ECONOMIC &BUSINESS PERSPECTIVE FOR 2012 WITH SPECIAL REFERENCE TO THE FORTHCOMING NATIONAL BUDGET

1. ECONOMIC &BUSINESS PERSPECTIVE FOR 2012 WITH SPECIAL REFERENCE TO THE FORTHCOMING NATIONAL BUDGET Presented by Prof. Raymond Parsons BUSA Deputy CEO 15 February 2012

2. INTRODUCTION • Points of departure: 2011 Budget Speech and MTBPS; 2012 SONA • Since the MTBPS, two main characteristics: • Deteriorating global economic outlook – slower growth, higher risks; developing economies outpacing developed economies • Downward revision of 2012 growth forecasts for SA: • Reuters consensus of economists: 2.8% • SARB: 2.8% • IMF: 2.5% • Merrill Lynch: 2.5% • All forecasts for 2013: >3%

3. GLOBAL & REGIONAL OUTLOOK Lower growth, rising risks DANGEROUS NEW PHASE REMAINS FOR GLOBAL ECONOMY Economic activity weakened World Bank & IMF lowered global growth forecasts Eurozone: epicentre of crisis No longer banking/financial crisis, but sovereign debt crisis Emerging markets’ prospects uncertain – potential for extended periods of rapid growth SA set to expand at slower pace NEXT 3 MONTHS CRUCIAL FOR EUROZONE

4. DOMESTIC OUTLOOK • SA EXPECTED TO LAG DEVELOPING ECONOMIES IN 2012 • SARB revised its growth forecasts downward to 2.8% from 3% • BUSA has downgraded GDP forecasts from 3% to 2.7% • Economy should create 200 000 jobs p.a. in the formal sector – short of NGP targets • KEY DRIVER: DAMPENING OF GLOBAL GROWTH/DEMAND • CONSUMER INFLATION AT 6.1% • Main drivers of cost-push nature: food prices and administered prices (electricity) • Interest rates unchanged at 5.5% (lowest in 38 years) • PPI expected to slow • MANUFACTURING SECTOR UNDER PRESSURE • INCREASED EMPLOYMENT WELCOMED • But reflects increase in discouraged workers • GLOBAL/LOCAL ECONOMIC CONDITIONS COULD AFFECT BUSINESS CONFIDENCE • BUSA BELIEVES CORPORATE BALANCE SHEETS STRONG AND CLEAN • Earnings growth positive in several sectors • Liquidations and insolvencies have declined

5. THE EXCHANGE RATE Rand helped containing inflation in 2011, BUT volatile compared to emerging markets peers Rand’s strength & volatility hampering exports IMF: SA’s reserves below adequacy range, room exists for reserve accumulation High interest rates led to influx of foreign capital – kept the rand strong in 2011 Currency depreciation across emerging markets weakening SA’s competitiveness Challenge is how to benefit from capital inflows while minimising the costs of an overvalued rand BUSA supports steps to promote a more stable and competitive rand

6. ASSESSING GLOBAL COMPETITIVENESS • SA has declined in terms of relative competitiveness and “ease of doing business” • Grant Thornton survey: “overregulation and red tape” are biggest constraints to expansion • Internationally, SMMEs are responsible for job creation and innovation • SA must boost SMMEs as up to 80% of jobs can come from SMMEs • SMME development is crucial to economic growth & achievement of UN Millennium Goals

7. HOW MUCH ROOM HAS SA TO MANOEUVRE? • Despite economic downturn, emerging markets have room to manoeuvre in monetary and fiscal policy • SA ranked 10th from the bottom out of 27 countries in The Economist “wiggle-room” index • China, Indonesia and Saudi Arabia have the greatest capacity to use monetary and fiscal policy to support their economies • SA’s fiscal space shrinking • Focus should be on structural factors that can strengthen economic performance in the long term

8. THE FORTHCOMING 2012 NATIONAL BUDGET • BUSA looks for the 2012 Budget Speech to follow on 2011 MTBPS and 2012 SONA within a context of fiscal balance • 2012 Budget must provide clarity and direction around competing demands: • infrastructure spending • welfare payments • reducing the cost of doing business in SA • Business continues to support the principles outlined by the Finance Minister in 2011: • Counter-cyclicality • Debt sustainability • Inter-generational equity

9. THE FORTHCOMING 2012 NATIONAL BUDGET • Important Issues for Business: • Debt sustainability and threats to downgrade SA’s debt rating • Public sector wage bill • Balancing welfare spend against a limited tax base • Avoidance of tax shocks; update on carbon tax and NHI funding • Strengthening implementation and delivery – esp. of infrastructure • Promotion of PPPs by National Treasury Public-Private Sector unit • Administered prices • Sound provincial fiscal management • Youth wage subsidy • Promotion of small business and anti-corruption actions • Reaffirmation of government’s commitment to policy certainty

10. SUMMARY & CONCLUSIONS GLOBALLY • Global and SA economy adversely affected by Eurozone debt crisis • The only certainty in 2012 is uncertainty in the global economy • EU losses can be replaced by non-EU gains if the right economic and business strategies are followed • Africa must become an attractive destination for FDI LOCALLY • SA’s economic and business outlook positive but modest for 2012 • Growth insufficient to meet socio-economic challenges • 2012 must be a game-changing year for implementation • Focus should be on structural factors to promote growth and employment • Eurozone crisis highlights the peril of procrastination • Outcome of nationalisation debate important – BUSA is committed to enterprise driven economy • Important to acknowledge role of private sector in job creation

11. Thank you