Global Economic Outlook

May/June 2012
Agenda
Introduction
Session 1: Global outlook
Session 2: Africa
Session 3: South Africa
Q & A
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 Africas 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
3.0
3.8
4.9
-8.0
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
10.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
G
D
P

g
r
o
t
h

(
%

p
.
a
)

GDP growth by region 1
World Transition economies Middle East & North Africa Sub-Saharan Africa
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
3.0
2.3
1.6
4.2
-6.0
-4.0
-2.0
0.0
2.0
4.0
6.0
8.0
2007 2008 2009 2010 2011 2012 2013 2014 2015 2016
G
D
P

g
r
o
t
h

(
%

p
.
a
)

GDP growth by region 2
World North America Western Europe Asia & Australasia (incl Japan) Latin America
According to the Economist Intelligence Units (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
-
500
1,000
1,500
2008 2020 2050
North American region
0
500
1000
2008 2020 2050
0
200
400
600
2008 2020 2050 0
200
400
600
800
2008 2020 2050
0
500
1000
1500
2000
2500
2008 2020 2050
0
500
1000
1500
2008 2020 2050
0
500
1000
2008 2020 2050
Asia pacific region
Middle East region
African region
Latin 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%
1.8%
1.2%
0.8%
- 2.4%
- 1.2%
- 0.9%
Energy intensity
0
100
200
300
400
500
600
700
800
S
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E
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o
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e
W
o
r
l
d
1990 2000 2010 2015
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


3% 1%
25%
26%
45%
Oil- $10.0 trillion
Natural Gas - $9.5 trillion
Bio-Fuels - $0.3 trillion Coal - $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
confidences subsequent retail
sales and manufacturing.
Persistently high
unemployment and risks of
downturns in markets abroad
will keep the FEDs 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?
Structural changes in Africa enabled significant increased labour productivity over the last decade.
Rapid urbanisation is allowing increased access to markets and it is expected that by 2030, 50% of
Africans will be living in cities
Overarching theme in Africa has been the inability of economic growth to create employment to a
sufficient degree.
Increasing water stress and loss of habitat and biodiversity are further areas of concern, with
constrained agricultural production and food insecurity increasing.
Improvement in physical, legal and governmental infrastructure, together with the reduction of
corruption, crime and unfair business practices are needed to allow for an enabling environment able to
attract investment.
Intra-African trade has been lacking and will benefit greatly from these improvements.
South African trade comprise 50% of total African trade, with only 11% of this number being intra-
African.
Where are we now? Sub Saharan Africa

Angola
Angolas 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
Africas 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 worlds 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
Nigerias 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
2
0
0
1

-

2
0
1
0

2
0
1
1
-

2
0
1
5

China
9.5
Nigeria
6.8
Zambi
a
6.9
Tanzania
7.2
India
8.2
Congo
7.0
Vietnam
7.2
Angola
11.1
Rwanda
7.6
Cambodia
7.7
Nigeria
8.9
Kazakhstan
8.2
Ethiopia
8.4
Myanmar
10.3
China
10.5
Chad
7.9
Mozambique
7.9
Ethiopia
8.1
Mozambiqu
e
7.7
Ghana
7.0
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 countrys
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
worlds largest
exporter of
phosphorus and
mining,
construction and
manufacturing
make up just
over half of the
countrys 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
Africas 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
Africas 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 worlds
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 Africas
agriculture is extremely
rainfall dependent
Infrastructure
expansion
Challenges
Africa faces
Climate
change
Food import
Session 3: South Africa
SA and the global economy



Population 10 million people
Economy 67% ( R1100 bn to R1834 bn)
GDP per capita 28% ( R28 536 to R36 591)
Real Disposable income 32% ( R17 775 to R23 569)



SA withstands global downturn
Robust financial institution; and
Moderate external debt
Current world economic impact on SA
Driving away potential & existing investors Investors
become more risk averse move assets from emerging
markets to safer investment environments
Slowdown in global demand Rand will experience a
prolonged depreciation
E.g. Slowdown in Chinese economy (larger trading
partner)
Cost push inflation(food and oil prices ) negative impact
on SA economy
New member of BRICS
SA ranked amongst the best in the world in;
Financial sector, strength in reporting & auditing
standards, protection of investors rights
Large sized economy
SA and the global
economy
SA links with global economy and
global downturn
SA as part of the BRICS
Global factors affecting SA
economy
SAs economys 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 Africas 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
Structural changes seen in
SA
Significant shift towards
service sectors, major
contributor to GDP
Finance, real estate and
business services sector
grown from 16% to over 20%
of GPD
Decline in the role of mining
and agricultural sectors
12% of the country is
suitable for planting crops
rethink approach to
agriculture to improve food
security
Hold worlds largest reserves
of gold, platinum, chrome ore
and magnesium ore
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
Competit
iveness
ranking
to peers
Overall
ranking
4
th
Institutio
ns 1st

Infrastru
cture
ranked
5
th


Health
and
primary
education
9th
Labour
market
efficienc
y 8
th

Macro
environ
ment
6
th

Market
size 9th
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
Business institutions
ranked 4
th
on financial
development market
Business sophistication
ranked 38
th
(out of 142
countries)
Goods market efficiency
ranked 32nd (out of 142
countries)
Innovation achieved
ranked 41st (out of 142
countries)
P
o
s
i
t
i
v
e

i
m
p
a
c
t

o
n

F
D
I

s

Strengths
Weakness
Where are we going?
Tackling unemployment, poverty and education
Unemployment
Unemployment
rate dropped from
31% (2005) to
23.9% (2011)
Two key trends
Discourage work
seekers,
High rate of
youth
unemployment,
71% of
unemployed are
aged between
15-34 years.

Education
Poor quality of
education
Literacy and
numeracy test
scores remains
low by African and
global standards
Government
dedicates 6% of
GDP to education
SAs teachers are
amongst the
highest paid in the
world
Poverty
SA considered an
under- middle
income country
39% of population
lives under the
poverty line of
R418 per person
per month

Governments
plan
NPC plans to reduce
the number of people
living under the
poverty line to zero
by 2030
Create 11 million
jobs in 20 years
Improve education
system

Where are we going?
Investor concerns

Investors have
ranked the impact
of government
bureaucracy, the
inadequate skills
of the work force,
South Africas
restrictive labour
legislation,
corruption and
crime and theft as
their most
significant
concerns and
impediments for
doing business in
South Africa.

South Africa is
seen as a country
with low levels of
labour market
efficiency
SA ranked
amongst the
worst in the world
when considering
the rigidity of our
hiring and firing
practices.


Foreign investors
are concerned
with the lack of
flexibility that
exist with regard
to companies
ability to
determine wages
and the tensions
that exist with
labour unions.

Investors also
indicate that the
relatively poor
health of our
labour force is a
worrying factor
when they
consider
investments in
the country.

Although our
infrastructure
seems to be in a
relatively good
condition if
compared to the
rest of Africa,
investors are
worried about
infrastructure
maintenance and
are of the opinion
that our
infrastructure
needs upgrading.

The poor security
situation and the
impact and cost
of violence and
crime for
business are a
cause for concern
and we are
ranked amongst
the worst in world
on this aspect.
Where are we going?

T
h
e

N
e
w

G
r
o
w
t
h

P
a
t
h

Six priority areas to
job creation

1. Infrastructure
development
2. Agriculture
3. Mining
4. Manufacturing
5. The green economy
6. Tourism

P
o
l
i
c
y

d
i
r
e
c
t
i
o
n


A comprehensive drive to
enhance both social
equity and
competitiveness
Systemic changes to
mobilise domestic
investment around
activities that can create
sustainable employment
Strong social dialogue to
focus all stakeholders on
encouraging growth in
employment-creating
activities.

I
P
A
P

2


Sets out objectives as
well as ways to promote a
more labour absorbing
industrialisation path in
order to combat the
countrys unemployment
problem and to increase
the participation of
historically disadvantaged
people and marginalised
regions in the core of the
industrial economy.
IPAP2 is a radical shift to
grow a developmental
economy by taking
deliberate decisions to
ensure that investment
targets production sectors
of the economy and to
arrest the decline in
manufacturing and
accelerate skilled
employment creation.

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
Job creation
Infrastructure
expansion
Transition to a
low carbon
economy
Transformation of
urban and rural
spaces
Education and
training
Providing quality
health care
Building a
capable state
Fighting
corruption
Transformation
and unity
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 revenue
after 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 1 239 699
Budget balance -142 337 -153491 -143 255 -121 156
% of GDP -4.8% -4.6% -4.0% -3.0%
-3.0%
1.3%
1.7%
-1.0%
-7.3%
-5.3%
-4.8%
-4.6%
-4.0%
-3.0%
-8.0%
-7.0%
-6.0%
-5.0%
-4.0%
-3.0%
-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
2
0
0
5
/
0
6
2
0
0
6
/
0
7
2
0
0
7
/
0
8
2
0
0
8
/
0
9
2
0
0
9
/
1
0
2
0
1
0
/
1
1
2
0
1
1
/
1
2
2
0
1
2
/
1
3
2
0
1
3
/
1
4
2
0
1
4
/
1
5
%

o
f

G
D
P

Budget balance as % of GDP
Conclusion
Conclusion
The challenging global economic environment translates to a significant
slowdown in demand from developed economies, directly affecting
developing and export markets the world over.
Prudent macroeconomic policies should be followed by different
countries to ensure a stable, albeit slow, road to recovery of the global
economy.
Although South Africa has made significant progress since becoming a
democratic country 18 years ago, structural inefficiencies must be
addressed in order to stake a claim as a competitive developing
economy on the world stage.
Q & A
Q & A
Thank You

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