Download Iraj Abedian BigenLimpopoDec02

The Global Economic Meltdown
&
Influence on Infrastructure Investment in South
Africa
Bigen Africa Infrastructure Indaba
Polokwane-Limpopo - December 2nd, 2008
Dr Iraj Abedian
Pan-African Investment & Research Services (Pty) Ltd
Outline
• Global Financial & Economic Crises
• South Africa GDP: Battered but Resilient
• Financial & Fiscal Sector: Cyclical Pressures, Sound
Foundations
• Impact on Construction & Building Sector
• Concluding Remarks
Slide # 2
Global Financial & Economic Crises
• Global financial crisis is spilling over to economic
problems.
• All parts of the world is adversely affected, but not to
the same measure.
• Unless the G20 can carve out a well-coordinated
package of monetary and fiscal solutions, the
prospects for the global economy remains fairly
bleak.
• If a global recession sets in, it will be “long and
deep” with huge social ramifications over the next
decade.
Slide # 3
Global Financial & Economic Crises
• The root-cause of the problem is a simultaneous
failure of “markets” and “the State”.
• Rising global gap between the “haves” and the
‘have-nots” is a real threat to social stability
• No single country can deal with the problem alone!
• Even if the right mix of policies are adopted, it is a
decade-long turn around for the global economy.
• Unless international value attrition is stopped, any
solution is likely to be short-lived.
• The effect on construction/building sector will be
mixed.
Slide # 4
Global Financial Crisis & South Africa
 South Africa’s banks are safe for now from the
global financial crisis
e.g. healthy balance sheets with limited exposure to
troubled markets (Old Mutual)
 Medium term effects are indirect and clearly
unfavourable
 Bad debt of the banking system is a concern
 Volatility of the Rand is a major source of
vulnerability
Slide # 5
South Africa’s Trends and Prospects
SA GDP: Battered, and on the edge!
Growth has slowed down, and will fall further
Slide # 6
GDP: a Diversified Portfolio
Agriculture, forestry &
fishing, 2.3
Personal services, 5.3
Mining & quarrying, 5.4
Government, 12.5
Manufacturing, 15.9
Electricity, gas &
w ater, 2
Financial services,
20.7
Source: SA Reserve Bank (2008Q2)
Construction, 3.6
Transport, storage &
communication, 9.8
Slide # 7
Wholesale, retail,
hotels & restaurants,
14
SA Sovereign Risk has Declined
RSA 2017 (USD) Bond
9.5
8.5
%
7.5
6.5
5.5
Source: Bond Exchange of South Africa
Note: Concerns over the sovereign rating are serious, have cost
implications and need leadership’s attention.
Slide # 8
Jun-08
Feb-08
Oct-07
Jun-07
Feb-07
Oct-06
Jun-06
Feb-06
Oct-05
Jun-05
Feb-05
Oct-04
Jun-04
Feb-04
Oct-03
Jun-03
Feb-03
Oct-02
Jun-02
Feb-02
Oct-01
Jun-01
Feb-01
Oct-00
Jun-00
Feb-00
4.5
GDP: History of low growth volatility
1994 – 2007 Standard deviation
Venezuela
Russia
Argentina
Indonesia
Turkey
Thailand
Malaysia
Peru
Mexico
Colombia
Chile
Czech Republic
Philippines
Brazil
Poland
India
China
Egypt
Standard deviation from the mean
South Africa
Hungary
0
1
2
3
Slide # 9
4
5
6
7
8
GDP: Relatively Immune to Commodity
Price Reversal
100%
80%
60%
40%
Primary sector
20%
Secondary sector
Tertiary sector
1980
1981
1982
1983
1984
1985
1986
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0%
Slide # 10
Real GDP per capita and declining
Real GDP growth
30000
6
GDP per capita (2000 R prices)
Real GDP growth (RHS)
5
25000
4
20000
3
2
%
15000
1
10000
0
-1
5000
-2
0
-3
1990
1992
1994
1996
1998
2000
Slide # 11
2002
2004
2006
2008
2010
Rising Growth & Income Inequality:
Positive and Negative Trends
30000
GDP per capita (2000 R prices)
25000
20000
15000
10000
5000
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
0
Inequality Shifts by Race: Gini Coefficients for 1995 & 2005
Category
1995
2005
African
0.55
0.56
Coloured
0.49
0.58
Asian
0.45
0.53
White
0.39
0.45
Total
0.64
0.69
Slide # 12
Slide # 13
2008Q2
2007Q3
2006Q4
2006Q1
2005Q2
2004Q3
2003Q4
2003Q1
2002Q2
2001Q3
2000Q4
2000Q1
1999Q2
1998Q3
1997Q4
1997Q1
1996Q2
1995Q3
1994Q4
1994Q1
Ratio of Real Merchandise exports to GDP
24
Export GDP ratio
22
20
18
16
14
12
Financial & Fiscal Impact:
Cyclical Pressures, Sound Platform
Slide # 14
Household Debt Rising, but Manageable
30
Financing cost of household debt as % of disposable income
Total domestic credit (% change)
Total credit extended to private sector (% Change)
25
20
15
10
5
0
2000
2000
2001
2001
2002
2002
2003
2003
2004
2004
2005
2005
2006
2006
2007
2007
2008
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Sept
Mar
Slide # 15
Financial: Real Interest Rates Differential
Rising
Slide # 16
2008 July
2007
2006
2005
2004
2003
2002
2001
1999
1998
1997
1996
1995
1994
1993
1992
2009
2008
2007
0
2006
-2
2005
2
2004
0
2003
4
2002
2
2001
6
2000
4
1999
8
1998
6
1997
10
1996
8
1995
12
US
UK
SA
10
1994
Inflation
14
SA real interest rate
1991
UK real interest rate
1990
US real interest rate
2000
12
Slide # 17
2008/01
2007/01
2006/01
2005/01
2004/01
2003/01
2002/01
2001/01
2000/01
1999/01
1998/01
1997/01
1996/01
1995/01
1994/01
1993/01
12
1992/01
14
1991/01
1990/01
Percentage
2000 Jan
Apr
Jul
Oct
2001 Jan
Apr
Jul
Oct
2002 Jan
Apr
Jul
Oct
2003 Jan
Apr
Jul
Oct
2004 Jan
Apr
Jul
Oct
2005 Jan
Apr
Jul
Oct
2006 Jan
Apr
Jul
Oct
2007 Jan
Apr
Jul
Oct
2008 Jan
Apr
Jul
Oct
$ millions
Forex reserves & import cover
35000
30000
Foreign ex change reserv es
25000
20000
15000
10000
5000
0
16
Import covered by reserves (# of weeks)
10
8
6
4
2
0
Fiscal Status: Public Debt & Deficit low,
but rising
60
50
40
Government debt is unlikely to hold
30
2008 likely to see an upward trend
20
10
Government debt as % of GDP
2
2007
2006
2005
2004
2003
2002
2001
2000
1999
1998
1997
1996
1995
1994
1993
1992
1991
1990
1989
1988
1987
1986
1985
1984
1983
1982
1981
1980
0
Budget deficit as % of GDP
1
0
-1
Budget deficit to worsen
-2
From a surplus to a deficit
-3
-4
-5
-6
-7
2001
2002
2003
2004
2005
2006
2007
1987
1988
1989
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
1980
1981
1982
1983
1984
1985
1986
-8
Slide # 18
Fiscal Debt: Foreign Debt is Relatively Small
100%
Domestic Debt
80%
Foreign Debt
60%
40%
20%
1990
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
2001
2002
2003
2004
2005
2006
2007
0%
Note: Global borrowing is getting harder and more expensive!
Slide # 19
Impact on Infrastructure Investments:
Generally, a mixed picture
Slide # 20
Effects on Infrastructure Investments
• General effects on the demand side is negative;
private sector more adversely affected than the public
projects!
• Already, some major capex projects are being
reviewed, cost-benefit ratios have changed.
• Mining-linked projects are likely to be reviewed.
• Supply-side pressures are easing, the general need
is for efficiency gains!
• South Africa’s major demand over the next period is
likely to come from urban revival and infrastructure
projects, that is where the backlog is the greatest!
Slide # 21
Concluding Remarks
• SA’s economic prosperity is intertwined with the global
•
•
•
•
•
conditions- no one is immune!
The change in the country’s sovereign rating is what
needs to be watched carefully.
The economy is weathering the storm, but rapid
commodity price reversal is problematic- the growth
prospects remain positive, but at lower levels.
2010 Soccer World Cup and the fiscal stance are the two
short term advantages.
The Rand will remain under pressure for now.
Economic meltdown has mixed blessings for
infrastructure investments.
Slide # 22
Questions and Answers
Slide # 23