and commodity prices remain high and will continue to put further pressure on the global economy

Global outlook

According to the Economist Intelligence Unit’s (EIU) March economic outlook, world GDP is expected to grow by 2.1% on a market exchange rates basis in 2012, slowing down markedly from the previous two years.

Source: Economic Intelligence Unit, March 2012

Changes in global economic risks

North American region

Asia pacific region

Middle East region

African regionLatin America & the Caribbean region

Greater Russia region

Europe region

Source: Energy Policy Scenarios to 2050, World Energy Council (values in mn tonnes)

Production (Mn tonnes)

Consumption (Mn tonnes)

Compounded annual growth rate consumption

Legend

0.9%0.9%

1.8%1.8%

1.2%1.2%

0.8%0.8%

- 2.4%- 2.4%

- 1.2%- 1.2%- 0.9%- 0.9%

Energy intensity

Economic growth is closely related to growth in energy consumption because the more energy is used, the higher the economic growth. However, it is possible to decouple energy consumption and economic growth to some extent. More efficient use of energy may entail economic growth and a reduction in energy use.

Economist Intelligence Unit, KPMG calculations

Cumulative investment in energy infrastructure require 2011 – 2035

Natural Gas - $9.5 trillion

Bio-Fuels - $0.3 trillionCoal - $1.1 trillion

Power- $16.9 trillion

World Energy Outlook 2011, (2010 real terms)

Global outlook

The economy grew by 1.7% in 2011, but grew by 2.8% in Q4 of 2011.

The inflation rate for 2011 doubled to 3.2% from 1.6% in 2010.

Growth prospects for Q1 2012 are around 2 to 2.2% on the back of a gain in consumer confidence’s subsequent retail sales and manufacturing.

Persistently high unemployment and risks of downturns in markets abroad will keep the FED’s policy rate at very low levels until even as late as 2014.

United States

European economic growth slowed during 2011 to 1.5% and is expected to contract further in 2012 to -0.3%, before a modest recovery in 2013.

Inflation should remain relatively low and contract to around 2.2% in 2012 from the 2.7% observed in 2011.

The European debt crises threatened to derail global recovery for the last two years

Europe

Manufacturing in Japan is already experiencing a v-shaped recovery after the March 2011 earthquake and tsunami.

GDP is expected to grow at around 1.5% in 2012 on the back of reconstruction activities and a recent upswing in machinery exports and local consumption.

Japan

Global outlook

Emerging Markets

The BRIC countries are recognised as having very large economies and populations, with unravelled growth potential in foreseeable years.

The Brazilian economy experienced rapid expansion in the last decade with strong economic growth

Russia experienced strong economic growth over the past few years, but manufacturing and foreign investment slowed down since the global downturn.

BRICS

The Next 11 consist of South Korea, Iran, Mexico, Turkey, Philippines, Indonesia, Egypt, Nigeria, Pakistan, Vietnam and Bangladesh.

These economies are smaller in size than the BRIC countries, but with its large population size and growth rates of above the global average, promises favourable opportunities for future investment and market growth.

The Next 11

Fears surrounding an economic downturn have lead EM central banks to either cut their interest rates or postpone monetary tightening during 2011.

Market expectations are that EM countries will outperform developed countries between 2013 - 2016, as interest rate differentials will favour investment into these EM countries over that of the OECD economies.

Session 2: Africa

Where are we now?

Where are we now? Sub –Saharan Africa

Angola

• Angola’s increased oil output contributes about 85% of GDP and recent natural gas developments will result in a high GDP growth rate.

Democratic Republic of Congo

• Congo (or the Democratic Republic of Congo), though incredibly richly endowed with natural resources, remain one of the countries which citizens are among the poorest in the world

• very high rates of inflation• agriculture industry –

employing more than 75% of the working population

Ethiopia

• Ethiopia has been one of the fastest growing African countries in the past few years as a result of some modest economic reforms

• Africa’s largest exporter of coffee and second largest maize producer, as well as a big producer of livestock

Where are we now? Sub –Saharan Africa

Ghana

• Ghana remains one of the world’s biggest gold producers and other exports include cocoa, natural gas, timber and diamonds.

Mozambique

• Mozambique is a resource rich country, producing food, beverages, chemicals, aluminium, petroleum products

• Infrastructure development, especially electricity, is necessary to increase output and create more investment opportunities.

Nigeria

• Nigeria’s vast population size and well developed financial and communications sectors continue to attract mobile phone networks and banks looking to capitalise on the large amount of unbanked individuals.

Zambia

• Zambia is a large producer and processor of copper and this hard commodity is its main export, with agriculture being an important pillar of the economy.

Where are we now?

2001 - 2010 2011 – 2015 : Forecast

2001

- 2

010

2011

- 20

15

China9.5

Nigeria6.8

Zambia

6.9

Tanzania7.2

India8.2

Congo7.0

Vietnam7.2

Angola11.1

Rwanda7.6

Cambodia7.7

Nigeria8.9

Kazakhstan8.2

Ethiopia8.4

Myanmar10.3

China10.5

Chad7.9

Mozambique7.9

Ethiopia8.1

Mozambique

7.7

Ghana7.0

Source: IMF World Economic Outlook, February 2012

Most of the fastest developing economies are in the Sub- Saharan region

Where are we now?: North Africa

Algeria

• Algeria is renowned for its oil and gas reserves, and these resources have dominated its export industry and continue to contribute greatly towards the country’s GDP

Egypt

• Egypt experienced a period of accelerated growth following reforms to stimulate investment during the last five years

• The economy is based on agriculture as well as exports of their natural resources including oil, coal, natural gas and hydro power.

Libya

• Libya is slowly recovering from a crippling civil war and like some of its neighbouring countries

Morocco

• Morocco is the world’s largest exporter of phosphorus and mining, construction and manufacturing make up just over half of the country’s GDP.

• The high import cost of oil will continue to put pressure on the Moroccan economy as the price continue to remain high.

• Unemployment and inflation is relatively low

Tunisia

• The country has a diversified economy, ranging from mining, agriculture, manufacturing and petrochemicals to tourism which was heavily impeded on during the revolt.

• Inflation remains relatively moderate,

• High levels of unemployment, especially among its youth.

Where are we going?: Future trends

The future

60 The number of people per square kilometre (population density) by 2050 (UN)

10%

Old age dependency ratio of 10% by 2050 (UN)

>1.8 billion Africa’s population by 2050 (UN)

4.9% Sub-Sahara GDP growth rate in 2015 (EIU)

Current

22

The number of people per square kilometre (population density) (UN)

6%

Old age dependency ratio (UN)

> 1 billion Africa’s population (UN)

5.5% Sub-Sahara GDP growth rate in 2011 (f) (AEO)

Where are we going?: Future trends

•Infrastructure expansion and network growth are areas of development in the future, speeding up national processes and connecting Africa to the rest of the world.

•Africa currently spends $45 billion per annum on infrastructure, when it should be spending about $93 billion in order to catch up with other developing regions in the next ten years.

•Africa is a net importer of food and unable to meet local demand.

•With 60% of the world’s uncultivated arable land and low crop yields Africa has enormous potential for a “green revolution” similar to those seen in Asia and Brazil

•The impact of climate change could be severe, seeing that 96% of Africa’s agriculture is extremely rainfall dependent

Infrastructure expansion

Challenges Africa faces

Climate changeFood import

Session 3: South Africa

SA and the global economy

SA links with global economy and global downturn

SA as part of the BRICSGlobal factors affecting SA

economy

SA’s economy’s performance since democracy (1994 to 2010)

Where are we now?

Europe's financial crisis

Affects world economic

growth

Continues to way down financial

markets and hamper global

growth

South Africa’s impact on the financial crisis

Strong links to the euro zone

( largest trading partner)

Financial crisis has decreased

demand for goods

Driven away potential and

existing investors

Europe will take long to recover,

SA would have to change focus to trade with china

and India

Where are we now?

A challenging environment

  Actual Estimate Forecast

  2010 2011 2012 2013 2014

Final household consumption 3.7 4.9 3.6 3.8 4.2

Final government consumption 4.9 4.6 4.1 4.1 4.1

Gross fixed capital formation -1.6 4.3 4.1 4.5 6

Gross domestic expenditure 4.2 4.1 3.9 4.2 4.9

Exports 4.5 6 2.9 5.8 6.6

Imports 9.6 9.4 7.2 7.1 8.3

Real GDP growth 2.9 3.1 2.7 3.6 4.2

Headline CPI inflation 4.3 5 6.2 5.3 5.1

Where are we now?

South African competitiveness relative to peers

Where are we now?

South African competitiveness relative to peers

Ineffective Government bureaucracy

Inadequate Educated workforce

Restricted Labour

regulations

Corruption Crime Theft

SA Problematic

factors for doing business

Po

siti

ve im

pac

t o

n F

DI’s

Strengths Weakness

Where are we going?

Tackling unemployment, poverty and education

Where are we going?

Where are we going?

Where are we going?

The State of the Nation Address, 2012/13 Budget and the MTEF

The NDP highlights the following 9 key issues within the South African economy 5 major infrastructure

programmes

Geographically-focused

Integrated approach

Mining, transport & agriculture

R4.8 billion was allocated to expanded public works programme and the New Jobs fund that began operating in June of 2011, received over 2500 applications and committed over R1 billion in allocations to various projects.

Where are we going?

The State of the Nation Address, 2012/13 Budget and the MTEF

• Government is taking some steps to improve the conditions for investors

• Government aims to support both the Industrial Development Zone (IDZ) and Special Economic Zones (SEZ)

• Government allocated R2.3 billion of the R15.8 billion to economic services and environmental protection to the IDZs and SEZs.

Tax proposals (R/m) 2012/13 Personal income tax -4 300.00 Business tax -6 350.00 Property tax   Indirect tax 8 342.00 National budget revenueafter tax proposals

904 830.00

Consolidated Budget 2011/12 2012/13* 2013/14** 2014/15**R million        Total receipts 830 210 904 830 1 005 871 1 118 183 Total payments 972 547 1058321 1 149 125 1 239 699Budget balance -142 337 -153491 -143 255 -121 156% of GDP -4.8% -4.6% -4.0% -3.0%

Budget balance as % of GDPBudget balance as % of GDP

Conclusion

Conclusion

Q & A

Q & A

Thank You

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