wrfy: time traveller's guide to the next ten years
TRANSCRIPT
A Time Traveller’sGuide to our Next Ten YearsWritten and Presented By Dr Frans Cronje
30 October 2015
SOUTH AFRICA’S NEXT 10 YEARS: TRENDS, RISKS, SCENARIOS, AND SOLUTIONS
Produced by the at the IRRSeptember 2015
SA lead indicator vs GDP growth 1960 – today Lead indicator is a near perfect predictor of SA’s GDP performance
-4
-2
0
2
4
6
8
10
30
40
50
60
70
80
90
100
110M
onth
1960
/12/
3119
61/1
2/31
1962
/12/
3119
63/1
2/31
1964
/12/
3119
65/1
2/31
1966
/12/
3119
67/1
2/31
1968
/12/
3119
69/1
2/31
1970
/12/
3119
71/1
2/31
1972
/12/
3119
73/1
2/31
1974
/12/
3119
75/1
2/31
1976
/12/
3119
77/1
2/31
1978
/12/
3119
79/1
2/31
1980
/12/
3119
81/1
2/31
1982
/12/
3119
83/1
2/31
1984
/12/
3119
85/1
2/31
1986
/12/
3119
87/1
2/31
1988
/12/
3119
89/1
2/31
1990
/12/
3119
91/1
2/31
1992
/12/
3119
93/1
2/31
1994
/12/
3119
95/1
2/31
1996
/12/
3119
97/1
2/31
1998
/12/
3119
99/1
2/31
2000
/12/
3120
01/1
2/31
2002
/12/
3120
03/1
2/31
2004
/12/
3120
05/1
2/31
2006
/12/
3120
07/1
2/31
2008
/12/
3120
09/1
2/31
2010
/12/
3120
11/1
2/31
2012
/12/
3120
13/1
2/31
2014
/12/
31
LI GDP growth
Consumer spending and consumer confidenceConfidence has reached near record lows and will pull spend down pinning GDP growth to sub-2%
-20
-15
-10
-5
0
5
10
15
20
25
-6.0-5.5-5.0-4.5-4.0-3.5-3.0-2.5-2.0-1.5-1.0-0.50.00.51.01.52.02.53.03.54.04.55.05.56.06.57.07.58.08.59.09.5
10.010.511.011.5
Change HCE GDP growth CCI
The global context is more and more problematic China’s slowing has significant implications for South Africa’s exports
0 50 100 150 200 250
E A S T A S I A ( M A I N L Y C H I N A )
E U
A F R I C A
N O R T H A M E R I C A
C E N T R A L A N D S E A S I A ( I N D I A - M A L A Y S I A )
SOUTH AFRICA’S EXPORT MARKETS (RBN)
COMPOSITION OF EXPORTSSA exports heavily weighted to commodities. China takes 30% of all SA exports while accounting for 50%+ of global commodity consumption
0
10
20
30
40
50
1991 1997 2002 2007 2011
Mining
010203040506070
Concrete Steel Coal
China share of global consumption
0
5
10
15
20
25
30
35
China share of SA exports
China’s growth and trade with the worldChina’s import and export volumes are expected to remain flat
0.0%
5.0%
10.0%
15.0%
20.0%
25.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0%
7.0%
8.0%
9.0%
10.0%
11.0%
12.0%
13.0%
14.0%
15.0%
2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
China real GDP Import volume change
China’s manufacturing PMIChina’s PMI stalled by mid-2011 placing accuracy of historical growth numbers of 7% in doubt - but consumption/GDP to double over next decade
40.0
42.0
44.0
46.0
48.0
50.0
52.0
54.0
56.0
58.0
60.0
Jan-
10
Apr-
10
Jul-1
0
Oct
-10
Jan-
11
Apr-
11
Jul-1
1
Oct
-11
Jan-
12
Apr-
12
Jul-1
2
Oct
-12
Jan-
13
Apr-
13
Jul-1
3
Oct
-13
Jan-
14
Apr-
14
Jul-1
4
Oct
-14
Jan-
15
Apr-
15
China m/m PMI
2000 2025USA
population
China's urbanmiddle class 47000000 472000000 318000000
0
50
100
150
200
250
300
350
400
450
500
Mill
ions
China's emerging middle class
THE RAND AND CHANGING GDP MAKE UPThe outlook is for further currency weakness amidst declining manufacturing output
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
1994 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Structure of GDP
AgricultureMiningManufacturingHS-Services
1.08
3.54
6.93
8.6
10.5
7.5
6.4
6.3 6.
8 7
8.2 8.4
7.3
7.2
8.2
9.6
11.5
12.5
17.5
1 9 8 2 1 9 9 4 2 0 0 0 2 0 0 1 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 0 7 2 0 0 8 2 0 0 9 2 0 1 0 2 0 1 1 2 0 1 2 2 0 1 3 2 0 1 4 2 0 1 5 2 0 1 9
THE RAND
LEADING INDICATORSExpect low growth levels which will dampen inflation but expect i-rates to increase on global triggers
-10
-5
0
5
10
15
20
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Interest rates, inflation, deficitPrime CPI Current account deficit
-2
-1
0
1
2
3
4
5
6
2000
2001
2002
2003
2004
2004
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
2017
2018
2019
South Africa growth
TAXPAYERS AND GOVERNMENT FINANCESWeak economic growth will dampen tax base expansion as government finances come under further strain
0
10
20
30
40
50
60
-6
-5.5
-5
-4.5
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019
Budget deficit and government debtBudget deficit Debt/GDP
0
10000000
20000000
30000000
40000000
50000000
60000000
Taxpayers
ELECTRICITY SUPPLY AND INFRASTRUCTURE Electricity supply constraints are placing growth estimates of 3% of GDP in doubt
0
10000
20000
30000
40000
50000
60000
1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Available capacity Installed capacity (MW) Demand at 1% growth Demand at 3% growth
LABOUR MARKETSWe anticipate sustained high levels of joblessness centred around young people
0 10 20 30 40 50 60
15-24
25-34
35-44
45-54
55-64
Official unemployment rate by age group
0
10000000
20000000
30000000
40000000
50000000
60000000
Population Of workingage
Employed Unemployed Not lookingfor work
Jobs and unemployment2001 2014
0.7
1.8
GLOBAL YOUTH GLOBAL UNEMPLOYED
YOUTH
Global picture
INCOMES, ASSETS, AND THE MIDDLE CLASSThe risk is that middle class size is overstated with 12% spending over R10 000 a month
African, 12040000
White, 1380000African, 665000 White, 859000
0
2000000
4000000
6000000
8000000
10000000
12000000
14000000
African White
Household monthly expenditure
Total R0-R2499 R2500-R9999 R10000+
SCHOOLS AND EDUCATIONDespite half of children now completing their school education quality remains very poor
0
10
20
30
40
50
60
70
Grade 1 Grade 2 Grade 3 Grade 4 Grade 5 Grade 6 Grade 9 Matricmathspass at
50%
Numeracy rates and matric maths
0
100000
200000
300000
400000
500000
600000
700000
800000
900000
1955 1965 1975 1985 1995 2005 2015 Numberin 2015cohort
Black African matric passes
WELFARE AND SERVICE DELIVERYAlmost 60% of government expenditure takes the form of income redistribution to poor people
0
50
100
150
200
250
300
350
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
Employed people/100 welfare recipients
0
10
20
30
40
50
60
70
Social wage and government expenditure (housing, health, education, elec, welfare,
water)
PROTESTS AND SOCIAL ATTITUDESGrowing protest movement and major uptick in anti-government sentiment
Government performs well?
72%YES
2000
54%2014
11380
7327
2595
4500
971
1975
0 2000 4000 6000 8000 10000 12000
1995-2001
2002-2006
2006-2010
2011+
2001
2014
Violent protests Riot policemen
POLITICSAs protest levels pick up confidence in the ruling party falls
54
47
40 3936
1.5
7 710
13
30
17
10 10 10
14
29
42
35
40
0
10
20
30
40
50
60
1994 1999 2004 2009 2014
VOTES CAST AS % OF VOTING AG E POPULATION
ANC DA Other Non-voters
SCENARIOS AND PROBABILITIESOn current trends a Toll Road/Rocky Road hybrid is the scenario of greatest probability
NARROW ROADforced market
friendly reforms
TOLL ROADpolicy confusion amidst vibrant
institutions
ROCKY ROADsocialism amidst
crumbling democratic institutions
WIDE ROADpopular mandate
for market reforms
Market driven economic reform
Governance with
impunity
Free open society
Interventionist “development state”
Road signs – above the line:Labour market reforms
Multipolar foreign policy Property rights protections from IP to landDisposal of state assets
Empowerment reforms
Road signs below the line:Stricter labour regulation Vociferous anti-West FPFurther erosion of protections for investment and innovation
Growing political interference in private sector Extortion of private assets
LIKELY 10 YR REFORM PLAN RESULTS- 2024Policy reversals drive growth recovery as unemployment dives
-2
-1
0
1
2
3
4
5
6
0
5
10
15
20
25
30
35
40
45
1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Growth and unemployment
Unemployment rate GDP growth
