Economic Stability and Investment Opportunities in South Africa. Ronèl Oberholzer Senior Economist Global Insight South Africa

Transcription

1 Economic Stability and Investment Opportunities in South Africa Ronèl Oberholzer Senior Economist Global Insight South Africa

2 Presentation Outline Economic Stability Global background Domestic macro policy Investment Opportunities Economic backdrop Risks Future investment drivers Investment opportunities unpacked Conclusion Copyright 2008 Global Insight, Inc. 2

3 South Africa Has an Open Economy, Trading Largely in Commodities Exports Imports Export To: Share Import From: Share Europe 35% Main trading partner United Kingdom 25% Germany 21% Netherlands 15% Asia 23% Main trading partner Japan 47% China 16% South Korea 8% Africa 13% Main trading partner Zambia 22% Zimbabwe 21% Mozambique 18% USA 12% Europe 36% Main trading partner Germany 36% United Kingdom 14% France 11% Asia 31% Main trading partner China 33% Japan 21% South Korea 8% USA 8% Africa 6% Main trading partner Zimbabwe 44% Angola 24% Zambia 18% Copyright 2008 Global Insight, Inc. 3

4 Thus Highly Dependant on Global Growth and Stability World growth is set to moderate over the short term but should rebound before 2009 Growth in China and India still supporting commodity prices Oil prices will remain high and vulnerable to supply disruptions Prices of gold and platinum expected to edge higher, after some price correction over the short term Real effective exchange rate to support export growth Copyright 2008 Global Insight, Inc. 4

5 Some Global Uncertainties Remain Uncertainties Slowdown in China economy Overheating of China's economy leads to harsh measures to tighten credit, resulting in a hard landing of domestic demand Commodity price slowdown Rising global risk spreads mean that credit conditions for emerging markets are becoming tighter Financing of current account deficit Exceptionally high oil prices Dampening global growth Adding to current account deficit through more expensive imports and less exports Dampening domestic economy through higher prices Geopolitical risks Military conflicts Copyright 2008 Global Insight, Inc. 5

6 A Stable Domestic Policy Environment in South Africa Set the Scene A stable, investment-friendly political environment No major changes to economic policy Government s strategic framework to enhance the social and economic welfare of all through stable, long-term economic growth and job creation Fiscal policy supportive of monetary policy Counter-cyclical over short term The South African Reserve Bank continues to follow an inflation-targeting regime 3 6% Industrial policy set on diversification of country s industrial base Focussing on exports, job creation and downstream beneficiation Copyright 2008 Global Insight, Inc. 6

7 For a Rising Growth Trend Trend growth : 3.2% : 1.8% : 1.8% : 2.6% : 4.3% : 4.1% : 4.8% > Governmets target of 4.5% 2010:2014: 5.4% < Governments target of 6% : 5.5% : 6.0% Q1 1972Q4 1974Q3 1976Q2 1978Q1 1979Q4 1981Q3 1983Q2 1985Q1 1986Q4 1988Q3 1990Q2 1992Q1 1993Q4 1995Q3 1997Q2 1999Q1 2000Q4 2002Q3 2004Q2 2006Q1 2007Q4 2009Q3 2011Q2 2013Q1 2014Q4 q-o-q annualised % growth Real GDP at market prices Trend Growth (HP-filter) Copyright 2008 Global Insight, Inc. 7

8 Driven Initially by Consumer Demand Source of Growth % Net Trade Gross Fixed Capital Formation Final Consumption by Households Final Consumption by Government Copyright 2008 Global Insight, Inc. 8

9 Which Changed the Structure of the Economy % 8.8% 23.6% 24.4% 62.8% 67.6% Primary Secondary Tertiary Copyright 2008 Global Insight, Inc. 9

10 And Lead to Imbalances Balance of payments Mar-00 Jun-00 Sep-00 Dec-00 Mar-01 Jun-01 Sep-01 Dec-01 Mar-02 Jun-02 Sep-02 Dec-02 Mar-03 Jun-03 Sep-03 Dec-03 Mar-04 Jun-04 Sep-04 Dec-04 Mar-05 Jun-05 Sep-05 Dec-05 Mar-06 Jun-06 Sep-06 Dec-06 Mar-07 Jun-07 Sep-07 Dec-07 Rand million US$ million Balance on current account Balance on financial account International liquidity position (right) Copyright 2008 Global Insight, Inc. 10

11 And Risks (Future Opportunities) Growing household debt Low domestic savings Dependency on foreign inflows Economy operating at or above capacity Inadequate infrastructure (energy, liquid fuels, roads, ports) Raw material shortages Skills deficit Copyright 2008 Global Insight, Inc. 11

12 Shift Towards Investment as Engine of Growth 25.0 Fixed capital formation % of GDP Total fixed capital formation Financing of gross capital formation: Foreign investment Financing of gross capital formation: Gross saving Copyright 2008 Global Insight, Inc. 12

13 Driven by Government s Infrastructural Investment 40.0 Fixed capital formation y-o-y % growth General government State owned enterprises Private sector Copyright 2008 Global Insight, Inc. 13

14 Government s infrastructural Investment (cont) ASGI-SA Growth plan for South Africa Kick started by 2010 FIFA World Cup Transport Capital expenditure programme set at 78 billion rand (US$10.4 billion) for the five year period 2008 to 2012 Electricity Eskom s long-term expansion plans total around 150 billion rand (US$20.0 billion) up until 2012 New generating capacity of 40,000MW is to be added by 2025, estimated to cost around 1 trillion rand (US$133 billion) At least 30% private sector participation Copyright 2008 Global Insight, Inc. 14

15 And Positive Growth Outlook y-o-y % growth Real GDE Real GDP Balance on current account (% of GDP) GDP Growth and Current account % Balance on current account (% of GDP) Real GDE Real GDP Copyright 2008 Global Insight, Inc. 15

16 Growth Unpacked: Slowdown in 2008 Resilient household spending reacting to monetary tightening Expected to grow at more sustainable levels of on average 5% Interest rates have peaked CPIX Inflation to revert to midpoint of inflation targeting band by end 2009 More balanced growth between production and expenditure Fixed Investment growing at double digits Governments growth initiative crowding in private sector investment Future growth opportunities centered in non-residential investment Investment growth keeping imports high Current account deficit above 5.5% level over short to medium term Capital inflows continue to cover large balance of payments deficit Dividend and interest outflows are increasing Subject to risk aversion and foreign investor perceptions Copyright 2008 Global Insight, Inc. 16

17 Positive Spin-Off for Region 7.0 Real GDP growth y/y % growth SACU SADC Copyright 2008 Global Insight, Inc. 17

18 Future Investment Opportunities Lies Within Non-Residential Sector Investment y/y % growth Non-Residential Residential Copyright 2008 Global Insight, Inc. 18

19 With Construction Spending Overdue Construction investment years R millions Gross fixed capital formation: Construction works Copyright 2008 Global Insight, Inc. 19

20 Manifesting in Infrastructure Creation 60 Investment Mar-01 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 y/y % growth Electricity, gas and water Transport, storage and communication Copyright 2008 Global Insight, Inc. 20

21 And Mining Mining investment Mar-01 Jul-01 Nov-01 Mar-02 Jul-02 Nov-02 Mar-03 Jul-03 Nov-03 Mar-04 Jul-04 Nov-04 Mar-05 Jul-05 Nov-05 Mar-06 Jul-06 Nov-06 Mar-07 Jul-07 R millions y/y % growth Real mining investment y/y growth Copyright 2008 Global Insight, Inc. 21

22 Obvious Investment Jewels Infrastructure construction Transport (rail, road and ports) Energy (electricity especially renewable forms like solar heating) Telecoms Water (water purification) Non-residential buildings Manufacturing Machinery and equipment To support infrastructure development Building materials Mining Continued commodity boom Global supply shortage Domestic demand (construction materials and coal for energy) Investment to feed through to production in 2008/09 Normalisation of regulatory restraints Downstream beneficiation Copyright 2008 Global Insight, Inc. 22

23 Less Obvious Investment Jewels Residential buildings Low cost housing Education Technical skills development Retail Food (manufactured) Services sector Banking and IT JSE Resources, construction and services Copyright 2008 Global Insight, Inc. 23

24 Doing Business in South Africa Ease of doing business rank Global rank Australia Mauritius South Africa Namibia Botswana Kenya Seychelles India Brazil Mozambique Copyright 2008 Global Insight, Inc. 24

25 Conclusion Sustained economic growth expected on back of sound fundamentals Vulnerable to shifts in global sentiment (current account status) Commodity export status shields the country from global slowdown Fixed investment structurally embedded South Africa is in dire need of FDI is seen as the gateway to Africa is expected to strengthen and maintain its ties with Asia and the Middle East as set up in the New Asian- African Strategic Partnership of April 2005 Copyright 2008 Global Insight, Inc. 25

26 Thank You Ronèl Oberholzer Senior Economist, South Africa