Economist Mike Schussler delivered a presentation on the South African economy in a new world Super Cycle during the annual Road Freight Convention in Limpopo, South Africa.

1. The SA Freight Industry
during the Super Cycle
down turn.
What the perfect storms means
particularly for the freight
industry
1
Economists Dotcoza6/1/2016
SA economy in a new world
Super Cycle

2.  Background –World economy.
 Commodities.
 Super Cycle.
 SA commodities.
 SA economy.
 Mining.
 Manufacturing.
 Freight
 A quick review of some forecasts and what it means.
2

3. 3

4. Year/institu
tion
World
Bank
IMF The
Economist
OECD UN
2015e 2.4 (2,8) 3,0 2,4 2.9 2,4 (2,9)
2016 2.9 (3,3) 3.2 (3.6) 2,3 3.0 (3,3) 2,9 (3,1)
2017 3.1 (3,2) 3.5 (3.8) 2,6 3.3 (3,6) 3,2
2018 3.1 3.6 (3,9) 2,7 3.6
2019 3.8 2,3
2020 3,8 2,6
2021 3,9
4
2015 is the worst year since 2009 (on IMF data). Forecasts for 2016 may be down graded still
and apart from 2009 may be the worst since 1993. If 2016 and 2017 are down graded with
0.7% then this is the worst three years of growth since 1980-3.

5.  All recent estimates and forecasts are showing
slower growth than at anytime since 2009 for 2015
and very likely for 2016 too.
 Currently growth in the world is forecast by all
official agencies to be around 3% down from 3,75%
long term average.
 Growth forecasts also tend to decline over time and
growth may even be weaker than the 2,9% estimate
of 2015! 5

6. The long wave
commodity story.
We are in the depth of the
Super Cycle downturn at
present – very few
commodities are in an upward
move. Maybe coffee or
something new but overall ALL
indices are down.
Prices are low and getting
lower quicker than before and
that is of concern.
6

7. 7

8. 8
60
80
100
120
140
160
180
200
220
1887
1891
1895
1899
1903
1907
1911
1915
1919
1923
1927
1931
1935
1939
1943
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
The Long-Term Economist all commodity dollar index is
deflated by US GNP deflator. It shows four peaks
followed by four declines. The latest decline is the fastest
in real terms for the last 130 years over any four year
period.

9. 9
-50%
-25%
0%
25%
50%
75%
100%
125%
150%
1891
1895
1899
1903
1907
1911
1915
1919
1923
1927
1931
1935
1939
1943
1947
1951
1955
1959
1963
1967
1971
1975
1979
1983
1987
1991
1995
1999
2003
2007
2011
2015
Four year nominal % change
Biggest decline since 1932
Why we never got the 100% plus
increase in this Super cycle peak
I am not sure of but it still is a
clear peak.

10. 10

11. 11

13. Looking at South African mineral exports and what the effect of that is on
SA.
13

14. 14

15. 15

16. 16

17. 17

18. 18

19. How the transmission of commodity prices works its way through the SA
economy.
19

20. 20

21. 21

22. 22

23. 23-2.0%
-1.0%
0.0%
1.0%
2.0%
3.0%
4.0%
5.0%
6.0% Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15

24. 24-10,000
-5,000
-
5,000
10,000
15,000
20,000
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15

25.  Here employee costs would include Salary; UIF;
Skills levy; pension; accommodation etc.
 Normally one would expect that the return would be
say above a bank rate of return or at least 33%
above employee costs.
 This has not been the case since March 2013.
 Since September 2015 there have only been losses.
 This spells trouble for employment in the mining
sector. 25

26. 26
35%
23%
3%1%
3%
1%
8%
7%
20%
Purchases
Employment costs
Interest paid
Royalties, franchise fees, copyright,
trade names and patent rights paid
Rental/leasing of land, buildings and
other structures paid
Hiring/leasing for plant, machinery,
vehicles and other equipment paid
Depreciation
Losses on assets/investments sold or
revalued
Other expenditure

27.  In the mining sector employee costs are the 2nd
biggest cost after purchases from other sectors in
the economy.
 Both Purchases from other sectors and employees
are going to decline.
 While leases and rent will remain the same, the big
costs that will have to be cut will firstly be in
purchases from others as agreements run out and
employee numbers will decline. 27

28.  Less purchases from the rest of the Economy.
 Already the R204 billion spent in 2015 was just 6 more
than the previous year and the last quarter was 4% less
than in 2014.
 A similar trend is happening in other expenditures.
 Employee costs increased with 16.8% which is
unsustainable in the present circumstances.
 This is being cut back and that means retail and other
sectors in mining areas will feel the impact.
28

29. Economists Dotcoza 29
6/1/2016

30. 30

31. www.Economists.co.za 31

32. 32
10.6%
11.9%
14.5% 14.6%
11.5%
9.0%
8.2%
8.7%
7.5%
8.0%
5.7%
0.0%
2.0%
4.0%
6.0%
8.0%
10.0%
12.0%
14.0%
16.0%
2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015*
Net profit before taxes and dividends Return on Assets

33. 33
5.0%
5.5%
6.0%
6.5%
7.0%
7.5%
8.0%
8.5%
Dec-10
Mar-11
Jun-11
Sep-11
Dec-11
Mar-12
Jun-12
Sep-12
Dec-12
Mar-13
Jun-13
Sep-13
Dec-13
Mar-14
Jun-14
Sep-14
Dec-14
Mar-15
Jun-15
Sep-15
Dec-15

34.  Employment levels are bound to decline in many sectors
(Not all) but practically the more older industries as we
have discussed.
 This time there will not be a huge increase in
Government employment of over half a million
government employees that were added to the payroll.
 These job losses will not happen over a one year period
but will probably take at least half a decade to play
themselves out. 34

35. Under pressure
35

36. 36
-15%
-10%
-5%
0%
5%
10%
15%
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
Percentage change rail payload 3 month moving average on Trend
Percentage change Rail payload trend line 3 month

37. 37
-20%
-15%
-10%
-5%
0%
5%
10%
15%
Jan-09
May-09
Sep-09
Jan-10
May-10
Sep-10
Jan-11
May-11
Sep-11
Jan-12
May-12
Sep-12
Jan-13
May-13
Sep-13
Jan-14
May-14
Sep-14
Jan-15
May-15
Sep-15
Jan-16
Percentage change Road Freight for contract payload rolling 3 month
average
Percentage change Road payload
3 times 3 month average trend

38. 38-20%
-15%
-10%
-5%
0%
5%
10%
15%
20%
25%
30%
Nov-2008
Feb-2009
May-2009
Aug-2009
Nov-2009
Feb-2010
May-2010
Aug-2010
Nov-2010
Feb-2011
May-2011
Aug-2011
Nov-2011
Feb-2012
May-2012
Aug-2012
Nov-2012
Feb-2013
May-2013
Aug-2013
Nov-2013
Feb-2014
May-2014
Aug-2014
Nov-2014
Feb-2015
May-2015
Aug-2015
Nov-2015
Feb-2016
Twenty foot containers volumes
Imports are gone and exports are

39. 39-15%
-10%
-5%
0%
5%
10%
15%
20%
Mar-2003
Sep-2003
Mar-2004
Sep-2004
Mar-2005
Sep-2005
Mar-2006
Sep-2006
Mar-2007
Sep-2007
Mar-2008
Sep-2008
Mar-2009
Sep-2009
Mar-2010
Sep-2010
Mar-2011
Sep-2011
Mar-2012
Sep-2012
Mar-2013
Sep-2013
Mar-2014
Sep-2014
Mar-2015
Sep-2015
Mar-2016
SA ports break bulk volumes

40. 40

41. 41

42. Weak Growth, higher inflation and some thinking needed.
42

43.  GDP stagnant or in decline.
 2017 will be back to around 1.2%.
 No growth faster than 2.5% in next 5 years.
 Consumer is the only relatively robust side at present
▪ Not Durable goods .
 Inflation will rise in 2016/7 – about 7% in both years.
▪ Rate will peak at 11.5%
 R18 very likely in next 2 years.
43

44. Year/
institution
Beeld World
Bank
SARB IMF National
Treasury
Investec
2015e 1,3 1,3 1.3 1.3 1.3 (1,5) 1,3
2016f 0,4 (0.5) 0,8 (1.4) 0.8 (0.9) 0.6 (0,7) 0,9 (1,7) 0,7
2017f 1,2 1,1 (1,6) 1.4 (1.6) 1.2 (1,8) 1,7 (2,6) 1,4
2018f n/a 1,6 1.8 2,1 2,6 1,5
2019f 2,4 2,2
2020f 2,4 2,5
44

45.  Forecast 6.6% this year and 6.4% next year and
back to 5.5% in 2018 from SARB.
 Most others agree with similar numbers.
 I think higher at 7% or even more.
 Pressure is on in other ways as say things we did not pay
for are not paid for say toll roads and parking.
 But problem is not just inflation; it is that we are struggling
to compete too.
45

46.  South Africans will be 1% richer in 2021 than in
2008.
 The average citizen in the world will be 17% richer.
 Unemployment remains over 25% and that would
mean the actual numbers increase as our adult
population is growing with about 1.8% a year.
 By 2020 broader unemployment may reach 10 million!
46

47. 47

48. The Perfect storm for
SA economy.
Drought.
Commodity crash.
Rand crash.
Haphazard governance.
Too many rules and
corruption.
Minimum wages.
Carbon taxes.
Government deficit.
Downgrades.
……….
Now we are talking or is
it shouting
48

49. A crisis is what gets one working on solutions.
49

50. And Now we added
another problem!!!
Our latest
problem –What
can one say…
50
I need
your
help mr
public
Hurt my
friends I
will arrest
you…
Hehehe.