Annabel Bishop Director Misconduct - A Panel Discussion
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Director Misconduct
- A Panel Discussion Annabel
A review and preview
of the SA economy Bishop
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South Africa economic outlook
GDP qqsaa and unemployment growth quarterly forecasts – 2020Q1-2024Q4
35 qqsaa % 40
%
25
35
15
5 30
-5
25
-15
-25 20
-35
15
-45
-55 10
2023Q3
2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
2023Q4
2024Q1
2024Q2
2024Q3
2024Q4
GDP qqsaa(LHS) Unemployment (RHS)
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South Africa’s economic environment
• The positive growth rates on the month in June and July show that the green shoots of recovery are strengthening, and evidence from other incoming data
is showing that the rebound in the economy in Q3.20 may even prove stronger than anticipated, although it is also important to note that only two months’
worth of data are generally available for the third quarter currently.
• There is also evidence of a noticeable rebound in the global economy in Q3.20, with commodity prices 18.00% higher in Q3.20 q/q, while metal prices rose
by 26.1% q/q, with SA showing a marked trade surplus in July and August. October has shown this lift in commodity prices on a year ago persist so far.
• South Africa’s industrial production (mining, manufacturing and electricity), retail and wholesale sales are evidencing marked rebounds from Q2.20, but the
pace of economic activity is faster in some areas of the domestic economy than in others, as the recovery proves uneven.
• While economic activity has lifted quite noticeably in July and August, and even in June, as lockdown restrictions have eased in South Africa, pent up
demand will have boosted activity, as will statistical base effects from Q2.20’s lows. The economic recovery is likely to slow into Q4.20, from around 30%
qqsaa (quarter on quarter, seasonally adjusted, annualised) in Q3.20, to around 10% qqsaa (in Q4.20). South Africa is likely to see its real economic
activity fall by -9.2% this year (or GDP) versus last year. Some second waves or clusters of infections are now seeing lockdown restrictions paused or
heightened around the world.
• Consensus estimates of 2020 economic performance have worsened as the lockdown has been repeatedly extended, from -0.5% y/y in March to -5.0% y/y
in April, -6.5% y/y in May, -6.9% y/y in June and -7.5% y/y in July, -8.0% y/y in August (Bloomberg) and -8.5% y/y in September and the economic
consensus estimate is likely to continue worsening.
• SA is projecting a peaking in debt at 87.4% of GDP by 2023/24, a huge figure for an emerging market’s government debt, and one which does not tally with
debt sustainability - it will likely see SA being pushed into the single B credit rating categories over the course of the next few years, weakening the rand.
Rapid growth enhancing reforms are vital, specifically cuts in red tape.
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#BB@9Industrial production GDP vs BCI: Business Confidence leads growth
10 % y/y % y/y 20
Index
80 15
0 10
60
5
-10 0
40
-5
-20 -10
20
-15
-30 0 -20
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
GDP (RHS) Industrial Production Industrial Production forecast BCI (LHS) GDP % y/y (RHS)
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#WebinarWednesdays * seasonally adjusted. Source: BER. Stats SA
#BB@9South Africa: deep recession in 2020
• GDP contracted by around -50% qqsaa (quarter-on-quarter, seasonally Summary, % real growth
2019 2020 2021 2022 2023 2024 2025
rates
adjusted, annualised) in Q2.20, (-51% qqsaa to be precise) and the
GDP (real, %) 0.2 -9.2 2.5 1.8 2.0 2.2 2.4
recovery in Q3.20 looks like it could see a rise of 31.6% qqsaa.
HCE (real, %) 1.0 -7.9 1.8 1.7 2.0 2.2 2.4
GCE (real, %) 1.5 0.9 0.9 0.9 1.0 1.1 1.2
• We expect that overall for 2020 real GDP will contract by -9.2% y/y.
GFCF (real, %) -0.9 -18.8 -5.5 1.9 2.7 2.9 3.8
• Green shoots are appearing, but monthly growth rates are slowing in GDE (real, %) 0.6 -11.2 2.2 2.0 2.1 2.4 2.5
the various economic indicators and it will be a number of years before Export (goods & non-factor
-2.5 -10.7 4.3 3.2 3.9 3.9 4.2
services) - (real, %)
the economy recovers from the collapse in Q2.20. Imports (goods & non-factor
-0.5 -17.1 2.5 3.9 4.3 4.7 4.1
services) - (real, %)
• Green shoots are essentially early signs that economic recovery is Balance: Current Account - (% of
-3.0 -1.3 -2.9 -3.5 -3.5 -3.6 -3.5
GDP)
tentatively beginning, but in themselves are not an actual indication 30.6 27.9 27.9 28.5 29.1 29.9 30.3
Imports as % of GDP
that a very robust economic recovery is firmly underway. 28.8 28.2 28.8 29.2 29.7 30.2 30.7
Exports as % of GDP
• Source: Investec
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#BB@9Introduction
GDP y/y and unemployment growth forecasts - 2020Q1-2024Q4
15 40
y/y % %
10 35
5
30
0
25
-5
20
-10
-15 15
-20 10
2024Q1
2020Q1
2020Q2
2020Q3
2020Q4
2021Q1
2021Q2
2021Q3
2021Q4
2022Q1
2022Q2
2022Q3
2022Q4
2023Q1
2023Q2
2023Q3
2023Q4
2024Q2
2024Q3
2024Q4
GDP y/y (LHS) Unemployment rate (RHS)
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Source: SARB, Stats SA, Investec
#BB@9GDP Summary, % real growth rates (incl. 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
residual) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
GDP (real, qqsaa %) -3.2 3.3 -0.8 -1.4 -1.8 -51.0 31.6 13.0 2.7 1.7 2.2 2.5
HCE (real, qqsaa %) -0.9 2.5 0.3 1.4 0.2 -49.8 31.1 10.4 1.8 1.4 1.8 1.7
GCE (real, qqsaa %) 2.2 2.7 1.4 -0.2 1.8 -0.9 2.3 0.8 6.0 -4.5 -0.2 -0.2
GFCF (real, qqsaa %) -4.1 5.8 4.1 -10.0 -18.6 -59.9 24.8 -8.9 1.5 -3.0 -2.8 0.3
GDE (real, qqsaa %) 4.5 8.6 -4.1 -4.4 -6.4 -45.2 10.3 9.2 5.5 6.0 4.7 3.1
Export (goods & non-factor services) - (real, qqsaa
-27.0 -1.5 3.5 2.3 -3.3 -72.9 152 16.4 -2.2 -4.0 -0.3 0.9
%)
Imports (goods & non-factor services) - (real,
-4.9 18.4 -8.9 -8.5 -16.9 -54.2 14.3 6.4 6.0 12.0 8.3 3.1
qqsaa %)
GDP Summary, % real growth rates (incl. 2022 2022 2022 2022 2023 2023 2024 2024 2024 2024
2023Q2 2023Q4
residual) Q1 Q2 Q3 Q4 Q1 Q3 Q1 Q2 Q3 Q4
GDP (real, qqsaa %) 1.3 1.5 1.5 2.1 2.3 2.0 2.1 2.3 2.3 2.1 2.3 2.2
HCE (real, qqsaa %) 1.7 1.7 1.7 1.7 2.2 2.2 2.3 2.3 2.1 2.2 2.2 2.3
GCE (real, qqsaa %) 2.0 1.9 2.3 1.8 0.3 0.5 0.8 0.3 1.6 1.2 1.5 1.2
GFCF (real, qqsaa %) 3.9 4.3 3.1 4.2 2.2 2.2 1.2 1.8 4.0 3.4 3.4 3.0
GDE (real, qqsaa %) 0.5 0.7 1.2 1.5 2.9 2.4 2.1 2.9 2.4 2.4 2.2 2.3
Export (goods & non-factor services) - (real, qqsaa
5.4 5.8 4.8 4.8 2.2 4.1 3.8 4.3 4.1 3.4 3.9 3.9
%)
Imports (goods & non-factor services) - (real,
2.2 2.7 2.6 3.2 5.2 5.4 3.7 6.3 4.7 4.6 3.7 4.1
qqsaa %)
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#BB@9GDP Summary, % real growth rates (incl. 2025 2025 2025 2025
residual) Q1 Q2 Q3 Q4
GDP (real, qqsaa %) 2.4 2.6 2.8 3.0
HCE (real, qqsaa %) 2.5 2.4 2.5 2.5
GCE (real, qqsaa %) 0.8 1.0 1.6 1.5
GFCF (real, qqsaa %) 4.2 4.2 4.1 4.3
GDE (real, qqsaa %) 2.0 3.1 2.7 3.1
Export (goods & non-factor services) - (real, qqsaa
4.6 4.0 4.9 3.9
%)
Imports (goods & non-factor services) - (real,
2.9 5.4 4.7 4.0
qqsaa %)
2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
GDP summary, % real growth rates
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
GDP (real, y/y %) 0.0 1.0 0.1 -0.6 -0.2 -17.2 -11.1 -8.1 -7.0 11.6 4.8 2.3
HCE (real, y/y %) 0.7 1.3 1.3 0.8 1.1 -15.4 -9.6 -7.6 -7.3 10.6 3.8 1.7
GCE (real, y/y %) 1.3 1.5 1.7 1.5 1.4 0.5 0.8 1.0 2.0 1.1 0.5 0.2
GFCF (real, y/y %) -2.8 -0.4 0.8 -1.2 -5.2 -25.6 -22.2 -22.0 -17.5 2.8 -3.4 -1.0
GDE (real, y/y %) -0.6 1.8 0.4 1.0 -1.7 -17.2 -14.2 -11.3 -8.7 7.7 6.3 4.8
Export (goods & non-factor services) - (real, y/y %) 1.5 0.2 -4.6 -6.6 0.2 -27.4 -9.3 -6.3 -6.1 28.9 2.2 -1.4
Imports (goods & non-factor services) - (real, y/y
-0.3 3.7 -3.6 -1.6 -4.8 -25.0 -20.6 -17.5 -12.4 9.6 8.1 7.3
%)
Current Account – (% GDP) -3.0 -4.1 -3.7 -1.3 1.2 -2.4 -2.5 -1.7 -2.3 -2.7 -3.2 -3.4
Imports as % of GDP 30.3 31.3 30.7 30.1 28.9 28.4 27.4 27.0 27.2 27.9 28.3 28.3
Exports as % of GDP 28.8 28.5 28.8 29.1 28.9 25.0 29.4 29.6 29.2 28.8 28.6 28.5
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#BB@92022 2022 2022 2022 2023 2023 2024 2024 2024 2024
GDP summary, % real growth rates 2023Q2 2023Q4
Q1 Q2 Q3 Q4 Q1 Q3 Q1 Q2 Q3 Q4
GDP (real, y/y %) 1.9 1.9 1.7 1.6 1.8 2.0 2.2 2.2 2.2 2.2 2.2 2.2
HCE (real, y/y %) 1.6 1.7 1.7 1.7 1.9 2.0 2.1 2.2 2.2 2.2 2.2 2.2
GCE (real, y/y %) -0.7 0.9 1.5 2.0 1.6 1.2 0.9 0.5 0.8 1.0 1.2 1.4
GFCF (real, y/y %) -0.4 1.4 2.9 3.9 3.5 2.9 2.4 1.8 2.3 2.6 3.1 3.4
GDE (real, y/y %) 3.5 2.2 1.4 1.0 1.6 2.0 2.2 2.6 2.5 2.5 2.5 2.3
Export (goods & non-factor services) - (real, y/y %) 0.5 2.9 4.2 5.2 4.4 4.0 3.7 3.6 4.1 3.9 3.9 3.8
Imports (goods & non-factor services) - (real, y/y
6.3 4.0 2.6 2.7 3.4 4.1 4.4 5.1 5.0 4.8 4.8 4.3
%)
Current Account – (% GDP) -3.4 -3.5 -3.5 -3.5 -3.5 -3.6 -3.5 -3.4 -3.5 -3.6 -3.7 -3.6
Imports as % of GDP 28.4 28.5 28.6 28.6 28.8 29.1 29.2 29.5 29.6 29.8 29.9 30.1
Exports as % of GDP
2025 2025 2025 2025
GDP summary, % real growth rates
Q1 Q2 Q3 Q4
GDP (real, y/y %) 2.2 2.4 2.5 2.7
HCE (real, y/y %) 2.3 2.3 2.4 2.5
GCE (real, y/y %) 1.2 1.1 1.1 1.2
GFCF (real, y/y %) 3.5 3.7 3.9 4.2
GDE (real, y/y %) 2.2 2.4 2.5 2.7
Export (goods & non-factor services) - (real, y/y %) 4.0 4.1 4.3 4.4
Imports (goods & non-factor services) - (real, y/y
3.8 4.0 4.3 4.3
%)
Current Account – (% GDP) -3.5 -3.7 -3.5 -3.4
Imports as % of GDP 30.1 30.3 30.4 30.5
Exports as % of GDP 30.6 30.7 30.8 30.9
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#BB@9South Africa: slow growth dynamic
As the lockdown was extended from its initial 21 days (27th March to mid-April), the Consumption 202 202 202 202 202 202
2019
likelihood of a rapid bounce back in economic growth has been consistently eroded. Expenditure 0 1 2 3 4 5
HCE, total (real, %) 1.0 -7.9 1.8 1.7 2.0 2.2 2.4
Business failures, or downsizing, have meant fewer jobs to return to as lockdown
restrictions eased, with the rise in unemployment in Q2.20 weakening the potential 62. 62.
HCE as % of GDP 62.2 63.0 62.6 62.5 62.5
for recovery and household and corporate finances have been weakened. 5 5
31. 30.
Since May each month has seen rising activity on the month before, and these Unemployment rate (%) 28.7 31.6 33.8 31.9 30.6
0 1
green shoots are indicative of some small recovery in economic activity on easing 61. 62.
restrictions, as is the rise in business confidence in Q3.20. Population (million) 58.6 59.3 60.0 60.8 62.1
5 8
However, while there has been growth from April’s lows in many sectors, on a year Employment growth rate
-0.3 -2.7 -2.6 3.7 2.1 1.8 2.3
on year basis economic activity for the various sectors of the economy are much (%)
lower, and this is likely to persist until Q2.21, given the extreme low level of
Compensation of
economic activity in Q2.20. 4.3 -2.9 2.8 4.8 4.6 5.3 5.8
employees (%)
The level of economic activity experienced at the end of 2019 (R3.14 trillion in real 22. 21.
terms (adjusted for inflation), or R5.2 trillion in nominal (actual) terms)) is only GCE as % of GDP 20.7 23.1 22.6 22.4 22.0
2 7
anticipated to be reached by the end of 2025 in real terms, and by 2023 in actual
terms (the difference in the latter due to quickening inflation).
• Source: Investec
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#BB@9Consumption Expenditure, % real growth 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
rates Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
HCE, total (real, y/y %) 0.7 1.3 1.3 0.8 1.1 -15.4 -9.6 -7.6 -7.3 10.6 3.8 1.7
HCE as % of GDP 62.1 61.9 62.1 62.5 62.9 63.3 63.2 62.8 62.7 62.7 62.6 62.5
Unemployment rate (%) 27.3 28.8 29.0 29.6 29.9 23.3 37.4 35.9 34.8 34.0 33.4 32.9
Population (million) 58.3 58.5 58.7 58.8 59.0 59.2 59.4 59.6 59.8 60.0 60.1 60.3
Employment growth rate (y/y %) -0.5 0.2 0.0 -0.7 0.6 8.5 -11.3 -8.7 -7.3 -13.2 7.3 5.5
Compensation employees (y/y %) 4.5 4.6 4.0 4.0 4.2 -7.1 -4.2 -4.2 -3.7 7.0 4.1 4.2
GCE as % of GDP 20.6 20.6 20.7 20.8 21.0 25.0 23.5 22.8 23.0 22.6 22.5 22.4
Consumption Expenditure, % real growth 2022 2022 2022 2022 2023 2023 2024 2024 2024 2024
2023Q2 2023Q4
rates Q1 Q2 Q3 Q4 Q1 Q3 Q1 Q2 Q3 Q4
HCE, total (real, y/y %) 1.6 1.7 1.7 1.7 1.9 2.0 2.1 2.2 2.2 2.2 2.2 2.2
HCE as % of GDP 62.5 62.6 62.6 62.5 62.5 62.5 62.6 62.6 62.5 62.5 62.5 62.5
Unemployment rate (%) 32.6 32.1 31.7 31.1 31.0 31.0 30.9 31.0 31.0 30.5 30.5 30.4
Population (million) 60.5 60.7 60.8 61.0 61.2 61.4 61.5 61.7 61.9 62.1 62.2 62.4
Employment growth rate (y/y %) 4.3 3.7 3.4 3.5 3.2 2.5 1.9 0.9 0.9 1.8 2.0 2.4
Compensation employees (y/y %) 4.6 5.3 4.8 4.5 4.4 4.5 4.6 4.8 5.0 5.2 5.4 5.5
GCE as % of GDP 22.4 22.4 22.5 22.4 22.3 22.2 22.2 22.1 22.0 22.0 21.9 21.9
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#BB@9Consumption Expenditure, % real growth 2025 2025 2025 2025 rates Q1 Q2 Q3 Q4 HCE, total (real, y/y %) 2.3 2.3 2.4 2.5 HCE as % of GDP 62.6 62.5 62.5 62.4 Unemployment rate (%) 30.4 30.2 30.0 30.0 Population (million) 62.6 62.7 62.9 63.1 Employment growth rate (y/y %) 2.6 2.1 2.2 2.2 Compensation employees (y/y %) 5.6 5.7 5.9 6.0 GCE as % of GDP 21.8 21.7 21.6 21.6 Source: Investec #BetterDirectors #WebinarWednesdays #BB@9
South Africa: electricity
Gross Fixed Capital 202 202 202 202
There have been many job losses, permanent company closures and severe loss of Formation
2019 2023 2025
0 1 2 4
income and so the recovery in the economy is still likely to be very slow, as we have
-
previously indicated, evidencing more of a U shape, than a V shape, in y/y terms. GFCF, total (real, %) -0.9 -5.5 1.9 2.7 2.9 3.8
18.8
Economic activity is expected to continue to pick up each month this year on the 15. 15. 16.
GFCF as % of GDP 19.2 17.1 15.9 16.2
previous month, and indeed each quarter on the previous quarter from Q2.20, with 8 8 0
the green shoots strengthening into more robust economic activity in 2021 as -
Private sector (real, %) 1.1 -4.6 1.8 3.6 3.9 5.0
household finances gradually strengthen. 17.3
-
However, business confidence is not expected to see the same degree of rebound Government (real, %) -5.5 -7.7 2.2 0.1 0.1 0.3
22.3
in Q4.20 as in Q3.20 however, as the base will not be as low. This is indeed also
Non-residential GFCF -
why monthly growth rates have been slowing in economic indicators since June. 1.8 -4.2 1.7 3.5 3.8 5.0
(real, %) 16.2
A slower recovery than the global economy is also expected for South Africa due to
Residential buildings -
the severe effects of the greatly extended lockdown, while a number of structural -3.8 -7.9 3.1 4.6 4.6 4.9
(real, %) 25.3
weaknesses remain, particularly the complex and onerous regulatory burden and
electricity insufficiency. -
GFCF, total (real, %) -0.9 -5.5 1.9 2.7 2.9 3.8
18.8
Please note: all data may be subjected to historical revisions
• Source: Investec
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#BB@92019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
Gross Fixed Capital Formation
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
GFCF, total (real, qqsaa %) -4.1 5.8 4.1 -10.0 -18.6 -59.9 24.8 -8.9 1.5 -3.0 -2.8 0.3
GFCF as % of GDP 19.1 19.2 19.4 19.0 18.1 17.2 17.0 16.1 16.1 15.9 15.7 15.6
Private sector (real, qqsaa %) -8.4 16.0 9.5 -10.3 -22.7 -62.4 50.0 4.3 -11.1 -3.9 -3.5 0.4
Government (real, qqsaa %) 6.3 -14.3 -7.9 -9.3 -7.9 -53.5 -20.5 -37.7 47.4 -0.8 -0.8 0.2
Non-residential GFCF (real, qqsaa %) -9.3 17.0 13.4 -11.2 -24.2 -59.8 57.4 1.7 -11.5 -3.9 -3.9 0.5
Residential buildings (real, qqsaa %) -1.7 9.2 -14.3 -3.5 -10.7 -76.6 1.1 28.7 -8.2 -3.4 -0.3 -0.3
2022 2022 2022 2022 2023 2023 2023 2024 2024 2024 2024
Gross Fixed Capital Formation 2023Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4
GFCF, total (real, qqsaa %) 3.9 4.3 3.1 4.2 2.2 2.2 1.2 1.8 4.0 3.4 3.4 3.0
GFCF as % of GDP 15.7 15.8 15.9 16.0 15.9 16.0 15.9 15.9 16.0 16.0 16.1 16.1
Private sector (real, qqsaa %) 3.6 4.2 4.2 4.6 3.1 3.2 3.4 2.7 4.9 4.1 4.1 3.4
Government (real, qqsaa %) 4.6 4.7 0.3 3.2 -0.4 -0.3 -4.8 -0.6 1.3 1.5 1.2 1.8
Non-residential GFCF (real, qqsaa %) 3.5 4.0 4.0 4.5 3.0 3.0 3.3 2.9 4.3 4.2 4.1 3.5
Residential buildings (real, qqsaa %) 4.8 6.0 5.8 5.7 4.5 4.1 4.1 0.7 9.8 3.2 4.2 2.7
Source: SARB, Investec
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#BB@92025 2025 2025 2025
Gross Fixed Capital Formation
Q1 Q2 Q3 Q4
GFCF, total (real, qqsaa %) 4.2 4.2 4.1 4.3
GFCF as % of GDP 16.2 16.2 16.3 16.3
Private sector (real, qqsaa %) 5.5 6.3 5.8 5.3
Government (real, qqsaa %) 0.4 -1.5 -0.9 1.2
Non-residential GFCF (real, qqsaa %) 5.5 6.3 5.8 5.2
Residential buildings (real, qqsaa %) 5.6 6.3 5.8 6.1
Gross Fixed Capital Formation, % real 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
growth rates Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
GFCF, total (real, y/y %) -2.8 -0.4 0.8 -1.2 -5.2 -25.6 -22.2 -22.0 -17.5 2.8 -3.4 -1.0
GFCF as % of GDP 19.1 19.2 19.4 19.0 18.1 17.2 17.0 16.1 16.1 15.9 15.7 15.6
Private sector (real, y/y %) -2.1 1.9 3.5 1.1 4.1 4.1 4.1 -17.9 -15.0 7.5 -3.7 -4.6
Government (real, y/y %) -4.2 -5.6 -5.5 -6.6 -9.9 -22.7 -25.4 -32.1 -23.7 -7.8 -2.5 9.8
Non-residential GFCF (real, y/y %) -1.5 2.4 4.7 1.7 -2.8 -25.6 -19.2 -16.5 -13.1 8.0 -4.5 -4.8
Residential buildings (real, y/y %) -6.4 -1.3 -4.5 -2.9 -5.2 -35.5 -32.8 -27.8 -27.3 3.7 3.3 -3.1
Source: SARB, Investec
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#BB@9Gross Fixed Capital Formation, % real 2022 2022 2022 2022 2023 2023 2023 2023 2024 2024 2024 2024 growth rates Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 GFCF, total (real, y/y %) -0.4 1.4 2.9 3.9 3.5 2.9 2.4 1.8 2.3 2.6 3.1 3.4 GFCF as % of GDP 15.7 15.8 15.9 16.0 15.9 16.0 15.9 15.9 16.0 16.0 16.1 16.1 Private sector (real, y/y %) -0.9 1.1 3.1 4.2 4.0 3.8 3.6 3.1 3.5 3.8 4.0 4.1 Government (real, y/y %) 0.8 2.2 2.4 3.2 2.0 0.7 -0.6 -1.5 -1.1 -0.7 0.9 1.4 Non-residential GFCF (real, y/y %) -1.0 0.9 3.0 4.0 3.9 3.6 3.5 3.1 3.4 3.7 3.9 4.0 Residential buildings (real, y/y %) 0.2 2.5 4.0 5.6 5.5 5.0 4.6 3.3 4.6 4.4 4.4 4.9 Gross Fixed Capital Formation, % real 2025 2025 2025 2025 growth rates Q1 Q2 Q3 Q4 GFCF, total (real, y/y %) 3.5 3.7 3.9 4.2 GFCF as % of GDP 16.2 16.2 16.3 16.3 Private sector (real, y/y %) 4.3 4.8 5.2 5.7 Government (real, y/y %) 1.2 0.5 -0.1 -0.2 Non-residential GFCF (real, y/y %) 4.3 4.8 5.3 5.7 Residential buildings (real, y/y %) 3.9 4.7 5.1 6.0 Source: SARB, Investec #BetterDirectors #WebinarWednesdays #BB@9
South Africa: interest rates
South Africa has seen a 300bp cut in interest rates this year bringing the repo rate
now to 3.50%, 325bp in direct response to the impact Covid-19 has had on the
economy and financial markets, as the crisis deepened. The first cut this year, of
202 202 202 202
25bp in January, was in response to the recession SA had fallen into in the second Monetary Sector 2019 2023 2025
0 1 2 4
half of last year, given that inflation was subdued into the target range close to the
midpoint, and expected to remain there over the forecast period. 5.0 5.0
Repo Rate (year-end: %) 6.50 3.50 4.25 5.00 5.25
0 0
Interest rates are likely to remain low for a lengthy period of time, as the economy Prime Overdraft Rate 8.5 8.5
10.00 7.00 7.75 8.50 8.75
will not recover in Q3.20, nor will it recover in Q4.20, or in 2021. Many years of (year-end: %) 0 0
growth will have been wiped off GDP and it will be a slow lengthy process to rebuild. SA rand bond (year-end: 10.1 10.1 10. 9.9
9.10 10.20 9.90
From an inflation point of view, the SARB is in no rush to hike interest rates. %) 0 0 30 0
5.0 5.0
South African government bonds saw a strong foreign sell-off over March and most Repo Rate (year-end: %) 6.50 3.50 4.25 5.00 5.25
0 0
of April. SARB intervention in the bond market solved dysfunctionality in pricing,
which was driven by extremely thin liquidity in the second half of March and saw the • Source: Investec
yield on the ten year generic government bond (govi) spike to 12.11%.
Bond yields cannot be suppressed infinitely by the SARB, as limits exist on the
quantum it can purchase. This is due both to a cap on bond purchases in primary
market legislation and the Southern African Development Community’s treaty
limitation that Central Banks should not provide more than 10% of funding to
government. Consequently yields have risen and spreads widened.
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#BB@92019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
Inflation forecasts
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Consumer Inflation (Av: y/y %) 4.2 4.4 4.1 3.7 4.4 2.4 3.2 3.3 3.4 4.8 4.3 4.5
Producer Inflation (Av: y/y %) 5.0 6.2 4.5 2.9 4.1 0.7 2.3 2.9 3.3 5.1 4.2 4.2
Salary & wage increases (y/y %) 2.8 5.7 3.1 4.8 4.2 -14.2 -4.9 -3.8 2.3 13.5 4.4 4.5
2022 2022 2022 2022 2023 2023 2024 2024 2024 2024
Inflation forecasts 2023Q2 2023Q4
Q1 Q2 Q3 Q4 Q1 Q3 Q1 Q2 Q3 Q4
Consumer Inflation (Av: y/y %) 4.6 4.7 4.8 5.0 5.0 4.9 5.2 5.1 5.0 5.2 5.0 4.7
Producer Inflation (Av: y/y %) 4.3 4.8 5.2 5.5 5.5 5.2 4.9 4.5 4.9 5.1 5.1 5.2
Salary & wage increases (y/y %) 6.0 6.5 4.8 4.8 4.7 5.4 5.5 5.5 5.6 5.9 6.1 6.7
2025 2025 2025 2025
Inflation forecasts
Q1 Q2 Q3 Q4
Consumer Inflation (Av: y/y %) 5.2 5.2 5.0 5.0
Producer Inflation (Av: y/y %) 5.3 5.1 5.1 5.0
Salary & wage increases (y/y %) 6.6 6.6 6.5 5.9
Monetary 2019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
Sector % year-end Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
Repo Rate (year-end: %) 6.75 6.75 6.50 6.50 5.25 3.75 3.50 3.50 3.75 4.00 4.25 4.25
Prime Overdraft Rate (year-end: %) 10.25 10.25 10.00 10.00 8.75 7.25 7.00 7.00 7.25 7.50 7.75 7.75
SA rand bond (Av: %) 9.27 9.07 8.90 9.07 9.73 10.46 10.30 10.10 10.00 10.30 10.40 10.10
Monetary 2022 2022 2022 2022 2023 2023 2024 2024 2024 2024
2023Q2 2023Q4
Sector % year-end Q1 Q2 Q3 Q4 Q1 Q3 Q1 Q2 Q3 Q4
Repo Rate (year-end: %) 4.50 4.50 4.75 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00
Prime Overdraft Rate (year-end: %) 8.00 8.00 8.25 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50 8.50
SA rand bond (Av: %) 10.00 10.50 10.60 10.30 10.20 10.40 10.50 10.20 10.00 9.90 10.00 9.90
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#BB@9Monetary 2025 2025 2025 2025 Sector % year-end Q1 Q2 Q3 Q4 Repo Rate (year-end: %) 5.25 5.25 5.25 5.25 Prime Overdraft Rate (year-end: %) 8.75 8.75 8.75 8.75 SA rand bond (Av: %) 9.80 10.00 10.10 9.90 Note: % quarter-end: Source, SARB, Stats SA, Investec #BetterDirectors #WebinarWednesdays #BB@9
South Africa: inflation
This year we expect CPI inflation will come out at 3.3% y/y, and at 4.3% y/y in 2021.
The inflation outlook is not a concern for the SARB currently as it worries more over 202 202 202
Inflation 2019 2020 2023 2025
economic growth. 1 2 4
Consumer Inflation (Av:
While the short end of the yield curve is anchored by low money market rates (the 4.1 3.3 4.3 4.8 5.0 5.0 5.1
%)
repo rate is at historic lows), the mid to longer-end has risen substantially, and this
(year-end: %) 4.0 3.2 4.6 5.0 5.0 4.8 5.0
steepening in the yield curve reflects the widening spreads and perceived
deteriorated creditworthiness. Producer Inflation (Av:
4.6 2.5 4.2 5.0 5.0 5.1 5.1
%)
The supply of government debt is ballooning, with the state induced collapse of the
(year-end: %) 3.4 3.0 4.3 5.6 4.3 5.3 5.0
economy (and so revenue collections) rendering a leap in debt, and the budget
deficit, projections as a % of GDP to meet planned expenditure. Salary & wage increases
4.1 -4.7 5.9 5.5 5.3 6.1 6.4
(%)
The differential between South Africa’s five year and ten year government bond • Source: Investec
yields is at 3.2% (from closer to 1.0% in the past several years), and at 6.3%
between South Africa’s ten year government bond and the three month JIBAR rate
(closer to 2.0% historically).
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#BB@9South Africa: rand
Exchange Rates: averages 2019 2020 2021 2022 2023 2024 2025
The rand continues to be highly unlikely to reach its pre-Covid levels of
R14.00/USD this year, before the massive blowout in debt and budget deficit USD/ZAR 14.44 16.69 15.46 15.23 15.48 15.81 15.90
projections, and with more rating downgrades on the cards, will maintain an GBP/ZAR 18.44 21.32 21.06 21.06 21.55 22.14 22.26
underpin of weakness instead
EUR/ZAR 16.17 18.95 18.55 18.34 18.50 19.53 19.88
The rand continues to average around R16.50/USD this quarter, in line with our ZAR/JPY 7.55 6.45 6.87 6.88 6.85 6.75 6.73
forecasts, and will be subject to volatility, with risks around the MTBPS (Medium- GBP/USD 1.28 1.28 1.36 1.38 1.39 1.40 1.40
Term Budget Policy Statement), Moody’s, S&P and Fitch country reviews and global
EUR/USD 1.12 1.14 1.20 1.21 1.20 1.24 1.25
financial market sentiment.
USD/JPY 109 109 107 105 106 107 107
The credit rating agencies have warned of further downgrades for South Africa, with
Moody’s highlighting that SA is likely in line to sink deeper into sub-investment Local currency long-term sovereign debt credit ratings
grade, from its current equivalent BB+ rating, as government finances continue to vs 10yr government bond
deteriorate. Ratings 0
15 SAGB10 BB-
We continue to expect a downgrade post MTBPS, from Ba1 (BB+ equivalent) to BB
Ba2 (BB equivalent). BB+
10
BBB-
Both Moody’s and S&P are scheduled to deliver their country reviews on 20th BB
November, with the MTBPS projections informing their ratings decisions on SA, and 5 B
BBB
Fitch also likely to deliver a verdict around that period. +A-
A
0 10
1993/94 2002/03 2011/12 2020/21
SAGB10 Moody's local Fitch Local S&P local
Moody's foreign Fitch foreign S&P foreign
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#BB@92019 2019 2019 2019 2020 2020 2020 2020 2021 2021 2021 2021
Exchange Rates., averages
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
USD/ZAR 14.01 14.38 14.69 14.70 15.38 17.95 16.91 16.50 15.75 15.50 15.50 15.10
GBP/ZAR 18.25 18.48 18.10 18.93 19.64 22.28 21.85 21.52 21.11 20.93 21.24 20.99
EUR/ZAR 15.92 16.16 16.33 16.28 16.95 19.77 19.77 19.31 18.43 18.37 18.76 18.65
ZAR/JPY 7.86 7.65 7.31 7.39 7.12 5.99 6.28 6.39 6.79 6.94 6.84 6.92
GBP/USD 1.30 1.29 1.23 1.29 1.28 1.24 1.29 1.30 1.34 1.35 1.37 1.39
EUR/USD 1.14 1.12 1.11 1.11 1.10 1.10 1.17 1.17 1.17 1.19 1.21 1.24
USD/JPY 110 110 107 109 109 108 106 106 107 108 106 105
2022 2022 2022 2022 2023 2023 2023 2024 2024 2024 2024
Exchange Rates., averages 2023Q4
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4
USD/ZAR 15.00 15.20 15.50 15.20 15.00 15.40 16.00 15.50 15.30 15.80 16.30 15.85
GBP/ZAR 21.22 20.98 21.24 20.82 20.70 21.41 22.40 21.70 21.42 22.12 22.82 22.19
EUR/ZAR 18.75 18.54 18.29 17.78 17.70 18.33 19.20 18.76 18.67 19.43 20.21 19.81
ZAR/JPY 6.93 6.91 6.77 6.91 7.07 6.88 6.63 6.84 6.93 6.77 6.56 6.75
GBP/USD 1.41 1.38 1.37 1.37 1.38 1.39 1.40 1.40 1.40 1.40 1.40 1.40
EUR/USD 1.25 1.22 1.18 1.17 1.18 1.19 1.20 1.21 1.22 1.23 1.24 1.25
USD/JPY 104 105 105 105 106 106 106 106 106 107 107 107
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Exchange Rates., averages
Q1 Q2 Q3 Q4
USD/ZAR 15.75 16.45 15.95 15.45
GBP/ZAR 22.05 23.03 22.33 21.63
EUR/ZAR 19.69 20.56 19.94 19.31
ZAR/JPY 6.79 6.50 6.71 6.93
GBP/USD 1.40 1.40 1.40 1.40
EUR/USD 1.25 1.25 1.25 1.25
USD/JPY 107 107 107 107
Source: SARB, Investec
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#BB@9Risks and opportunities
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• Source: Investec
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#BB@9Introduction There has been a marked change in both negative and positive risks in the past six months, with some easing while others have lifted. South Africa has seen its Covid-19 epidemic ebb substantially, and another hard lockdown is not expected. Covid-19 has not seen new waves in SA, but the opening up of international travel could see some lift, with multiple waves around the world. SA’s mortality rate has been very low due to its youthful demographic. South Africa is seeing a resilient bounce back in the economy so far. The rebound in the domestic economy in Q3.20 may even prove stronger than anticipated, although it is also important to note that only two months’ worth of data are generally available for the third quarter currently while pent up demand will have boosted activity, as will statistical base effects from Q2.20’s lows. SA is seeing reforms gather pace at last, corruption prosecutions rise, and the Economic Reconstruction and Recovery Plan (ERRP), is likely to see a lot more delivery than previous plans. There is also evidence of a noticeable rebound in the global economy in Q3.20, with commodity prices 18.00% higher in Q3.20 q/q, while metal prices rose by 26.1% q/q, with SA showing a marked trade surplus in July and August. October has shown this lift in commodity prices on a year ago persist so far. Europe and China are seeing notable recovery to date. The US elections are currently likely to see a Biden Democrat win, as well as a Democratic Senate majority, avoiding a bipartisan government. While fiscal stimulus is outstanding in the US it is anticipated after the 3/11 election. Further positives include the expected reduction in aggressive relations with China, and so a boost to global growth. While this should boost market sentiment, Brexit remains a concern. High levels of debt accumulation globally have also led to fears of an EM debt crisis and one for low income economies. In SA elevated debt projections make a downgrade post MTBPS likely from Moody’s Ba1 (BB+ equivalent) to Ba2 (BB equivalent) on 20th November, with Fitch and S&P also likely to downgrade, and the risk is by more than one notch if SA raises its debt peak to 100% of GDP. The projected active scenario of the SBR for SA’s projected borrowings, shows a radical jump to 82.0% of GDP this fiscal year, and 87.4% of GDP by 2023/24, but even these figures are beginning to be seen as too low by the markets #BetterDirectors #WebinarWednesdays #BB@9
Reduced chance of future lockdown – positive risk
Governments and modelers have assumed that imposition and relaxation of lockdowns would cause step-changes in the reproduction rate (dramatic rise in
infections), but in country after country, no such step-changes can be seen. Reproduction rates have tracked a linearly declining path.
Furthermore, when analysing inter-country differences, neither mobility (how much people move around) nor lockdown stringency (how harsh the
lockdown is) come up as factors that determine mortality rates or duration to peak in the death.
This applies in South Africa too, with no change in the rate as lockdown was eased. If lockdown worked, we should have experienced growth in positive
tests and deaths as we went from Level 5 to 4 to 3.
The worst case models produced by the Actuarial Society of South Africa and Stellenbosch University, predicted between 89,000 and 351,000 Covid-19 deaths.
South Africa implemented one of the harshest and longest lockdowns in the world. The chance of this being repeated has fallen substantially.
Attendance at TB and HIV clinics plummeted, with about eight million South Africans are living with HIV and about 300,000 are living with TB. A tiny decrease in effective
care for either of these diseases, as a result of non-attendance at clinics or the diversion of resources to Covid-19 would result in a dramatic increase in excess deaths.
When mass meetings and international travel were banned, small business activity remained mostly normal. During lockdown level 5, small business activity reduced to
10-20% of normal levels. During lockdown level 4 small business activity increased to 20-40% of normal, and in level 3 small business activity increased to 30-70% of
normal levels.
Another harsh lockdown is not anticipated. The old and infirm should limit contact if they choose to, and the rest of us should get on with life. Herd immunity is a
concept of the threshold that you reach where there are sufficient people who have recovered from the disease and therefore have a level of immunity so that the
disease stops circulating and just gradually wanes to almost zero.
Panda – Pandemic Data and Analytics -
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#BB@9Covid 19
Number of new deaths per day in South Africa
Very substantial monetary and fiscal policy support measures have occurred 700 No of deaths
globally to lessen the economic impact of the restrictions put in place to counter the
spread of the Covid-19 pandemic, but the economic shock has still been extreme. 600
The downwards trend in number of new (daily) Covid-19 infections and deaths in 500
South Africa persists, even if it has slowed markedly, with SA back below 1 800 new
cases a day (latest recorded yesterday). 400
A slower recovery than the global economy is also expected for South African due 300
to the severe effects of the greatly extended lockdown, while a number of structural
weaknesses remain, particularly the complex and onerous regulatory burden and
200
electricity insufficiency.
100
0
6-Mar-20 12-Apr-20 19-May-20 25-Jun-20 1-Aug-20 7-Sep-20 14-Oct-20
#BetterDirectors • Source: World Health Organization
#WebinarWednesdays
#BB@9Number of new infection and deaths per day in South Africa Number of new confirmed cases per day
7 July to 22 July
23 July to 21 August
No of cases No of deaths 200 000 confirmed cases
200 000 confirmed cases
(Average of 11 827 cases a
(Average of 6 945 cases a day)
day)
16000 600
800000 Cases
Level 3 Level 2 Level 1
14000 lockdown lockdown
700000 lockdown
500
27 March Level 4
12000 600000 Hard lockdown begins lockdown
400 500000
10000 9 April
Hard lockdown
400000 18 March extended
Travel ban
8000 300
300000
6000 200000
200
100000
4000
100 0
05-May
12-May
19-May
26-May
07-Jul
14-Jul
21-Jul
28-Jul
10-Mar
17-Mar
24-Mar
31-Mar
02-Jun
09-Jun
16-Jun
23-Jun
30-Jun
04-Aug
11-Aug
18-Aug
25-Aug
01-Sep
08-Sep
15-Sep
22-Sep
29-Sep
07-Apr
14-Apr
21-Apr
28-Apr
06-Oct
13-Oct
2000
0 0
6-Mar-20 12-Apr-20 19-May-20 25-Jun-20 1-Aug-20 7-Sep-20 14-Oct-20
South Africa Gauteng Kwazulu Natal Eastern cape
New deaths per day in South Africa New cases per day in South Africa Western Cape Free State Mpumalanga Limpopo
North West Northern cape Unknown
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#BB@9Covid 19
In South Africa, Cabinet has extended the state of disaster until 15th October, but Daily case increase in Covid-19 Cases in South Africa
23 July to 21 August
– 7 day rolling average 7 July to 22 July
200 000 confirmed cases
200 000 confirmed cases
SA could move to level 1 as The move to level 1 saw a lift in cases, as would be (Average of 11 827 cases
(Average of 6 945 cases
a day)
a day)
expected, and then they subsequently declined again, as the downward trend in
14000 Cases Level 3
both Covid-19 deaths and infections from Covid-19 persists in SA’s very youthful 27 March
lockdown Level 2 Level 1
lockdown lockdown
12000 Hard lockdown Level 4
population. begins lockdown
10000
Covid-19 tends to impact the elderly and unwell much more severely than the 9 April
Hard lockdown
8000
18 March
young and healthy, with this proving to be a boon for South Africa, which has a very Travel ban
extended
youthful population, as does Africa in general. 6000
4000
The impact of the lockdown restrictions in South Africa have had an extremely
severe and devastating impact on the economy and incomes, aiding in flattening 2000
the curve, but seeing many salaries and wages reduced, temporarily suspended or
0
27 Mar-2 Apr
5 Oct - 12 Oct
14-20 May
25 Jul-31 Jul
3-9 Mar
7-13 Jun
20-26 Apr
11 Sep- 17 Sept
1 Jul-7 Jul
18 Aug - 24 Aug
terminated.
#BetterDirectors • Source: National Department of Health
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#BB@9Reforms picking up pace – positive risk The Economic Reconstruction and Recovery Plan (ERRP) updates and includes the nation in the ongoing work and developments led by the President on the repair and resolution of key structural challenges and constraints to robust economic growth in South Africa. There is a keen understanding in the plan of the problems, issues and current limitations, but also of the solutions needed to overcome these, and a strong will to do so. The strong focus on what is needed to drive implementation takes this plan further than all the others before it, and while it has not been positively hailed by the markets, it is a more decisive approach. Four specific priority interventions whittled down from a large number are identified: infrastructure rollout, employment stimulus, reindustrialisation, expanded electricity generation The ERRP differs from National Treasury’s Economic Transformation, Inclusive Growth and Competitiveness Plan which focused on key themes to boost private sector led economic growth. The ERRP seeks to achieve economic growth of 3.0% on average over the next ten years, and provide direct actions to deal with the immediate impact of Covid-19. Concerns have centered around yet more plans without delivery in the past, but the President is showing strong commitment to implementation and the ERRP goals, and while it is not new information or objectives, is more achievable with the reforms and legislation the President is spearheading. Key however will be the actual achievement of a strong capable state, as SA has already had multiple plans and policies, but lacks implementation capabilities in the public sector. With a strong focus on delivery, the need for fiscal consolidation and so the reduction in government expenditure, ERRP should have received a more positive market response, but multiple, largely unfilled plans have gone before it which repeatedly disappointed markets. The reason the ERRP plan has more chance of success than those of the past decade is because substantial work has gone into it already, and a number of factors are partially achieved, and others are in process, as opposed the airy promises without of calculated deliverable metrics and supervision. Regulations are also in the crosshairs, particularly the reduction of red tape and improving civil servants productivity, specifically halving time for mining, prospecting, water and environmental licenses. The release of high frequency Spectrum is set for March next year, while private sector can participate in rail, including through granting third-party access to the core rail network and the revitalisation of branch lines. The MTBPS is expected to underpin the ERRP and so could engender a positive market response if it avoids hiking the debt projection up to a peak of 100%, and expenditure is materially cut. #BetterDirectors #WebinarWednesdays #BB@9
Rising credit risk - negative risk South Africa’s rising credit risk, reflective of increased investor concerns of a possible eventual debt default, is resulting in reduced foreign interest, with prices falling as supply balloons. After seeing a spike in bond yields in the second half of March, and a substantial widening in the differentials between South Africa’s longer and shorter dated fixed income securities, there has been only partial pull back as the deteriorated fiscal metrics worry investors. While the short end of the yield curve is anchored by low money market rates (the repo rate is at historic lows), the mid to longer-end has risen substantially, and this steepening in the yield curve reflects the widening spreads and perceived deteriorated creditworthiness. The differential between South Africa’s five year and ten year government bond yields is at 3.2% (from closer to 1.0% in the past several years), and at 6.3% between South Africa’s ten year government bond and the three month JIBAR rate (closer to 2.0% historically). The projected active scenario of the SBR for SA’s projected borrowings, shows a radical jump to 82.0% of GDP this fiscal year, and 87.4% of GDP by 2023/24, but even these figures are seen as too low by the markets. The govi’s (SA’s benchmark 10 year government bond) yield, at 1.46% higher since February 2018 is also reflecting the loss of foreign investor confidence in SA on the lack of fiscal consolidation, which was widely expected initially under a Ramaphosa Presidency. The reforms are gathering pace now but not fiscal consolidation. The crux here is lowering expenditure, as insufficient reforms have occurred to cause any substantial, sustained boost in economic growth that would result in sufficient revenue collection to achieve the active debt scenario. Specifically, in the face of the dire need to reduce expenditure, as the country already is experiencing loss of investor confidence in its deteriorated finances following years of over expenditure, the labour unions are lobbying strongly for salary and wage increases. If government is taken to court by the unions it has a reasonable chance of success with declaring force majeure South Africa has been more consistent in raising and achieving its higher debt projections, and then exceeding these expectations, than it has been in achieving planned higher growth, revenue collection or substantially reducing unemployment in the past decade #BetterDirectors #WebinarWednesdays #BB@9
EWC (Expropriation without Compensation)
The Presidential Advisory Panel has set out that EWC Agbiz/IDC agribusiness confidence index: capital investment
should apply to abandoned land, excessively indebted 100 Index, 50+ = rising confidence
land, underutilised land owned by SOEs, land held for
speculative purposes and land obtained through 90
criminal activity.
80
EWC would also apply to informal settlements, inner
city building with absentee landlords and farm equity 70
schemes. However, the proposed changes to the
Constitution, to enable government to expropriate 60
private property without compensation, has
contributed to the perception that EWC will weaken 50
property rights.
40
Investments are therefore likely to be held back for as
30
long as there is a perceived risk of expropriation of
private property. 20
.
10
0
#BetterDirectors 2001 2004 2007 2010 2013 2016 2019
Source: Agbiz Research
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#BB@9Clarity on EWC (Expropriation without
Compensation)
On the 9th of October 2020, the Department of Public Works and Infrastructure
published the Expropriation Bill, 2020 in the Government Gazette along with an
explanatory memorandum. This procedure is required by the Rules of the National Breakdown of SA’s land
Assembly before a Bill is tabled in Parliament by the Executive.
Owned by
The Expropriation Bill is required to set down a uniform process for all
Land owned by the state;
expropriations to take place as well as a uniform means to calculate just and
individuals; 31.2% 14.0%
equitable compensation. There is a common misconception that the Bill will
provide the state with the powers needed to expropriate land for land reform Other ; 9.0%
purposes. This is not so. The Minister has had the power to expropriate for land
reform since the mid-1990s but has seldom used these powers.
The latest publication signals' the Minister's intention to introduce the Bill into
Parliament. Once in Parliament, the Portfolio Committee on Public Works will host
public consultations. Once adopted by the National Assembly the Bill will go to the
National Council of Provinces (NCOP) which may call for public hearings in the
Land owned by
provinces before it is finally voted on and assented to by the President. This is still a Land owned by
companies or trusts; 23.9%
lengthy process and is unlikely to be finalised in 2020.
CBOs; 21.9%
The latest version of the Bill still contains the controversial section 12 (3) which
states that a court 'may' find it just and equitable to award nil compensation for land
expropriated under certain circumstances. It should be emphasised that the
following checks and balances are in place: PTO
.
• Source: Department of rural development and land reform, Agbiz
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#BB@9Clarity on EWC (Expropriation without
Compensation)
The Bill does not state that nil compensation will be awarded in the Land and agriculture in SA
listed instances, it simply states that it 'may' be just and equitable to
do so after considering all relevant factors. In other words, properties US$ (‘000)
falling under the listed instances are not automatically eligible for nil 12 000 000 SA’s agricultural trade balance
compensation, it simply states that factors such as abandoned land or
labour tenant claims should be a consideration to determine if it will be
just and equitable to award nil compensation; 10 000 000
Importantly, the state does not make this decision, the courts do. If the
state and the owner/rights holder cannot agree on compensation,
8 000 000
mediation must be arranged following which the courts have to decide
on what is just and equitable. The state must take the matter to court if
requested by the owner/rights holder.
6 000 000
Expropriation is always the last resort;
There is a procedural guarantee contained in the Bill which prevents 4 000 000
expropriation as the first option. The state can only legally initiate an
expropriation after negotiations to buy the property on reasonable
terms has failed; 2 000 000
Expropriation is not a short-cut for the state. The procedural
requirements contained in the Bill make expropriation so cumbersome
-
for the state that it will always be quicker, easier and arguably cheaper
for the state to buy property. Expropriation will likely only take place if
the owner refuses to sell on reasonable terms;
-2 000 000
.
Exports Imports Trade Balance
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#WebinarWednesdays • Source: Department of rural development and land reform, Agbiz
#BB@9Clarity on EWC Expropriation is only one of many options to obtain land for reform. Both the Presidential Advisory Panel on Land Reform and Agriculture, as well as the Minister have emphasised that expropriation is merely one option in the broader toolkit for land reform. The bulk of land reform acquisitions are likely to be based on purchase and sale. Recent developments to finalise the Blended Finance Scheme for land redistribution indicates that government prefers to go the route of voluntary sales and are looking in incentivise partnership approaches to land reform. Moreover, the Land Donations policy which is still at the drafting process also shows that the government is exploring numerous instruments to drive land reform in South Africa, and not solely focusing on expropriation. The extent to which expropriation is required will come down to the success or failure of these voluntary schemes. What is the biggest risk? The biggest risk is that a landowner/bond holder may have to rely on litigation to get compensation. It has already been stated that the courts will be the final arbiter of compensation and they have traditionally been reluctant to deviate substantially from market value. Although the Bill makes it possible for a court to award nil compensation (indeed that possibility already exists), they are likely to only do so under extreme circumstances if the current trend is to be used as an indication. To date, the courts have only sanctioned nil compensation where there is no impact on the owner (i.e. where an owner was not compensated for the space used by a farmworker to bury his relatives on the farm where he resides) or where the proceeds of crime are forfeited to the state (i.e. the asset forfeiture unit of the SAPS). So the biggest risk is that the state officials implementing the Bill may offer nil compensation if an owner's circumstances fall under section 12 (3) and leave it to the owner or bondholder to approach the courts for a determination. This may be costly and cumbersome. Moreover, this may dampen business confidence at a time where investments are needed to rebuild South Africa’s economy from the shock caused by the COVID-19 pandemic. #BetterDirectors #WebinarWednesdays #BB@9
Clarity on EWC The Bill does not rely on the Constitution to be amended The provisions of the Bill are intended to apply to the Constitution as currently drafted and may not be substantially affected if the Constitution is amended or not. The Bill makes provision for just and equitable compensation to be paid as per section 25 (3) of the Constitution. The 'nil compensation' clause does not replace just and equitable compensation but merely states that a court can determine that it is just and equitable to award nil compensation. Expropriation in the context of the broader land reform strategy Agbiz has always emphasized that the concept of 'expropriation without compensation' is not the desired path for agricultural development and as an organisation, we are not in support of it. This Bill, however, goes beyond the 'nil compensation' provisions. The Bill is simply a 'framework legislation' to regulate how multiple state entities must exercise its (existing) powers of expropriation, be it for agricultural purpose, human settlements and industrial development. Still, to reiterate a point we have indicated, the Bill does not state that nil compensation will be awarded in the listed instances, it simply states that it may be just and equitable to do so after considering all relevant factors. Against this backdrop, we do not think much emphasis for driving land reform should be placed on this Bill, rather on various options that the Presidential Advisory Panel on Land Reform and Agriculture had highlighted in their report , as well as various models from agribusinesses and other agricultural stakeholders. Managing expectations Whilst the provisions of the Bill do not pose a great deal of danger from a legal point of view, the political left may unduly raise expectations that the Bill will usher in widespread expropriation at nil compensation. Whilst we do not believe this will easily materialise, it may pose challenges if the expectations of the landless and political left are not aligned to the actual provisions nor the frequency in which it is likely to be used. Investor confidence will likely also be affected by sentiment so there is likewise a duty on commentators to temper their communication relating to the Bill. If the legitimate danger posed by the nil-compensation provisions are to be sensationalised, it can affect sentiment and the dangers it poses to investor confidence and investment may become a self-fulfilling prophecy. #BetterDirectors #WebinarWednesdays #BB@9
EWC Conclusion Conclusion The Expropriation Bill is a necessary addition to the statute book as the current Act is outdated and potentially unconstitutional. If the Bill is delayed further it could hinder the infrastructure projects if the state does not have a constitutionally-sound mechanism to acquire property for a public purpose/interest where the owner refuses to sell. Practically all governments around the world have legislation that enables expropriation for this reason. From a legal point of view, the Bill seems to provide for a sound process and contains several checks and balances in favour of landowners and bondholders. The controversy surrounding the Bill, and hence its potential negative effect on investor confidence, stems from the nil-compensation provision for land reform. The actual impact of this provision will largely depend on the extent to which the state invokes it and the willingness of the courts to award compensation that deviates markedly from market value. Expropriation will always remain the last option so the extent to which it is used will depend on the success or failure of other land reform programmes based on public-private-partnerships, which is government's preferred route at present. Theo Boshoff is head of Legal Intelligence at the Agricultural Business Chamber of South Africa (Agbiz) and Wandile Sihlobo is chief economist, also at Agbiz. #BetterDirectors #WebinarWednesdays #BB@9
Fundamentals of the South African economy
GDP vs BCI: Business Confidence leads growth
Index % y/y 20
80 15
10
60
5
0
40
-5
20 -10
-15
0 -20
2000 2001 2003 2005 2006 2008 2010 2011 2013 2015 2016 2018 2020
BCI (LHS) GDP % y/y (RHS)
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Source: seasonally adjusted Source: BER, Stats SA
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#BB@9Weak economic growth persists
SA’s economic growth has been weak and on a downwards trend, dropping from 3.0% y/y South Africa sees downward growth trend in the 2010-20 decade to date
to 0.2% y/y at the end of the last decade (2019), with potential economic growth declining
alongside. %
5
Fiscal stimulus has yielded little longer-term, government finances are deteriorated and SA
is increasely moving towards the C grade ratings, corruption has been rife, but a strong anti 3
corruption drive has begun.
1
Fixed investment growth is weak as business confidence has been depressed for a decade;
with the increased statism also crowding out private sector investment. Covid-19 has
-1
exacerbated this but SA is on an state led infrastructure drive.
The formal unemployment rate was close to 30% in Q1.20, versus the 21.3% reached in -3
2008. Q2.20 was 40% if calculated by the same methodology as the historical series, not
235 -5
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
The economy remains income driven, with activity centered in the services sector, while GDP growth Global financial crises Employment
deindustrialization on declining ease of doing business, has contributed to low growth.
• National SARB, Bloomberg
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#BB@9Weak institutions lower competitiveness, growth
The World Economic Forum’s (WEF) latest Global SA’s ranking out of 141 countries: best 1, worst 141
Competitiveness Survey shows South Africa’s institutional ranking
dropped to sixty seventh, from thirty ninth in 2007/08. Inflation
Terrorism incidence
The deterioration in the health of government and key SOE
finances has depressed business confidence. Credit ratings Healthy life expectancy
average sub-investment grade from the three key agencies. Digital skills among population
Hiring and firing practices
Real household income growth and the efficacy of corporate
boards also deteriorated over the past several years, and Flexibility of wage determination
corruption has proliferated. Co-operation in Labour-employer…
0 20 40 60 80 100 120 140
President Ramaphosa is committed to fiscal consolidation, faster,
inclusive growth, and the repair of SOE finances (without further
drain on government’s balance sheet).
It is expected to take a number of years to repair competitiveness, Pay and productivity
including substantial repair in the governance of key SOEs and Prevalence of non-tariff barriers
state institutions, as well as of their finances, and those of general
Property rights
government. Additionally, eliminating corruption is also necessary
to restore investor confidence. A quicker resolution would Imports % of GDP
dramatically boost sentiment, and so growth. Banks' regulatory capital ratio
Electrification rate
Ease of hiring foreign labour
0 20 40 60 80 100 120 140
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• Source: WEO, Global Competitiveness survey, October 2019 the 2020
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#BB@9Consumers: are constrained, growth in spend weak
Downward growth trend in household incomes, consumption and expenditure
While consumers may be seen to have benefited from a more 40
9 % %
modest inflation environment, this has come at the cost of lower 7 30
salary and wage increases, subduing real disposable income 5
growth. 3 20
1
Subdued real disposable income has quelled household -1 10
consumption expenditure (HCE), with HCE accounting for two -3
thirds of GDP in South Africa. -5 0
2002 2004 2006 2008 2010 2012 2014 2016 2018 2020
Household consumption growth Downwards phase in business cycle
There has been substantial financial hardship for most
workers and employers alike from the lockdown SA has Real disposable income growth Growth in household debt %
experienced in the fight against Covid-19.
Tight bank lending conditions versus the 2000s constrain
growth in household debt to around 0.7% y/y, and as a % of Salary and wage increases
disposable income it is still high at 73%, vs. closer to 50% in 15 13.9
the 2000s. % 12.8
11.9
Government spending is high, even in real terms, requiring 10 8.5
7.8
households to pay higher taxes, along with higher state 7 7.2 7.3
6.7 7
6.4
administered prices, such as water and electricity tariffs. 5.8
4.9
5 4.1 4.2
3.1
0
2006 2008 2010 2012 2014 2016 2018 2020
#BetterDirectors 2020Q3 2020Q2
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#BB@9 • Source: SARB,
BERHigh government borrowings: crowd out private sector fixed investment
Adjusting for inflation, and depreciation costs, corporates are not essentially saving
Foreign investors fund under 40% of SA government debt, much more
household savings are close to 0% of GDP, government is a
dissaver, and so corporates account for the bulk of savings in 350 000 -250000
R’m
SA.
Corporate savings in the banking system are lent out,
including to government (a key borrower), other corporates
and households as part of the banking sector’s normal lending
operations. -150 000 250000
1995 1999 2003 2007 2011 2015 2019
Government spending is high, and it is a dissaver, requiring Non-financial corporates net savings -real terms RHS
Non financial corporates net savings -nominal terms RHS
the private sector to also pay higher taxes, causing firms to Government net savings -real terms LHS
save more and invest less. Government bond yields are Government net savings -nominal terms LHS
relatively high.
% GDP
The Reserve Bank says “this is sometimes interpreted as an 7 -7
investment strike by business, but it is … better understood as 5 -5
‘crowding out’.” 3 -3
1 -1
Private sector corporate savings are a key funder of debt -1 1
-3 3
government debt in South Africa.
-5 5
-7 7
1995 2002 2009 2016
Non-financial corporate sector RHS Government LHS
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• Source: SARB, National Treasury
#BB@9Trade account tends to surplus on weaker imports
Current account deficit consists mainly of coupon and dividend payments to foreigners
4
SA’s trade account averaged a surplus since 2016, aiding rand appreciation, and so assisting % GDP
inflation lower. However, weaker imports reflect weak investment and weak HCE growth.
2
Slow export growth has remained evident, with little to no real (excluding distorting effects
from inflation) growth evident, reinforcing the declining trend in real GDP growth. Cad = 0
0% 2020.
SA exports have declined as a share of world trade (global exports), as SA has lost -2
competitiveness, with a drop in ease of business, and rising cost of doing business.
-4
Foreign purchases of SA bonds, on SA’s comparatively high yields, assist in financing the
current account deficit, as do foreign net purchase of equities in risk-on periods. SA sees
-6
significant foreign borrowings to supplement its domestic savings rate.
Transfers to BLNS countries (Botswana, Lesotho, Namibia, Swaziland) are +-R34bn a -8
quarter. 2005 2007 2009 2011 2013 2015 2017 2019
Current account Trade account
Income and services account Transfers to BLNS countries
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