Macroeconomic outlook & Implications for Pensions

Transcription

1 Macroeconomic outlook & Implications for Pensions Dr. Azar Jammine Director & Chief Economist of Econometrix SARA 30 September 2015 ECONOMETRIX Leaders in Economic Insight

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3 Median Age by Population Group Black Coloured Indian/Asia White Source: Census 2011

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9 Proportion of Population by Group 2002 Actual 000s 2014 Actual 000s Change s 2002 % of Total 2014 % of Total Black Coloured Indian White Total Source: Stats SA, Mid-year Population Estimates

10 CPI weights by Income Group Expenditure Quintile Weight Current Inflation Rate % 1: up to R : R up to R : R up to R : R up to R : R and more Source: StatsSA

11 Income & Expenditure of Households % of Total % of Total Black Other % of Total Black Other R0-R R400-R R800-R R1200-R R1800-R R2500-R R5000-R R10000-more Total General Household Survey, Stats SA

12 Private & Public Pensions 2014 (Assets) R 'bn AS % of GDP AS % of GFCF Public Private Total Private & Public Pensions 2014 (Net Cash Flow) R 'bn As % of assets As % of GDP As % of GFCF Public Private Total Source: SARB

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26 Sept Source: Board of Governors of the Federal Reserve System

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32 Dollar millionaires in South Africa Number % of Total Total Whites Indian, Asian and Coloureds Black Africans Source: South Africa 2015 Wealth Report by New World Wealth

33 Dollar millionaires in South Africa by Sector % of Total Financial Services 19.5 Real Estate 16.2 Basic Materials (mining) 13.6 Diversified Industry 12.3 Retail 7.8 Technology & Telecommunications 7.1 Healthcare 3.9 Transport & Logistics 3.2 Manufacturing 2.9 Media 2.6 Hospitality 1.9 Source: South Africa 2015 Wealth Report by New World Wealth

34 Two seldom recognised sources of inequality Huge Increases in Inequality Worldwide Industrial unrest driven by increased awareness of inequality (both income & wealth) In SA problem is more acute because of apartheid legacy Stunning increases in income inequality worldwide (FTSE100 CEO pay 120x ave employee earnings vs 47x 1998, Source: Manifest. Worse in US; top 1% of US workforce has captured 96% of income gains since global financial crisis) Has led to wealth inequality (global wealth has increased by 5.4% pa in past decade, to $241 trillion (Credit Suisse), well above global growth in GDP of 3.8%; 2/3 of adults have net wealth of < $10000) 32 million Dollar millionaires worldwide 46,800 Dollar millionaires in SA 600 high net worth individuals in SA with net worth of >$30 million (SARS)

35 Two seldom recognised sources of inequality Education disparities an obvious contributor.but also Global monetary policy, especially QE (driving financial asset prices upwards more than real economic activity; keeping real interest rates for savers exceptionally low) Corporate governance insofar as determination of executive remuneration (upward bias arises from use of remuneration agencies) inverse correlation between SA s improvements in corporate governance & rise in inequality

36 Contradictions in the Challenge of Executive Pay Growing recognition of pay gap between executives and workers an important contributor to increased union militancy Especially acute problem in SA Base pay of CEO s much higher abroad (e.g. $12.5m in US, $7.5m in Switzerland, $3.5m in Netherlands & $2.5m in SA) But ratio much higher in SA Talent pool of large companies increasingly multinational Could we ask CEO s to close gap as part of their KPI s CEO s happy to discuss but reluctant to take public position Arithmetic problem of widening absolute gap despite differential wage increases Growing worldwide threat of imposition of binding vote on ratio of executive to worker remuneration Significant increase in shareholder activism, but is this not contradictory? (Shareholders want maximum returns, but reluctant for executives to be compensated accordingly) Publication of executive remuneration has had unintended consequences of boosting executive pay In part a function of global loose monetary policy, which has boosted financial asset prices (boosting benefits of share incentive schemes) & boosted financial sector at expense of others. High executive remuneration goes hand-in-hand with huge stress levels and broken homes Share incentive schemes become a disincentive when out-of-the-money Moves to defer bonuses has resulted in driving up fixed pay Share grants assume CEO s will run businesses in interests of shareholders, but latter are invisible so alignment of interests need not coincide SOE executive remuneration and attracting appropriate candidates hugely problematical Distortion of package comparisons by media heightens hype about the issue

37 IMF Forecasts (%) India China Indonesia* Sub-Saharan Africa South Korea* Turkey* Australia* Chile* US Mexico United Kingdom South Africa Euro Area Argentina* Brazil Russia Source: IMF, Jul15 *Apr15

38 Revisions of IMF Forecasts for 2015 (%) Apr-11 Apr-14 Apr-15 Jul-15 Apr11-Jul15 World Output US Euro Area China Sub-Saharan Africa South Africa Source: IMF Revisions of IMF Forecasts for 2016 (%) Apr-11 Apr-14 Apr-15 Jul-15 Apr11-Jul15 World Output US Euro Area China Sub-Saharan Africa South Africa Source: IMF

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44 R/$ Exchange Rate Trade Deficit (Rm) Trade deficit vs Rand US$ exchange rate Source: SARS, Omega Supercharts R/US$ Trade Balance Excluding BLNS

45 Market Exchange Rates Change % vs US Dollar 1 Jan Sep 15 2 Jul Aug 15 3 Sep - 29 Sep 15 Japan 0.9 Czech Republic 2.1 Russia 1.3 China -2.3 Japan 1.9 Japan 0.4 Britain -2.8 Hungary 1.4 India 0.2 India -3.6 Euro 1.2 Euro 0.0 Taiwan -4.0 Poland 0.5 Hungary -0.1 Czech Republic -5.9 Britain -1.2 China -0.1 Poland -6.5 Argentina -2.1 Poland -0.3 Hungary -7.4 China -2.7 Britain -0.5 Singapore -7.6 Singapore -4.3 Australia -0.6 Euro -7.9 India -4.5 Czech Republic -0.8 South Korea -8.7 South Korea -4.9 Singapore -0.9 Argentina -9.1 Indonesia -5.2 South Korea -1.0 Thailand -9.5 Taiwan -5.3 Argentina -1.1 Russia Thailand -5.7 Mexico -1.1 Mexico Mexico -5.8 Thailand -1.7 Chile Australia -6.1 Taiwan -1.9 Australia Turkey -7.4 Chile -1.9 Indonesia South Africa -7.5 Turkey -2.9 South Africa Chile -7.7 Indonesia -3.5 Turkey Brazil South Africa -3.7 Brazil Russia Brazil -8.5 *R Source:Bloomberg & Econometrix

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47 14.00 Exchange rate : Rand/US$ B F A E 6.00 Source: Omega; Econometrix

48 Current Account % of GDP The Economist Poll 2015 Singapore 21.3 Taiwan 12.8 South Korea 7.8 Russia 4.9 Israel 4.8 Hungary 4.6 Philippines 4.1 Malaysia 3.4 China 3.0 Thailand 2.4 Czech Republic -0.1 India -1.2 Chile -1.2 Poland -1.4 Egypt -1.4 Argentina -1.4 Venezuela -1.8 Indonesia -2.4 Mexico -2.5 Brazil -4.1 Peru -4.6 Turkey -4.7 RSA -5.1 Colombia -6.7 Economist: 26 Sept 2015

49 Exchange Rate Forecasts R / $ Year End (Q4) R / Year End (Q4) R / Year End (Q4) R/Yen Year End (Q4) $ / Year End (Q4) Source: Omega; Econometrix

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51 % CPI Inflation Source: Statistics South Africa

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53 % 30 Petrol Inflation Rate Source : Department of Energy

54 % 14 CPI Inflation Forecast Source: StatsSA, Econometrix Econometrix

55 % 18 Prime Overdraft Rate Source: SARB, Econometrix

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57 Factors Affecting Business Confidence Poor education & skills development outcomes Tense industrial relations & strike threats Concerns about electricity outages & energy security Xenophobic violence & its damaging economic effects Poor municipal service delivery & ongoing service delivery protests Poor leadership & management at many parastatals Counterproductive government policy decisions & retractions Economic costs associated with empowerment of the few via exploitation of tendering, procurement & licensing processes Perceptions of rising corruption & cadre deployment at cost of economic growth for all Perception by private sector that government unwilling to listen & regards it as enemy

58 Matric Exam Results % of total 2014 Started School 12 yrs earlier No passing matric Matric Pass Rate 62.5% 78.2% 75.8% Maths >30% pass rate Maths >60% Science >30% Science >60% Source: National Senior Certificate

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60 Quarterly Labour Force Survey: Key labour market indicators Q Q-o-q change Y-o-y change Population 15-64yrs Labour Force Employed Formal (non-agric) Informal (non-agric) Agriculture Private Households Unemployed Not economically active Discouraged work-seekers Other (non-economically active) Unemployed Employed/population ratio (absorption) Labour Force participation rate Source: Statistics South Africa

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69 Ratings of Long Term Debt Emerging Markets Standard & Poors Moody's Fitch Singapore AAA Aaa AAA China AA- Aa3 A+ Chile AA- Aa3 A+ Czech Republic AA- A1 A+ South Korea AA- Aa3 AA- Botswana A- A2 - Malaysia A- A3 A- Poland A- A2 A- Taiwan AA- Aa3 A+ Thailand BBB+ Baa1 BBB+ Mexico BBB+ A3 BBB+ Peru BBB+ A3 BBB+ Colombia BBB Baa2 BBB Philippines BBB Baa2 BBB- South Africa BBB- (stable) Baa2 (stable) BBB (negative) India BBB- Baa3 BBB- Brazil BB+ Baa3 BBB Indonesia BB+ Baa3 BBB- Turkey BB+ Baa3 BBB- Russia BB+ Ba1 BBB- Hungary BB+ Ba1 BB+ Nigeria B+ Ba3 BB- Kenya B+ B1 B+ Ghana B- B3 B Egypt B- B3 B Venezuela CCC Caa3 CCC Argentina SD Caa1 RD Source: Bloomberg - Investment Grade/Junk Status Threshold

70 Estimated Principal Areas of Government Expenditure - February 2015 As % of total Average Growth 2015/ / / /18 Basic education % Health % Defence, public order and safety % Post-school education and training % Economic affairs % Local development and social infrastructure % General public services % Social protection % Debt-service costs % Consolidated expenditure % Source: National Treasury

71 Income Tax by Income Group 2014/15 Taxable Bracket Taxable income R billion No. of Taxpayers Proportion of Taxpayers Proportion of Population Proportion of Tax Paid R70,000 - R250, R250,000 - R500, R500,000 - R1m R1m - R1.5m More than R1.5m Total Source: National Treasury, Econometrix

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74 Is there a case for a wealth tax to reduce income tax? Market system cannot accommodate systemic distortions caused by QE & corporate governance processes The incentive to accumulate wealth is greater than the incentive to work A regular small (percentage wise) tax on assets could pave way for reduction in income tax SA asset base around R16 trillion (R12 trillion in financial assets & R4 trillion in property) Capital gains tax too slow as revenue source A 0.5% tax on net assets would raise R80bn, enough to reduce personal income tax by 15% Challenges: government might abuse such a tax; risk of financial market downturn; it s reliant on honest declaration of assets; will be opposed by vested interests But It could stave off implosion of capitalism worldwide & populist revolution in SA It is a better idea than capping executive remuneration, suggested by New Growth Path & others Psychologically it might be more acceptable than higher income taxes It could serve as a basis for critical economic dialogue to prevent social unrest

75 SA Economic Forecast Growth (%) Gross Domestic Product Year End (Q4) Gross Domestic Expenditure Year End (Q4) Private Consumption Year End (Q4) Fixed Investment Year End (Q4) Government Consumption Year End (Q4) Current A/C Balance As % of GDP Source: SARB; Econometrix

76 - THANK YOU - ECONOMETRIX Leaders in Economic Insight

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