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Transitioning to a world-class country Dr Roelof Botha Overview of themes – getting SA to the elusive high road scenario • • • • • • • • Health data – a snapshot Megatrends impacting on the global economy SA’s competitiveness challenges Policies employed by advancing nations with high growth Rewards of free enterprise reforms Pockets of excellence in SA A pragmatic policy agenda for South Africa Economic growth prospects – gradual improvement The Southern African economy Prospects for Global health trends – a sustained growth snapshot Structural increase in household expenditure on health (SA) 210 Index; 1997 = 100 Health 190 170 150 Total 130 110 2 '1 1 '1 0 '1 9 '0 8 '0 7 '0 6 '0 5 '0 4 '0 3 '0 2 '0 1 '0 20 00 9 '9 8 '9 '9 7 90 Health expenditure as % of totals – government & households (SA) 13 % Government 12 11 10 Households 9 8 7 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 Composition of government expenditure (functional classification) FY 2013/14 (Rb) Total R 1.1 trillion Other economic Transport 60.8 serv. 60.7 Public order 106.2 Housing & comm. Dev. 105.4 Health 137.7 General services 70.9 Defence 40.6 Education 225.8 Interest 99.7 Social protection 171.5 Environ. & culture 13.8 Composition of household consumption expenditure in South Africa 2012 (R billion) Recreation 73 Other 215 Education 57 Transport 310 Food & hospitality 542 Health 182 Household goods 129 Clothing 97 Housing 302 Total 1,9 trillion Life expectancy at birth 2011 – selected African countries Mauritius Namibia Tanzania South Africa Uganda Zimbabwe Nigeria Angola Lesotho Years DR Congo Sierra Leone 45 50 55 60 65 70 75 Life expectancy at birth 2011 – selected countries Japan Singapore Germany US China Brazil Russia India Ghana Years Afghanistan South Africa 55 60 65 70 75 80 85 Health expenditure as % of GDP – selected countries US Germany Canada UK Australia South Africa % Chile South Korea Mexico Turkey 5 7 9 11 13 15 17 Megatrends & the emergence of multiple superpowers The World Economic League 1st Division 2nd Division 3rd Division High Income Countries Emerging Market Economies Potential Emerging Markets Recommended route of progress (higher per capita income) 4th Division (a) Small Economies (b) Failed states Megatrends en route to 2020 (selection) • • • • • • • • • • World population exceeds 7.6 billion Increased urbanisation, ageing rises Life expectancy increases to 71 years Further spread of democracy Rising per capita incomes New applications for nano-technology Further progress with bio-technology Computers will be 200 times faster Increased focus on renewable energy Emergence of multiple superpowers World outlook beyond 2010 • • • • • • • • • • Social: Your phone will tell you when you are in love Social: Complete surveillance through nano-devices Demographics: World population to reach 9.2 billion by 2050 Demographics: Africa’s population to outstrip China’s in 2030 Business: Development of a digital, virtual, universal currency Business: Thought recognition as everyday input means Science: A robot in every home in Japan by 2015 Technology: Tomorrow's televisions will not need screens Environment: Acute water shortages affects 65% of world Science: Space solar power stations No of Boeing 747s in service 900 850 800 750 700 650 600 1985 1990 1995 2000 2005 2010 2013 Structural decline in global electricity intensity more pronounced in South Africa (Terrawatt-hours per $billion GDP ) 0.8 0.75 SA 0.7 0.65 0.6 0.55 0.5 World 0.45 1 '1 0 '1 9 '0 8 ''0 7 '0 6 '0 5 '0 4 '0 3 '0 2 '0 1 '0 0 '0 9 '9 8 '9 19 97 0.4 Share of global GDP (PPP) of emerging markets & developing economies 55 % 50 45 40 35 30 25 1980 1985 1990 1995 2000 2005 2010 2017 Sizeable gap between the GDP growth performance of advanced & emerging economies (Source: IMF) % (real) 8 Emerging markets 6 4 2 Advanced 0 1998 '99 -2 -4 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 2012 Top-ten economies in the world (BRICS = $14.4 trillion; 20% of world total) Source: IMF US China Japan Germany France $trillion UK Brazil Russia Italy India 0 2 4 6 8 10 12 14 Regional composition of world population 2011 (BRICS = 42% of world total) (Source: UNDP) Total 6.9 billion India 1.2 China 1.4 SADC 0.3 Europe 0.6 Brazil 0.2 Russia 0.14 Other Africa 0.7 South America 0.2 North America 0.53 Other Asia 1.6 Forecast increase in the world’s population 2010 to 2030 (Source : UNDP ) Million (Total 1.4bn) China 52 Latin America 112 India 300 S/East Asia 113 Europe 3 South/Central Asia 152 Other Asia 88 Africa 540 North America 57 Emerging markets – top-ten populations (total 3.85 billion) China India Indonesia Brazil Pakistan million Bangladesh Nigeria Russia Mexico Philippines 0 200 400 600 800 1000 1200 Most populous developing countries & SADC population China India SADC Indonesia Brazil Million Pakistan Bangladesh Nigeria Russia Mexico Philippines 0 250 500 750 1000 1250 Emerging markets – top-ten economies (total $18.9 trillion) China Brazil Russia India Mexico $trillion Indonesia Turkey Saudi Arabia Poland Argentina 0 1 2 3 4 5 6 7 8 Emerging markets – 2nd top-ten economies (total $2.8 trillion) South Africa Venezuela Thailand Malaysia Nigeria Chile $bn Philippines Pakistan Peru Kazakhstan 150 200 250 300 350 SADC share of world reserves for selected metals & minerals (2009) Chrome ore Platinum Manganese Diamonds Gold Cobalt % Vanadium Zircon Titanium Uranium Copper Coal 0 20 40 60 80 100 South Africa’s key competitiveness challenges Sharp contrast between the GDP growth paths of Zambia and Zimbabwe (nationalisation in action) 20 Zambia $ billion 17 14 11 8 Zimbabwe 5 2 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 South Africa’s lowest ranked global competitiveness indicators (out of 144 countries) Cooperation in labour-employer relations 144 Hiring & firing practices 143 HIV prevalence 141 Quality of the educational system 140 Flexibility of wage determination 140 Pay & productivity 134 Business costs of crime & violence 134 Life expectancy 133 Business impact of tuberculosis 132 Burden of government regulation 123 Factors contributing to the relatively low Quality of Life index score (recent MasterCard survey) • • • • • • • • • 65% of SA’s 256 state entities fail audit procedure Country-wide escalation of social unrest since 2008 Several local authorities have become semi-dysfunctional Lack of road maintenance causes 1,700 deaths in 4 years 10,000 officials involved with wasteful expenditure of R20 billion Cost of rehabilitating public health estimated at R57 billion Cost of corruption to the economy estimated at R40 billion Electricity supply remains precarious Rigid labour legislation deters foreign direct investment Structural decline in the share of agriculture in total fixed capital stock 10 % 8 6 4 2 0 1971 1976 1981 1986 1991 1996 2001 2006 2011 2012 Structural decline in the ratio of agriculture exports to imports 250 % 200 2000 150 2012 (JanMay) 100 50 0 Meat Vegetables Food & beverages Total Employment in agriculture in South Africa (forecast for 2013) ‘000 1100 1000 900 800 700 600 500 400 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Indices of labour productivity & unit labour costs in manufacturing (2000 = 100) 190 Index Labour costs 170 150 130 Productivity 110 90 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 Policies implemented by winning countries The recession is over – prepare for higher growth Dr Roelof Botha Post-1980 reforms - high growth economies • • • • • • • • • • Privatisation Market-related & productivity-related wage determination Lower direct tax rates Pro-active export promotion Lower import duties Separation of judicial & executive powers Public/private partnerships Vigilant stance towards preventing undue corruption Effective performance monitoring in the public sector Deregulation & other measures to encourage SMMEs Post-1980 reforms - high growth economies (continued) • • • • • • • • • • Adequate expenditure on R&D Strategic industry status afforded to agriculture Guaranteed property rights (intellectual & physical) Prudent & transparent fiscal policy Emphasis on primary education Improved access to affordable health care Pro-active monetary policy Expansion & maintenance of infrastructure Cooperation between government, labour & business Expansion & diversification of international trade Rewards of consolidating the tenets underpinning free enterprise and democracy • • • • • • • • • • (Selection) Fiscal stability & expanding tax base Improvement of global competitiveness Relatively low inflation Enhanced food security Balance of payments stability Increased levels of FDI inflows Sustained economic growth & employment creation Higher national skills base Increased longevity Relatively high level of socio-political stability Progress with the transition – slow, but visible Towards a radical transformation of institutionalised society in South Africa (* denotes qualified success) Pre-1994 Post-1994 • • • • • • • • • • • • • • • • • • Exclusive Adversarial Labour vs. capital International isolation Patronising Neglect of common place Hierarchial Subordination of law to state Violation of human rights Inclusive* Co-operative* Labour plus capital* International assistance Empowering/enabling Illumination of common place Networking Law above the state Manifestation of human rights Progress with meeting basic needs • • • • • • • • • 3 million RDP houses 1000 new health clinics Access to clean water for 10 million people New sanitation facilities for 7 million people 4.5 million new electricity connections Free education Redistribution of 3 million hectares of land Primary School Nutrition Programme for 5 million children 15 million new social grant beneficiaries (BIG?) South Africa’s highest ranked global competitiveness indicators (out of 144 countries) Regulation of securities exchange 1 Auditing & reporting standards 1 Efficacy of corporate boards 1 Soundness of banks 2 Availability of financial services 2 Effectiveness of anti-monopoly policy 6 Reliance on professional management 13 Quality of air transport infrastructure 15 Quality of management schools 15 Efficiency of legal framework 16 SA facts & figures - a random selection • • • • • • • • • • 11th largest emerging market in the world World’s largest paper manufacturer (Sappi) World’s 2nd largest beer brewer (SAB) Sole producer of MB Class C RHD vehicles First-ranked world floral kingdom Top global ranking for a secondary capital market (JSE) No 2 global competitiveness ranking for soundness of banks First heart transplant in the world World leader in liquid fuel technology World’s most progressive democratic constitution SA budget deficit/GDP ratio & forecasts – fiscal years ended 31 March (Source: National Treasury) 2 % 0 '00 -2 -4 -6 -8 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 Real effective exchange rate of the rand Index, 2000 = 100) 110 105 100 95 90 85 80 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 Balance of payments – current & financial account (including unrecorded transactions) (Source: SARB) 200 Financial account 150 100 50 0 '03 '04 '05 -50 -100 Current account -150 -200 R billion '06 '07 '08 '09 '10 '11 '12 Capital expenditure by public sector returns to growth mode (after an absence of 3 decades) 16 Capex/GDP % Private sector 14 12 10 8 Public sector 6 4 2 '75 '80 '85 '90 '95 '00 '05 '10 A pragmatic policy agenda • • • • • • • • • • Introduction of a basic income grant (BIG) Combating of corruption & vigilance with tender procedures Management training for public service Incentives for entrepreneurship & SMMEs Task teams to restore functionality of Municipalities Implementation of youth wage subsidy Restructuring of SETAs Multi-tiered system of labour regulations Fast-tracking of infrastructure spending Public/private partnerships (govt/business/labour “Codesa”) Conclusion - consolidation of economic recovery The recession is over – prepare for higher growth Dr Roelof Botha GDP growth estimates for 2012 and forecasts for 2013 – world & key regions (Source: IMF) 7 % (real) 6 5 2012 4 2013 3 2 1 0 Advanced Economies World Latin America Emerging Markets SubSaharan Africa Asia Real retail trade sales (index, 2008 = 100) 114 Index 111 108 105 102 99 96 Q 4 1' 13 3 2 Q 4 1' 12 3 2 Q 4 1' 11 3 2 Q 4 1' 10 3 2 Q 4 1' 09 Q 3' 0 8 93 Household debt to disposable income in South Africa % 80 75 70 65 60 55 50 45 40 1999 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 ''10 '11 2012 Debt service cost to disposable income of households in South Africa 12 % 11 10 9 8 7 6 20 12 '1 1 0 ''1 '0 9 '0 8 '0 7 '0 6 '0 5 '0 4 '0 3 '0 2 '0 1 20 00 19 99 5 Household debt as % of GDP – selected high income countries & BRICS UK USA South Korea Japan Germany % France South Africa China Brazil 0 20 40 60 80 100 Real growth trends for the components of domestic expenditure 210 (Sources: SARB, own calculations) Index; 2000 = 100 Capital formation 190 170 Govt. consumption 150 130 Household consumption 110 90 2000 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 2012 Convergence of consumer & producer inflation to within the Reserve Bank’s target range of 3% to 6% 10.5 % 9 PPI 7.5 6 4.5 CPI 3 ay M ar M 13 Ja n' No v pt Se Ju ly ay M h ar c M 12 Ja n' No v pt Se Ju ly' 11 1.5 Lowest prime rate in 40 years enhances household spending power 22 % 19 16 13 10 2 '1 0 '1 8 '0 6 '0 4 '0 2 '0 0 '0 8 '9 6 '9 4 '9 '9 2 7 Formal sector employment – progress after recession, but now stuttering ‘000 9 600 9 500 9 400 9 300 9 200 9 100 Q 4 1' 13 3 2 Q 4 1' 12 3 2 Q 4 1' 11 3 2 Q 4 1' 10 3 2 9 1' 0 Q Q 4' 0 8 9 000 Economy has now grown in real terms for 15 successive quarters Real annualised GDP growth (%) 7 -3 -8 Q 4 1' 13 3 2 Q 4 1' 12 3 2 Q 4 1' 11 3 2 Q 4 1' 10 3 2 Q 4 1' 09 3 2 Q 4 1' 08 Q 3' 07 2 Modest real GDP growth forecast for 2013 3 % 2.8 2.6 2012 2.4 2013 2.2 2 1.8 SA Reserve Bank IMF Reuters poll Sanlam Absa National Capital Treasury PwC CitiBank New record high for JSE all share index (Alsi) 42 Index (‘000) 39 36 33 30 27 24 21 2 Q 1' 13 3 Q 1' 12 3 Q 1' 11 3 Q 1' 10 3 Q 1' 09 3 Q 1' 08 18 New record high for real disposable income per capita of households (at constant 2011 prices) 36 R ‘000 34 32 30 28 26 24 22 '94 '95 '96 '97 '98 '99 '00 '01 '02 '03 '04 '05 '06 '07 '08 '09 '10 '11 '12