The document discusses the importance of institutions for economic excellence and uses Zimbabwe as an example of the destruction of institutions leading to economic decline. It summarizes the state of key institutions and economic policies in South Africa, noting both areas of excellence and potential threats to institutions. Overall economic growth in South Africa has averaged 3.0% annually.

1. Authorised Financial Services Provider – FSP No: 859

2. Excellence in Finance Dawie Roodt 19 September 2008 Presented by:

3. Presentation Overview Financial Non-Excellence - A Modern Day Example & the Role of Institutions Financial Excellence in SA? - Institutions - Monetary Policy - Fiscal Policy - International Flows - Economic Growth

4. Economic Sophistication: How did it happen?

5. Dawn of Democracy Establishment of Institutions…

6. The Economic Role of Institutions Independent Judiciary Private Property Rights Freedom of Press Independence Central Bank Democratic Process

7. An Example of Financial Non-Excellence: Zimbabwe

8. Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Negative Impact on Investment Savings Confidence UNDERMINES Economy Take from the “ Haves ” (non-supporters) Give to the “ Have-Nots ” (supporters) IGNORES Private Property Rights

9. Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “ Haves ” (non-supporters) Give to the “ Have-Nots ” (supporters) Negative Impact on Investment Savings Confidence Media & Press: Report on Disapproval and Objections by Public BANS Freedom of Press Court & Legal System: Public tries to find Justice through legal system DESTROYS Independent Judiciary Start to Print Money Capital Dwindles …. DESTROYS Independence Central Bank IGNORES Private Property Rights UNDERMINES Economy Inflation: 200,000,000% ??

10. Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “ Haves ” (non-supporters) Give to the “ Have-Nots ” (supporters) Negative Impact on Investment Savings Confidence Media & Press: Report on Disapproval and Objections by Public BANS Freedom of Press Court & Legal System: Public tries to find Justice through legal system DESTROYS Independent Judiciary Start to Print Money Capital Dwindles …. DESTROYS Independence Central Bank IGNORES Private Property Rights Voting System : Public tries to vote dictator out DESTROYS Democratic Process UNDERMINES Economy Democracy: Mugabe-Style 1 Man, 1 Vote, 1 Candidate!

11. Destruction of Institutions Democracy: New Leader Appointed Ecstatic! Change Economic Policy: More ‘democratic’ Take from the “ Haves ” (non-supporters) Give to the “ Have-Nots ” (supporters) Negative Impact on Investment Savings Confidence Media & Press: Report on Disapproval and Objections by Public BANS Freedom of Press Court & Legal System: Public tries to find Justice through legal system DESTROYS Independent Judiciary Start to Print Money Capital Dwindles …. DESTROYS Independence Central Bank IGNORES Private Property Rights Voting System : Public tries to vote dictator out DESTROYS Democratic Process UNDERMINES Economy

12. Institutions in SA

13. Destruction of Institutions in SA? Private Property Rights 2008: Land Expropriation Bill

14. Destruction of Institutions in SA? Freedom of Press “ Mbeki received R30m”

15. Independent Judiciary Destruction of Institutions in SA? Zuma’s Mauritius Papers

16. Independence Central Bank Destruction of Institutions in SA? interest rate SARB Hikes 10 Times!

17. Destruction of Institutions in SA? Democratic Process POLOKWANE

18. Monetary Policy in SA

19. Excellence in Monetary Policy? 15.5% 14.5% 12.5% Prime (end of year) 11.6% 6.5% 4.6% CPIX 19.9% 22.2% 27.6% PSCE 20.0% 23.7% 23.1% M3 2008 2007 2006

20. Household debt to disposable income Source: SARB and own calculations 44.5% 50.2% 56.9% 59.4% Q208: 76.7%

21. Savings to disposable income of households Source: SARB and own calculations 9.2% 5.4% 2.6% 0.5% Q208: -0.5%

22. Excellence in Monetary Policy? 15.5% 14.5% 12.5% Prime (end of year) 11.6% 6.5% 4.6% CPIX 19.9% 22.2% 27.6% PSCE 20.0% 23.7% 23.1% M3 2008 2007 2006

23. Inflation: Old Basket Source: StatsSA and own calculations CPI Average: 2008 8.5%

24. Inflation: New Basket(?) Source: StatsSA and own calculations CPI Average: 2008 9.4%

25. Fiscal Policy in SA

26. Fiscal Excellence? Gold Deficit Surplus

27. Background Source: SARB and own calculations

28. Background

29. Spending Priorities Social Spending

30. Social Grants Beneficiary Numbers Source: 2008 Budget 2007: 26.0% of SA population Grant Type (‘000) 2003 2007 2008 (projected) % Change 2003-2008 Old Age Grant 2,022 2,195 2,225 10% Disability Grant 953 1,422 1,409 47.8% War Veterans Grant 4 2 2 -50.0% Foster Care Grant 138 400 446 223.2% Care Dependency Grant (disabled) 58 98 110 89.7% Child Support 2,630 7,863 8,208 212.1% Total 5,808 11,991 12,402 106.5%

31. Source: 2008 Budget Incentive to Save Less/Not at All? “ Igrant Yokuhlupheka”? Incentive for Girls to have Children? Unintended Consequences Increase Dependency on State Grant Type (‘000) 2003 2007 2008 (projected) % Change 2003-2008 Old Age Grant 2,022 2,195 2,225 10% Disability Grant 953 1,422 1,409 47.8% War Veterans Grant 4 2 2 -50.0% Foster Care Grant 138 400 446 223.2% Care Dependency Grant (disabled) 58 98 110 89.7% Child Support 2,630 7,863 8,208 212.1% Total 5,808 11,991 12,402 106.5%

32. Rescuing Bankrupt Companies SAA Denel Remain Bankrupt Limit Market Competition Denel’s Track Record: 2006: -R1.3 bn 2007: -R549 m 2008: -R347 m

33. Qualified Audit Opinions: General Report of the Auditor General on Audit Outcomes for the Financial Year 2005-06 Department 2005-06 2004-05 2003-04 2002-03 2001-02 2000-01 Independent Complaints Directorate ✓ Land Affairs ✓ ✓ Transport ✓ ✓ Labour ✓ ✓ ✓ Justice ✓ ✓ ✓ ✓ Parliament ✓ ✓ ✓ Health ✓ ✓ ✓ ✓ Defense ✓ ✓ ✓ ✓ Correctional Services ✓ ✓ ✓ ✓ ✓ Water Affairs & Forestry ✓ ✓ ✓ ✓ ✓ Home Affairs ✓ ✓ ✓ ✓ ✓ ✓

34. International Flows

35. Excellence in International Trade? -8.1% -7.3% -6.5% Current Account:GDP R187.4 R167.0 R102.0 Financial Account -R167.0bn -R145.0bn -R112.3bn Current Account 2008 2007 2006

36. Funding Non-Excellence? -8.1% -7.3% -6.5% Current Account:GDP R187.4 R167.0 R102.0 Financial Account -R167.0bn -R145.0bn -R112.3bn Current Account 2008 2007 2006

37. Balance of Payments Source: SARS and own calculations

38. Economic Growth

39. Excellence in Growth? Source: StatsSA and own calculations Average: 3.0%

40. GDP per Capita Source: International Monetary Fund, WEO 2008

41. Economic Slowdown = Good?? Get Rid of ‘ Dead Wood ’ Prevent Asset Bubbles – Property Market US! Help to Cap/Prevent Inflation Diminishing Wealth Effect – Help with Consumers’ Debt Position

42. South African Economy: Breakdown Source: StatsSA, Q108

43. Excellence in Banking Sector? Global Credit Crisis Bear Sterns, Lehman Brothers, Merril Lynch bankrupt or taken over AIG, Fannie Mae, Freddie Mac bailed out SA Banks Locally: No Direct Exposure International: Limited Exposure Thorough Assessment by Registrar of Banks in July 08 : “ financial system is sound ”

44. www.efgroup.co.za Authourised Financial Services Provider – FSP No: 859