Core Views
BMI sees the South African economy continuing its uneven recovery over the medium term, with real GDP growth forecast at a relatively tepid 3.5% in 2011 and 4.0% in 2012. Although the consumer sector is showing signs of life, the supply side is lagging behind and there are widespread concerns that the recovery is not sufficiently broad-based. We anticipate that South Africa’s repo rate will be kept steady at 5.50% for the majority of 2011, with the hiking cycle likely to begin with a 50-basis-point move in November. That said, we acknowledge
tangible risks of a delay to the hiking cycle.
Policy uncertainty is rising due to question marks over whether President Jacob Zuma will secure another term in office, as well as the growing influence of Julius Malema. The latter’s calls for nationalisation of the mining sector are creating a sense of unease among investors, even though nationalisation is a highly unlikely scenario.
Major Forecast Changes
We have revised our year-end target for the South African rand to ZAR6.7000/US$ from ZAR6.5000/US$. The rand is likely to range trade until year-end, in our view, and then make gradual gains fuelled by rising interest rates, positive trends in the balance of payments and a ‘hands-off’ stance from the South African Reserve Bank.
Key Risks To Outlook
A sustained bout of global risk aversion with an attendant sharp outflow of portfolio funds.
A sudden uptick in domestic political risk.
A sustained period of high oil prices.
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Executive Summary 5
Core Views5
Major Forecast Changes5
Key Risks To Outlook5
Chapter 1: Political Outlook 7
SWOT Analysis 7
BMI Political Risk Ratings 7
Domestic Politics 8
Strikes Will Compound Policy Uncertainty
The recent spate of strikes in South Africa poses downside risks to economic growth and investment
Long-Term Political Outlook 9
Political Trials And Tribulations Over The Coming Decade
There are many issues that threaten South Africa’s political stability over the long term – not least, the
inequalities stemming from the apartheid era and the foreign policy challenge that is Zimbabwe
Table: South Africa Political Overview9
Chapter 2: Economic Outlook 13
SWOT Analysis 13
BMI Economic Risk Ratings 13
Economic Activity 14
Consumer-Led Recovery Playing Out
We hold to our forecasts for South Africa to see real GDP growth of 35% in 2011 and 40% in 2012
TABLE: ECONOMIC ACTIVITY14
Exchange Rate Policy 16
ZAR: Lacking Direction
We maintain our view for the South African rand to appreciate over the medium term, but we have moderated our targets
TABLE: EXCHANGE RATE16
Key Sector Outlook 17
Favouring Mining And The Consumer
We are broadly upbeat regarding South Africa’s key sectors, with positive growth forecasts for mining, agribusiness and general retail
Regional Economic Outlook 19
Economic Growth: A Progress Report
Sub-Saharan Africa faces a difficult period over the coming months, with high inflation and elevated borrowing costs likely to pose challenges to policymakers
Chapter 3: 10-Year Forecast 21
The South African Economy To 2020 21
Structural Constraints To Curb Long-Term Growth
While we forecast relatively stable real GDP growth rates over the coming 10 years, ongoing structural shortcomings will continue to limit South Africa’s long-term growth potential
TABLE: SOUTH AFRICA – LONG-TERM MACROECONOMIC FORECASTS21
Chapter 4: Business Environment 23
SWOT Analysis 23
BMI Business Environment Risk Ratings 23
Business Environment Outlook 24
Institutions 24
TABLE: BMI BUSINESS AND OPERATION RISK RATINGS24
TABLE: BMI LEGAL FRAMEWORK RATING25
Infrastructure 26
TABLE: LABOUR FORCE QUALITY27
TABLE: MIDDLE EAST & AFRICA, ANNUAL FDI INFLOWS28
Market Orientation 29
TABLE: TRADE AND INVESTMENT RATINGS29
TABLE: TOP EXPORT DESTINATIONS30
Operational Risk 31
Pharmaceuticals 33
Chapter 5: Key Sectors 33
Table: Generic Drug Sales Indicators 2007-201534
Table: Prescription Drug Sales Indicators 2007-201536
Table: OTC Medicine Sales Indicators 2007-201536
Telecommunications 37
Table: Telecoms Sector – Internet – Historical Data & Forecasts 38
Table: Telecoms Sector – Internet – Historical Data & Forecasts 39
Table: Telecoms Sector – Mobile – Historical Data & Forecasts 39
Other Key Sectors 40
Table: South Africa Autos Sector Key Indicators40
Table: South Africa Food and Drink Sector Key Indicators40
Table: South Africa Oil and Gas Sector Key Indicators40
Table: South Africa Infrastructure Sector Key Indicators40
Table: South Africa Defence and Security Sector Key Indicators 41
Table: South Africa Freight Transport Sector Key Indicators 41
Chapter 6: BMI Global Assumptions 43
Global Outlook 43
Second Half Risks
TABLE: GLOBAL ASSUMPTIONS43
Table: EMERGING MARKETS AGGREGATE GROWTH44
Table: DEVELOPED STATES REAL GDP GROWTH FORECAST45
Table: REAL GDP GROWTH CONSENSUS FORECASTS4
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