At a recent presentation to investors Ian Liddle encouraged them to ask themselves whether their current investment strategy implicitly relies on the belief that the South African economy is healthy. He demonstrated that the strong growth in South African consumer spending over the last decade has not been supported by growing production; rather, it has depended on rising commodity prices and investment by foreigners.
There is a risk that either, or both, of these supportive factors may fall away, in which case South African consumer spending and the value of the rand may come under pressure. A selection of slides from Ian's presentation is discussed here. You can watch the full video presentation here until 31 August 2012.
Real growth in South African GDP over the last decade has amounted to 3.6 percent p.a., which is solid but not spectacular.
South African consumer spending has grown much faster than the overall economy. A good measure of consumer spending is total VAT receipts, which have grown at almost double the rate of the overall economy over the last decade. The factors driving this growth in consumer spending are well known: wage increases consistently above the inflation rate, growing public sector employment and strong growth in social welfare payments. Growth in bank credit and, more recently, in unsecured lending and government borrowing has added fuel to the fire.
South Africans buy many things that we do not make for ourselves.
The growth in consumer spending has translated into imports into South Africa increasing from approximately US$2-billion per month in 2001 into the current rate of approximately US$8-billion per month. This amounts to a compound annual growth rate of 18.2 percent p.a. in dollar terms. Fortunately, the value of South African exports has also grown strongly (by 15.8 percent p.a.) so that the value of imports and exports are roughly matched today.
Precious metals, base metals and mineral products together contribute to approximately two-thirds of South African export revenues. Their share of export revenues has expanded over the last decade. Note the long period in which export revenues were stagnant before the boom of the last 10 years.
Economists look at the monetary value of our exports. But what would we see if we looked at our exports as an engineer would, in tonnes and ounces?
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