The NCA and the SA economy'

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The NCA and the SA economy.

• KreditInform 14 May 2007

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The economy and the NCA.

• Quick overview of the NCA.
• Economic overview.
• Trade balance and capital flows.
• Retail trade.
• Manufacturing.
• Inflation and rates.
• The SA balance sheet.
• Not so poor.
• The however part.

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Quick overview of the National credit act.

• Consumers and small companies get more
  protection.
• Credit information more readily available to
  them.
• Reckless lending addressed.
• While the act protects consumers and smaller
  companies it makes life more difficult for
  provider of credit and credit information.
• I am worried about the debt counselors

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The economy and the credit act.

• While the Demand side of the economy has been
  growing the supply side has not always grown as
  fast.
• This has caused a bigger current account deficit
  (Our checkbook with the rest of the world.)
• This current account deficit is because SA
  imports more than it exports.

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The current account deficit

• While SA is able to finance the Current account
  balance it is mainly via short-term money.
• The bond and equity markets are attracting a lot
  of investor money.
• This is good but the problem is that when
  something goes wrong we may be caught short.
• This will help the current account improve again.

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Retail sales and interest rates.

• A fall in the trade weighted rand will help
  mining and manufacturing but retail sales may
  fall a lot quicker and that may hurt some
  companies in the process.
• We need to be careful as the NCA could expose
  some areas of the economy more than others.

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Inflation pressures are beginning to appear.

• Inflation is heading up because of oil, food but
  also because of
• Electricity.
• Gas.
• Rates and taxes.
• General supply side pressures.
• We are lucky in that some areas such as
  telecommunications are still in deflation mode
  but others such as clothes are back in slight
  inflation mode.

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Meanwhile household debt keeps climbing.
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Credit growth in the private sector is still
strong.

• Credit extension is still very strong despite
  rate hikes and SA is likely to maintain a long
  run positive credit growth for the next decade or
  two.
• In the short term however some sectors of the
  population may feel some short comings as they
  are over extended.
• Many people may be at risk of being not being
  credit worthy.
• Your customers, customers become important.

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While liquidations are low at the moment

• Remember distress comes with a delay..

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The SA balance sheet looks strong.
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What the wealth looks like.
According to SARB research South African have
total Assets of R3,9 trillion Rand or about two
and third time the GDP.
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Net wealth per capita over time.Nominal terms
from SARB, Thousands of Rand.
Source SARB and StatsSA for population estimates.
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Facts about net Assets.

• Net assets in constant terms increased with 54,3
  per capita over last five years.
• Liquid Assets will pay All liabilities and still
  leave R25.6 billion in the kitty!!!!!!
• Net Assets exclude foreign Assets which is
  estimated to be at least R60 billion or more.
• Household wealth is most likely under estimated
  as house values may exclude improvements and
  actual number of formal houses.
• Ability to sell Tangible assets can be improved
  greatly.

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Household debt to disposable income. End 2005
(or in some cases 2004/3)
Sources Fed reserve, Eurostat, OECD, BIS-
working papers, SARB.
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Home ownership rates.Home ownership is well
spread.
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The total value of SA housing stockA different
view
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The SA consumer looks very good but

• The wealth disparities are still huge.
• The average debt to income may be small when
  compared internationally but historically it is
  at its highest level ever.
• And it hides the fact that some wealthy people
  are paying back in excess of 50 of salaries back
  in debt repayments (From money sense.)
• It is these people and companies that are at risk
  in the new NCA enviroment.

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Remember this is a new environment to us all and
nobody will know hoe this pans out.

• Information is the key

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Thank you and questions