Authorised Financial Services Provider – FSP No: 859

The Volatile Global EconomyWhere do we stand?

Presented by: Dawie Roodt

IEASA Conference17 June 2009

Where did the Trouble Start?

Nasdaq Bubble

U.S. Interest Rate

Source: I-Net, Efficient Research, 2008

Subprime MarketEmerges….

Federal Funds Rate

0.5

1.5

2.5

3.5

4.5

5.5

6.5

Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04

%

Subprime Housing Market

• ‘Subprime’ =–A loan that is offered at a rate

above prime (0.1% - 0.6% higher) to individuals who do not qualify for prime rate loans.

…… “NINJA” loans

It’s All In The PackagingSubprime Loan

RISK

CAPITAL

SellSell

Re-sell Re-sell

Sell

SellSell

Subprime BubbleBursts

Credit C

rises

Nasdaq Bubble

U.S. Interest Rate

Inflat

ion

Source: I-Net, Efficient Research, 2009

Federal Funds Rate

0

1

2

3

4

5

6

Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09

Consequences…..

• U.S. Institutions–Bear Sterns, Lehman Brothers, Merrill Lynch

bankrupt or taken over–AIG, Fannie Mae, Freddie Mac

bailed out• U.K. & Europe

– Northern Rock• Iceland = Bankrupt!

Credit Market Freeze……

Emergency Rescue Plans• U.S.

– $700bn bailout package– Cut interest rate to near zero– Fed doubles its auctions to banks ($900bn)– Quantitative Easing etc.– Huge fiscal stimulus – state debt soars

• U.K. & Europe– Purchase of preference shares in institutions– BOE & ECB Interest rate cut to

historic lows & more to follow? – Guarantees private & retail deposits– Quantitative Easing in U.K. etc.– Huge fiscal stimulus – state debt soars

G20 Meeting

IMF

Germany €400bn

China Cuts i%

$$$

Consequences..

Financial Markets

Real Economy

Economic Growth20

06Q

1

2006

Q2

2006

Q3

2006

Q4

2007

Q1

2007

Q2

2007

Q3

2007

Q4

2008

Q1

2008

Q2

2008

Q3

2008

Q4

2009

Q1

2009

Q2

2009

Q3

2009

Q4

2010

Q1

2010

Q2

2010

Q3

2010

Q4

-6.0

-4.0

-2.0

0.0

2.0

4.0

6.0

8.0

10.0Real GDP Growth, % change

World Advanced Emerging

Source: IMF World Economic Outlook, 2009

First Combined Recession since WWII

What About Us?

Economic Position; 2008 (PPP US$)

Other

U.S.

U.K.

Brazil, Russia, India

Source: World Fact Book, 2008

SpainCanada

“Other” – SA 30th

Countries Compared to Provinces

Country and Province GDP 2008 ($ Bn)

0 200 400 600South Africa

Gauteng

 Sudan

 Tunisia

 Ghana

Eastern Cape

Limpopo

Free State

 Côte d'Ivoire

 Senegal

 Burkina Faso

 Mali

Northern Cape

 Niger

 Malawi

 Swaziland

 Burundi

 Somalia

 Gambia

 Guinea-Bissau

 São Tomé and Príncipe

Source: UN

Slowing International Demand

SA Export Customers, 2008

EUROPE33.0%

U.S.14.0%

ASIA29.0%

AFRICA14.0%

Source: SARS, 2008

Other8.0%

Recession

Slower Growth

What Do We Export?

Five Biggest Export Categories by Value, 2008

0.0%

5.0%

10.0%

15.0%

20.0%

25.0%

PreciousMetals

Base Metals MineralProducts

Machinery Vehicles

Source: SARS, 2008

Mining

Manufacturing

Important Indicators2008 2009

CA Balance: GDP -7.5% -4.8%

Total Foreign Investment in SA, 2008

DirectInvestment,

R103.5bnOtherInvestment,

R131.7bn

Portfolio Investment,

R131.5bn

Source: SARB, 2009

C/A Deficit Funding

“Hot Money”

-DANGER-

??

Balance of PaymentsCurrent Account vs Financial Account

-10

-8

-6

-4

-2

0

2

4

6

8

10

1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008

% GDPBarclays/Absa

De Beers delisting

Sanctions liftedDebt Standstill

Source: SARS and own calculations

Important Indicators2008 2009

CA Balance:GDP -7.5% -4.8%Rand (end of yr) R9.52 R9.00

Dollar Strength

Dollar/Euro Exchange Rate (monthly)

1.15

1.25

1.35

1.45

1.55

Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09

US$

Source: I-Net, 2009

Rand Weakness

Rand/Dollar Exchange Rate (monthly)

6.006.507.007.508.008.509.009.50

10.0010.50

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

R/US$

Source: I-Net, 2009

Commodity Prices

Reuters/Jeffries CRB Index (monthly)

200

250

300

350

400

450

500

Jan-06

Apr-06

Jul-06

Oct-06

Jan-07

Apr-07

Jul-07

Oct-07

Jan-08

Apr-08

Jul-08

Oct-08

Jan-09

Apr-09

Source: I-Net, 2009

Mid-2002 level

Important Indicators2008 2009

CA Balance:GDP -7.5% -4.8%Rand (end of yr) R9.52 R9.00Inflation (CPI, average) 11.6% 7.0%

Interest Rate (Prime, end of yr) 15.0% 10.5%

CPI & CPIX, y/y %

3.0

4.5

6.0

7.5

9.0

10.5

12.0

13.5

15.0

Jan-07 Jan-08 Jan-09 Jan-10

CPIX CPI (new) Estm

Source: StatsSA and own calculations

CPI Average 2009: 7.0%

Inflation

Real Repo Interest Rate

-1.0

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

Jan-06 Jan-07 Jan-08 Jan-09

%

Real Repo Estm

Source: StatsSA and own calculations

Real Interest Rates

Real Interest Rates

-2.50

-2.00

-1.50

-1.00

-0.50

0.00

0.50

1.00

%

SA Australia Europe UK US

Main Interest Rates (April 2009)

Source: Efficient Research, 2009

Zero

Important Indicators2008 2009

CA Balance:GDP -7.5% -4.8%Rand (end of yr) R9.52 R9.00Inflation (CPI, average) 11.6% 7.0%

Interest Rate (Prime, end of yr) 15.0% 10.5%

HH savings -0.4% 0.1%

Household debt to disposable income

Household debt to disposable income of households

40

45

50

55

60

65

70

75

80

1970 1975 1980 1985 1990 1995 2000 2005

%

Source: SARB and own calculations

44.5%

50.2%

56.9%

59.4%

200876.7%

Savings to disposable income of households

Ratio of saving by households to disposable income of households

-2

0

2

4

6

8

10

12

1970 1975 1980 1985 1990 1995 2000 2005

%

Source: SARB and own calculations

9.2%

5.4%

2.6%

0.5%

2008-0.4%

Important Indicators2008 2009

CA Balance:GDP -7.5% -4.8%Rand (end of yr) R9.52 R9.00Inflation (CPI, average) 11.6% 7.0%

Interest Rate (Prime, end of yr) 15.0% 10.5%

HH savings -0.4% 0.1%Economic Growth (full year)

3.1% -1.5%

GDP market prices, q:q seasonal

-7

-5

-3

-1

1

3

5

7

2002 2003 2004 2005 2006 2007 2008 2009

%

Die Recession Topic

Source: StatsSA and Efficient Group forecast

TechnicalRecession

GDP SectorsSector Relative

Size2008Q4

q/q2009Q1% q/q

Agriculture, forestry and fishing 2.8 16.7 -2.9Mining and Quarrying 5.0 0.4 -32.8Manufacturing 15.1 -21.8 -22.1Electricity, gas, and water 2.0 -2.7 -7.9Construction 3.9 10.8 9.4Wholesale Retail Trade; Restaurants and Hotels

13.6 -0.2 -2.5

Transport, storage and communication 10.1 1.8 -1.8Finance, real estate and business services

20.3 3.0 -2.3

General government services 12.8 4.5 4.1Personal Services 5.5 2.8 3.1Taxes less subsidies on products 8.8 -3.1 -9.2GDP at Market prices 100.0 -1.8 -6.4

GDP SectorsSector Relative

Size 2008 Forecast2009

Agriculture, forestry and fishing 2.8 18.8 5.7Mining and Quarrying 5.0 -6.5 -13.5Manufacturing 15.1 1.2 -13.2Electricity, gas, and water 2.0 -1.2 -4.1Construction 3.9 13.9 9.8Wholesale Retail Trade; Restaurants and Hotels

13.6 0.5 -2.1

Transport, storage and communication 10.1 4.0 -0.1Finance, real estate and business services

20.3 5.0 0.0

General government services 12.8 3.9 3.8Personal Services 5.5 4.1 2.7Taxes less subsidies on products 8.8 2.1 -2.2GDP at Market prices 100.0 3.1 -2.3

Important Indicators2008 2009

CA Balance:GDP -7.5% -4.8%Rand (end of yr) R9.52 R9.00Inflation (CPI, average) 11.6% 7.0%

Interest Rate (Prime, end of yr) 15.0% 10.5%

HH savings -0.4% 0.1%Economic Growth (full year)

3.1% -1.5%

Fiscal Balance:GDP -1.2% -4.5%

Revenue and Expenditure

1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 201022

23

24

25

26

27

28

29

State Revenue and Expenditure, as % GDP

Revenue Revenue estExpenditure Expenditure est

Rein in ExpenditureRevenue stabilise Expenditure Stabilise

Revenue boomInflationary pressureGrowth slows

Spending Priorities Expenditure: Functional Classification (2008/09 Est.)

6%

15%

16%

8% 1%

19%

16%

8%

11%

54%

General Gov Protection Serv. Eco. & Infra.State Debt Cost Other EducationSocial Dev. Housing, Com Dev. Health

Social Grants Beneficiary NumbersGrant Type (‘000)

2003 2008 2009Projected

% Change2003-2009

Old Age Grant 2,022 2,219 2,324 15.0%Disability Grant 953 1,413 1,404 47.3%War Veterans Grant 4 2 2 -50.0%Foster Care Grant 138 443 487 252.9%Care Dependency Grant (disabled)

58 102 106 82.8%

Child Support 2,630 8,196 9,062 245.0%Total 5,808 12,374 13,386 130.5%

Source: 2008 Budget

2009: 13,4m recipients 28.0% of SA population

Fiscal Balance

-5

-4

-3

-2

-1

0

1

1996 1998 2000 2002 2004 2006 2008 2010

Budget balance adjusted for cash flows, to GDP

Source: SARB Forecast: Efficient Group

State Debt

10

20

30

40

50

1996 1998 2000 2002 2004 2006 2008 2010

Total national State Debt, to GDP

Source: SARB Forecast: MTBPS, Efficient

Domestic debt: R485.5bn

Foreign debt: R81.9bn

Housing Trends

Housing TrendsReal house prices vs Real (Prime) interest rates

-20

-15

-10

-5

0

5

10

15

20

25

30

1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007

%

Source: Absa House Price Index, StatsSA and own calculation

Low interest rates

Asian Crises

Pre-ElectionUncertainty

Rubicon Speech

Gold

Sub-Prime

Monthly Mortgage Repayments

Loan amount 15.5%(Dec ‘08)

11.0%(May ‘09)

Cumulative Reduction in Repayment (15.5% - 11.0%)

R100 000 1 354 1 032 322R500 000 6 769 5 161 1 608R1 000 000 13 539 10 322 3 217R2 000 000 27 078 22 022 6 434R3 000 000 40 616 33 033 9 651

(Calculated over period of 20 years)

Source: Absa Interest Rates and Property, May ’09

Household savings…?

Factors impacting the property market – Sellers’ View

5.0

10.0

15.0

20.0

25.0

30.0

35.0

High NetWorth

High Income Middle Income Low Income TOTAL

%

Financial Pressure Downscaling with Life stageChange in family structure Emigrating

Source: FNB Property Barometer, Q109

How Hot is the Market…?

Percentage of All Properties Sold at Less Than Asking Price

20

3040

5060

7080

90

2003Q4 2004Q4 2005Q4 2006Q4 2007Q4 2008Q4

%

Sold at Less Than Asking Price

Source: FNB Property Barometer, Q109

2009Q1: 86.0%

Average Time on Market (Weeks)

4.0

6.0

8.0

10.0

12.0

14.0

16.0

18.0

20.0

2004Q4 2005Q4 2006Q4 2007Q4 2008Q4

Weeks

Average length of time on market (weeks)

Source: FNB Property Barometer, Q109

5months

How Hot is the Market…?

1month

Absa House Price Index

Source: Absa House Price Index, May ’09

April 2009:

-10.7% y/y (real)

Proportion of First Time Buyers

12.0

16.0

20.0

24.0

28.0

32.0

2004Q4 2005Q4 2006Q4 2007Q4 2008Q4

%

Proportion of first time buyers

Source: FNB Property Barometer, Q109

2009Q1:15.0%

Any Opportunities…?

Proportion of Properties Bought-to-Let

10.0

12.5

15.0

17.5

20.0

22.5

25.0

27.5

2004Q4 2005Q4 2006Q4 2007Q4 2008Q4

%

Proportion of Properties bought-to-let

Source: FNB Property Barometer, Q109

2009Q1:11.0%

Any Opportunities…?

Asset Classes

Performance: Different Asset Classes

Source: Asset Performance Survey 2008, Credit Suisse Standard Securities

www.efgroup.co.za

Authourised Financial Services Provider – FSP No: 859