private and confidential international banking forum ......real estate, business services tourism...

Private and confidential

International Banking Forum, Italy June 2011

UBI Banca

South Africa

Yvette Babb

Emerging Market Strategist

Standard Bank Research: Africa

Global Markets

Standard Bank

Corporate & Investment Banking

Johannesburg

South Africa


South African and African Economic Overview

2Global position

3Africa

4The world is turning to Africa...

Average real GDP growth during 2010-112

Below 1

Between 1 and 3

Between 3 and 5

Above 5

Insufficient data

Source: “What’s driving Africa’s growth’ –McKinsey, Economic Intelligence Unit, World Economic Outlook (International Monetary Fund)

Note

1. Countries coloured grey have been excluded from our analysis

2. IMF staff estimates

Africa is now among

the world’s most

rapidly growing

economic regions

The financial crisis

has largely left the

continent untouched

Overview Strong growth in Sub-Saharan Africa1

Africa’s historic real GDP growth (%)

In the last decade, Africa emerged as one of the world‟s fastest

growing economic regions

Real GDP grew by 5.3% compounded annually from 2000

through 2008, more than twice its pace in the „80s and ‟90s

Sectors that have benefited include telecommunications,

banking, retail and construction

Industries continue to do well, bolstered by surging private-

investment inflows

While many of Africa‟s 50-plus individual economies face

serious challenges, Africa‟s collective GDP reached an

impressive USD1.6 trillion in 2008 (Roughly equal to Brazil or

Russia)

7,2

4,9

7,1

6,2 6,4

7,2

5,6

2,8

5,0 5,5

0

1

2

3

4

5

6

7

8

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011f

%

Real GDP growth (%) CAGR (%)

5

24%

13%

12%

10%

9%

6%

6%

5%

5%

2%

2%

6%

0% 5% 10% 15% 20% 25% 30%

Resources

Wholesale & retail

Agriculture

Transport, telecommunications

Manufacturing

Financial intermediation

Public administration

Construction

Real estate, business services

Tourism

Utilities

Other services

Sector share of change in real GDP, 2002 - 2007 (%)

A changing growth story... more than just a resource boom

Government actions to stimulate markets

Privatised state-owned enterprises

Increased openness of trade

Lowered corporate taxes

Strengthened regulatory and legal

systems

Investment in critical physical and social

infrastructure

Improved political stability

Government action to end armed

conflicts

Political stability emanating from halted

hostilities

Growing experience and democratic,

politically strong governments

Improved macroeconomic conditions

Reduced inflation from high, double-digit

levels of 1990s

Reduced foreign debt levels by one

quarter

Reduced budget deficits by two thirds Key s

tru

ctu

ral c

ha

ng

es

Source: “What’s driving Africa’s growth”, “Capturing Africa’s business opportunity” - McKinsey

Growth rates of 27 of

the continent’s 30

largest economies

illustrate that

countries with and

without significant

resource exports

experienced similar

GDP growth rates….

Overview Principal drivers of Africa’s growth to date

Sector change in real GDP, 2002 - 2007

While Africa‟s increased economic momentum is widely

recognised, its drivers and staying power are less

understood

Africa has benefited from a surge in commodity prices over

the past decade, however, this boom explains only part of

Africa‟s broader growth story

Natural resources, and related government spending they

financed, generated less than a third of Africa‟s GDP growth

from 2000 through 2008

The remaining two thirds came from other sectors, including

wholesale and retail, agriculture, transportation,

manufacturing and services

6

7.7

23.1

13.6

17.415.9

23.4

20.3

31.5

41.9

0%

5%

10%

15%

20%

25%

0.0

5.0

10.0

15.0

20.0

25.0

30.0

35.0

40.0

45.0

2000 2001 2002 2003 2004 2005 2006 2007 2008

%

US

Db

n

Net direct investment (USDbn) CAGR (%)

Changing FDI patterns... a catalyst for Africa’s growth

Source: “The case for investing in Africa” , “Capturing Africa’s business opportunity” – McKinsey, World investment Report 2010 – United Nations, International

Monetary Fund

Range Inflows

Above USD3bn Angola, Egypt, Nigeria, South Africa, Sudan

USD2bn to

USD2.9bnAlgeria, Libya, Arab Jamahiriya and Congo

USD1bn to

USD1.9bn

Tunisia, Ghana, Equatorial Guinea,

Morocco

USD500mn to

USD900mn

Zambia, DRC, Mozambique, Uganda,

Niger, Tanzania, Madagascar, Namibia

USD200mn to

USD400mn

Chad, Cote d'Ivoire, Liberia, Cameroon,

Mauritius, Seychelles, Botswana

Studies indicate that

the returns on

African investment s

are higher than in

other developing

regions…

Overview

Africa‟s impressive growth in the new millennium

accompanied and driven by considerable foreign direct

investment (“FDI”)

– FDI more than tripled (2001 – 2008)

In a comprehensive study of publicly traded

manufacturing and service sector companies operating

in Africa during 2002 to 2007, it was found that their

average return on capital was approximately two-thirds

higher than that of comparable companies in China,

India, Indonesia, and Vietnam

In another study, companies in the United States were

achieving a higher return on their African investments

than on those in other regions

In an analysis of a series of surveys of several thousand

manufacturing firms around the developing world, it was

found that, at the margin, capital investment had a

higher return in Africa

While Africa‟s resource sectors have drawn the most

new foreign capital, it has also flowed into other sectors,

and across a broad range of countries

– In eastern and northern Africa, new investment

has arrived in non-resource sectors such as

tourism, manufacturing, financial services,

telecommunications, and construction

– In addition, smaller but high-performing countries

such as Ghana, Namibia, and Zambia have

caught the attention of investors

Distribution of FDI flows among economies

Africa’s net direct investment

7Other emerging economies: driving investment flows to Africa

79.0%

6.7% 5.1% 5.5%

72.1%

15.2%

4.9%0.7%

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

Developed economies

Asia Africa Latin America & the Caribbean

Sh

are

in w

orl

d F

DI c

on

trib

uti

on

(%

)

1995 to 1999 2000 to 2008

Source: “The case for investing in Africa” , “Capturing Africa’s business opportunity” – McKinsey; World investment Report 2010 – United Nations

2,609

2,528

611

332

48

45

44

35

14

0 500 1,000 1,500 2,000 2,500 3,000

South Africa

China

Malaysia

India

Taiwan

Republic of Korea

Chile

Turkey

Brazil

USDm

Major developing economy investors in Africa, 2006 - 2008

In recent years,

other emerging

economies have

played an important

role in directing

investment to

Africa…

Overview

While developed economies have led much of the investment in Africa in earlier years, the expansion of FDI from developing

economies has become a welcomed trend in recent years

Between 2001 and 2008, Africa attracted impressive inflows from the Gulf and emerging Asia, namely, China and India

In particular, FDI flows from developing Asia to Africa now account for a major part of inter-regional FDI flows among developing

countries

Asian economies accounted for 15.2% of total FDI flows to Africa during 2000 to 2008, an 8.5% increase from 1995 to 1999

– China, in particular, has become one of the most significant foreign investors in some Sub-Saharan African countries

– India and Malaysia are also substantial sources of FDI to the region

The global financial crisis has reinforced this pattern, as investments from developing nations proved more resilient than FDI from

developed countries

Distribution of inward FDI flows Major contribution to African FDI inflows

8South Africa

9South Africa in a nutshell

Sources: Markets Standard Bank Research

Population: 50m

Area: 1 219 090 square kilometers

Arable land: 12.1% of total

Capitals: Pretoria (administrative)

Cape Town (legislative)

Bloemfontein (judicial)

Languages: 11 official languages, English spoken in official and commercial public life

Democracy:

• Vigorous multi-party democracy with independent judiciary and press.

• The highest law is the Constitution, with a Bill of Rights.

• The African National Congress (ANC) in alliance with umbrella trade union

Cosatu and Communist Party), the largest political party with about 2/3 of the

votes.

• Of the 9 provinces, 8 are under the control of the ANC, with only the Western

Cape governed by the Democratic Alliance (DA).

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights

Portfolio investment

steady

Foreign shareholding

on the JSE

Growth performance

Banking sector

performance


GDP Population and povertySouth Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

0

15

30

45

60

0

75

150

225

300

Indonesia Vietnam Egypt Turkey South Africa

Colombia

%Millions

GDP (2010, USD bn)

Poverty headcount ratio at $2 a day (PPP) (% of population) (rhs)

0,0

2,5

5,0

7,5

0

220

440

660

880

Turkey Indonesia South Africa

Colombia Egypt Vietnam

%USD bn

GDP (2010, USD bn) GDP growth 2006-10 (rhs)

GDP growth 2011-12 (rhs)

• South Africa was the slowest growing country out of the CIVETS group in the period 2006 to

2010. Growth is likely to accelerate in South Africa, as in Turkey and Indonesia, where

growth will continue to outpace that of South Africa

• The relatively high GDP per capita, of USD10,500 on PPP basis (only second to Turkey

UUSD13,464 in CIVETS group) , masks the high level of inequality and poverty

Sources: IMF, World Bank, Standard Bank Research

Note: Poverty data for latest available period. Egypt and Turkey,

2005; Colombia and RSA, 2006; Vietnam, 2008; Indonesia, 2009


Sources: Treasury, SARB, Standard Bank Research

• The country has abundant natural resources, well-developed financial, legal,

communication and energy sectors and stock exchange ranked among the top 20 in

the world.

• South Africa weathered the recent recession relatively well. So special measure

were taken to protect the banking or other sectors. Nonetheless, country fell into a

recession for the first time in 17 years in Q1:09.

-15

0

15

30

2000 2003 2006 2009 2012

% y/y

Netex GFCF GCE PCE GDP

-30.000

-20.000

-10.000

0

10.000

2003 2006 2009 2012

USD m

Transfers IncomeServices Trade balanceCA

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance


Sources: SARB, StatSA, Standard Bank Research

Monetary policy:

• South African Reserve Bank targets headline CPI

• target range 3% - 6%.

• Current inflation is 4.2% y/y (Apr), from lowest point in almost 5-y of 3.2% y/y in

Sep 10

• The local currency, which tends to fluctuates considerably, floats freely.

• Current prime interest rate is 9% and expected to remain at this level for the rest of

the year.

0

5

10

15

gen-00 lug-02 gen-05 lug-07 gen-10

%y/y

Repo Headline inflation

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

-6

-4

-2

0

2

2005 2006 2007 2008 2009 2010

% of GDP

Fiscal deficit


Sources: FDi Markets Standard Bank Research

Some country strengths:

• stable government and strong governance indicators

• Continuation of investment grading by ratings agencies

• Internationally recognised financial, IT and telecoms sectors

• Secure legal environment for foreign investors

• Independent judiciary

Some weaknesses:

• Some violent protest against poor service delivery

• Poor education system

• Extremely high level of unemployment (25%)

• political utterances from political left of government (nationalisation)

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

14

Global FDI flows: emerging markets large recipients

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

Sources: Standard Bank Research, UNCTAD

• Global inflows of FDI amounted to USD1.114bn in 2009 and increased by 1.0% in 2010 to

USD1.122bn.

• There was a strong rebound of FDI flows to developing Asia and Latin America in 2010, which

partially offset the decline in inflows to the developed world.

0.0

0.5

1.0

1.5

2.0

2.5

1995 2000 2005 2010

USD bn

Developed economies Developing economies Transition economies

53%

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

15FDI flows into SA promising

• FDI into SA amounted to R11.4bn in 2010 from R45.4bn in

2009.

• While the smaller inflow in 2010 is reflective of uncertainty

regarding the global recovery, prospects in 2011 are more

promising.

• SA ranks 19th in a league table of “top priority host economies”

for FDI (World Investments Prospects Survey 2010 – 2012).

Sources: World Competitiveness Report; SARB; Standard Bank Research

-30

0

30

60

90

2001 2004 2007 2010

FDI into SA

R bn

Investment climate

According to the World Competitiveness Report 2010-

2011, SA is ranked (out of 139 countries):

• 9th – financial market development

• 1st – regulation of securities exchanges

• 6th – soundness of banks

• 7th – availability of financial services

• 7th – financing through the local equity market

• 39th – venture capital availability

• 41st – ease of access to loans

• 43rd – affordability of financial services

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

16FDI into SA - highlights

Sources: FDi Markets Standard Bank Research

• Between January 2003 and November 2010, a total of 625 investment projects from

463 companies were recorded.

• The average number of jobs created per project was 216.

• The leading sector was Software & IT services, which accounted for 12% of projects.

• The leading business activity was Sales, Marketing & Support, which accounted for

25% of projects.

• The top ten companies accounted for 12% of all investment projects with General

Motors (GM - United States), Anglo American (UK) and Volkswagen (Germany) among

the top 10 companies.

• The top three source markets for outward investment were United States, UK and

Germany, providing 22%, 18% and 8% of investment projects respectively.

• The top three destination cities for inward investment were Johannesburg, Cape Town

and Durban, providing 28%, 16% and 4% of investment projects respectively.

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

17

Portfolio investment steady

Sources: Bloomberg; SARB; Standard Bank Research

• Portfolio investment into SA was strong at

R107.2bn in 2009 and R107.9bn in 2010.

• Investment interest centred around the mining,

communications and banking sectors.

• The steady increase is indicative of confidence in

the future of the economy.

• There was a strong recovery in the equity market

in 2009.

• The JSE All Share Index is current close to pre-

crisis levels, coming close to all-time high‟s in early

2011.

-130

-65

0

65

130

195

2001 2004 2007 2010


R bnSouth Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

6.000

8.000

10.000

12.000

14.000

15.000

20.000

25.000

30.000

35.000

feb-09 apr-10 giu-11

JSE All Share DJ Industrial Ave. (rhs)

Index Index

18Foreign shareholding on the JSE

Sources: JSE; Standard Bank Research

• Foreign influence on the JSE has increased

strongly since 2003, with the search for “yield”

intensifying.

• Emerging markets, including SA, thus outperformed

their developed market counterparts.

• There were strong net inflows into the equity market

since 2005 (2008 was the exception).

• The bond market also received a substantial inflow

in 2010. A net inflow of R69bn was recorded in 2010

following an inflow of R28bn in 2009.

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

-80

-40

0

40

80

2005 2006 2007 2008 2009 2010

Net foreign transactions on BESA (Rbn)

Net foreign transactions on JSE (Rbn)

R bn

-100

0

100

200

300

gen/05 lug/06 gen/08 lug/09 gen/11

Foreigners net purchases of SA stocks

R bn

19

Foreign shareholding on the JSE

Sources: Investec Securities; Standard Bank Research

• Foreign ownership on the JSE has grown steadily since 1995, from approximately 10% to over 35% in 2010.

5

15

25

35

45

1995 1999 2003 2007

Foreign ownership of JSE (estimated)

%

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

20Sector growth performance 2000 - 2010

Sources: Stats SA

• Strongest growing sector in 200 – 2010 was the construction sector, followed by the financial sector.

• Surprisingly, the mining sector was the worst performer.

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

50

100

150

200

250

00 01 02 03 04 05 06 07 08 09 10

Agric

Mining

Man

Elect

Const

Trade

Transp

Fin

Index

21GDP growth: slowly emerging from the Great Recession

Sources: Stats SA

• South Africa entered into recession for the first time in 17 years in Q1 2009.

• We expect real growth of around 4% in 2011

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Growth performance

Banking sector

performance

-8.0

-4.0

0.0

4.0

8.0

2008 2009 2010 2011

% q/q % y/y

22Banking sector performance

Sources: Standard Bank Research; Annual and interim results

• SA‟s biggest four banks (Standard Bank, Nedbank, Absa and Firstrand) reported that combined

headline earnings increased by 12.9% to R33.9bn in 2010.

• The average return on equity in 2010 was 14.5% compared to 13.3% in 2009.

• The largest contributor to profit growth was a 31.2% (R10.9bn) reduction in bad debts.

South Africa in a

nutshell

Global FDI Flows

FDI flows into SA

promising

FDI into SA –

highlights


steady


on the JSE

Banking sector

performance

0%

20%

40%

60%

80%

100%

0

120

240

360

480

600

H1:06 H1:07 H1:08 H1:09 H1:10 H1: 07 H1:08 H1:09 H1:10 H1:11 H1:06 H1:07 H1:08 H1:09 H1:10 H1:06 H1:07 H1:08 H1:09 H1:10

Absa FirstRand Nedbank Standard Bank

NPLs (ZARm) Impairment charge /NPLs (rhs)


Trade – South Africa

24

Exports

Top 10 Trading Partners 2010 by value

Position Country ZAR bn % of total

1 China 58.6 10.0

2 USA 52.4 9.0

3 Japan 43.3 7.9

4 Germany 42.7 7.3

5 United Kingdom 26.6 4.6

6 India 22.2 3.8

7 Netherlands 17.2 2.9

8 Switzerland 16.9 2.9

9 Zimbabwe 15.1 2.6

10 Mozambique 13.9 2.4

Source: Department of Trade and Industry

25

Imports

Top 10 Trading Partners 2010 by value

Position Country ZAR bn % of total

1 China 84.1 14.4

2 Germany 66.8 11.4

3 USA 42.1 7.2

4 Japan 31.0 5.3

5 Saudi Arabia 23.7 4.1

6 Iran 23.0 3.9

7 United Kingdom 22.2 3.8

8 India 20.8 3.5

9 France 17.3 3.0

10 Nigeria 16.1 2.7

Source: Department of Trade and Industry

26Global SWIFT Volume Growth – MT103 and MT700

Standard Bank

2010

Sent

MT103: 16.0%

MT700: -1.7%

Received

MT103: 9.0%

MT700: -1.5%

-3,7%

5,6%5,0%

-1,5%

6,1%

-3,7%

-6%

-3%

0%

3%

6%

9%

2009 2010 2011 YTD (April)

%, y/y

MT103 MT 700

Source: SWIFT

2011 YTD (May)

Sent

MT103: 15.0%

MT700: -7.3%

Received

MT103: 10.0%

MT700: -8.2%

27Exchange Control – South Africa

Exchange Control Regulations 1961

The Exchange Control Rulings are issued to Authorised Dealers by the Financial

Surveillance Department of the South African Reserve Bank

Under powers delegated by the Minister of Finance and contain the conditions,

permissions and limits applicable to the transactions in foreign exchange which

may be undertaken by Authorised Dealers in foreign exchange and Authorised

Dealers in foreign exchange with limited authority, as well as details of related

administrative responsibilities.

Control of Imports

Control of Exports

Capital Transfers

Merchant trade

Non Resident Accounts

Key points

28

New Era as South Africa joins BRICS

From BRIC to BRICS – South Africa: the new reality

Recognition of South Africa‟s huge potential

Gateway to Africa

Powerful bloc of emerging economies will account for 61% of global growth in 3 years time - IMF

South Africa will benefit from and contribute to the ambitious goal

Fastest growing region after China and India - McKinsey

New Growth Path

Growing for the future – 15 years of achievement

The New Growth Path “Creating and even more competitive, fair and socially cohesive economy”

Spur trade, innovation and economic growth

Fast growing emerging economies

Attractive investment destination

Investment Gateway into Africa

Fitch Ratings improved

Rate Top 20 economy for FDI‟s

Mineral wealth

Quality of SA institutions – strong intellectual property protection, and private institutions

Stable and well regulated financial sector

Key points

SA’s economy is

smaller than those

BRIC

New Growth Path

puts employment at

the centre of the

economy

Can link BRIC

economies to more

than 1 billion

consumers

Create large scale

sustainable jobs in

key sectors

Worlds largest

deposits of gold,

chromium, platinum

and mangenese


Standard Bank

30Global representation

Rest of world Key regional officesAfrica

17 African countries

1,159 branches & 7,866 ATMs

across these geographic

regions

13 countries outside Africa

99 branches in Argentina

Offices in key regional financial

centres including:

Johannesburg, London,

Moscow, New York, Hong Kong,

Kuala Lumpur, Sao Paulo,

Dubai, Istanbul, Lagos, Nairobi

and Beijing

Standard Bank is an African bank with strong links to key emerging markets

Standard Bank

Divisions

Personal and

Business Banking

Corporate and

Investment Banking

Investment

Management and

Life Insurance

United States of America

Argentina

Brazil

Isle of ManUKJersey

Russian Federation

Turkey

United Arab Emirates

ChinaJapan

TaiwanHong Kong

Singapore

Mauritius

NigeriaGhana

DR CongoAngola

Namibia

UgandaKenya

Tanzania

MalawiZambia

Zimbabwe

South Africa

LesothoSwazilandMozambique

Botswana

Shanghai

31

Connecting the world

to

Africa

Key points

Payments –

MT103

Documentary

Credits –

MT700

Guarantees –

MT760

Trade

Finance: Risk

distribution

and

confirmations

Cash,

Payments,

Trade and

Trade Finance

32Disclaimer

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is recommended that you consult an independent investment advisor if you are in doubt about such investments or investment services.

Dubai Residents

Standard Bank Plc, Dubai Branch, is regulated by the Dubai Financial Services Authority („DFSA) (register number F000028). Within the Dubai International Financial Centre, („DIFC‟) the

financial products or services to which this marketing material relates will only be made available to Professional Clients, including a Market Counterparty, who meet the regulatory criteria of

being a Client.

Turkey Residents

Standard Unlu Menkul Degerler A.S. and Standard Unlu Portfoy Yonetimi A.S. are regulated by the Turkish Capital Markets Board “CMB”). According to CMB‟s legislation, the information,

comments and recommendations contained in this presentation are not investment advisory services. Investment advisory services are provided under an investment advisory agreement

between a brokerage house, a portfolio management company, a bank that does not accept deposits or other capital markets professionals and the client. The comments and

recommendations contained in this presentation are based on the personal opinions of the authors. These opinions may not be appropriate for your financial situation and risk and return

preferences. For that reason, investment decisions relying solely on the information contained in this presentation may not meet your expectations.

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