Presentation to the South African Israel Chamber of

Presentation to the South African Israel Chamber of Commerce by Nedbank Business Banking Outlook for SA economy: Business environment, currency, inflation, and interest rates Treasury Strategic Research Nedbank Capital Adding value to your business 11 September 2009 Treasury

SA growth prospects § GDP should level out in 2010, recover in 2011/2012 § SA (Nedbank est) 2009 -2. 2% (2008: +3. 1%) World (IMF est): 2010 +2. 0% 2009: -1. 4% 2010: + 2. 5% 2011 +2. 9% 2012 +4. 2% § US (21%/global GDP): 2009: -2. 6% 2010: +0. 8% § Euro Zone: 2009: -4. 8% (2009/Q 2 Germany +0. 3% q/q and France +0. 3% q/q) 2010: -0. 3% § China (11%/global GDP): 2009: +7. 5% (risk of cutback in inventory rebuilding and industrial expansion) 2010: +8. 5% § Global GDP – Japan 6%, India 5%, Germany 4%, UK 3%, France 3%, SA 0. 78% 1

US impact on global economy § US 21% of global economy § Consumer spending 70% of US total economic activity § Consumers: § Heavy debt load § Rising unemployment § Higher tax burden/finance Administration’s financial sector rescue programmes § Lower discretionary spending § Swing to savings culture – delay sustainable consumer-led recovery § Technology advances- restrict jobs growth § Recovery likely to be slow, wide U-shape 2

Plunging industrial production could push unemployment to record high, delaying US economic recovery – 6. 9 mn jobs lost since recession start in December 2007 3

SA capital spending § 2009/2010 – infrastructure development around 2010 World Cup stadiums to be completed - stadiums, roads, airports, hotels, Gautrain (deadline June 2010 – M&R on target despite late contract start) § 2009/2012 - Eskom, Transnet, SANRAL § Tourism benefits from International sports events – hospitality industry, retail spending, employment (7 tourists = 1 new job) § SA proves sports event management ability: 2009: Cricket – India Premier League (April/May - election) ICC Champions Trophy (September/October) Football – Confederation Cup (June) Rugby – British Lions Tour; Super 14 and Tri-Nations 2010: Football World Cup 4

Hurdles to foreign investment in SA (global competitiveness index) Source: World Economic Forum 5

Risks to SA economy § Deteriorating SA economic growth outlook, as Eskom battles to restore 100% of electricity demand to the mining and manufacturing sectors (presently operating with 90%-95% of full demand), § Labour union demands for above inflation wage increases not accompanied by assurances of improved productivity § SA’s political uncertainty and the possibility of more socialist government policies, with irresponsible rhetoric stoking global investor fears. Zuma Administration claims cleaning up government structures. § Protests against inadequate government service delivery have exacerbated social unrest. Army strikers’ demonstration at Union Buildings, police intervention, foreign investment view. § Commodity prices well below 2008 record highs, reducing export earnings – recovering from low base. § A burgeoning current account deficit may be partially alleviated by declining imports, as consumers postpone the purchase of high priced durable goods in a bid to conserve discretionary income on the back of heavy debt burdens, elevated basic living costs, high administered price increases e. g. electricity, rising unemployment and uncertain global and domestic economic outlook, delaying local public and private sector capital expenditure projects, partially easing the trade and current account deficits. 6

Risks to SA economy § Emerging market risk aversion, although presently easing, § Still high interest rates by global standards – further cut possible (PPI, CPI, M 3, PSCE) § Heavy debt burdens, § High inflation compared to major trading partners – declining towards SARB target range § Slower net capital inflows - recovering § High crime rate, § A politically unstable, bankrupt and corrupt Northern neighbour, despite the formation of a government of national unity – tarnishes region § Partially offset by emerging black middle class/black diamonds 7

Balance of payments 2009 2010 2011 Exports (Rbn) 623. 4 706. 5 890. 7 Imports (Rbn) 640. 0 723. 2 882. 3 Trade balance (Rbn) -16. 6 8. 5 Net services (Rbn) -100. 3 -99. 8 -114. 1 Current account (Rbn) -116. 9 -116. 5 -105. 6 -4. 9 -4. 5 -3. 7 Capital account (Rbn) 180. 0 210. 0 181. 0 Change net reserves (Rbn) 63. 1 93. 5 75. 4 Gross Reserves (Rbn) 347. 1 465. 3 574. 1 Current account as a % of gdp 8

Inflation outlook improves July June May 2008 average CPI (new measure) % 6. 7 6. 9 8. 0 11. 3 (CPIX) PPI % -3. 8 -4. 1 -3. 0 14. 2 200 9 2010 2011 2012 5. 6 6. 4 CPI (new measure) average % 7. 2 5. 9 Remaining inflation threats: • Administered prices- Eskom (excluding electricity CPI 6. 2% y/y in July), fuel • Food • Above inflation wage settlements • Currency volatility 9

Plunging commodity prices underpin declines in producer inputs, slow reaction from factory gate and consumer prices 10

Declining agricultural food prices not filtering through to consumers 11

Interest rates will be determined by inflation and SA and world economic growth Interest rates (end of period) 2009 2010 2011 2012 Prime interest rate % 10. 00 10. 50 13. 00 13. 50 § Nedbank forecasts 50 bp repo rate cut at September or October MPC meetings § Further rate cuts unlikely as signs appear of recovery in developed/industrialised economies § SA economic cycle lags developed economies by 6 -12 months (SARB) 12

Real repo rate only marginally positive 13

Major impacts on rand exchange rate § Global investor risk appetite- emerging markets vs developed markets § Exporters/importers § Capital inflows- short-term- JSE, BESA - Long-term- Foreign Direct Investment (FDI) - Corporate activity (Bharti/MTN) 14

Foreign portfolio inflows to JSE recovering in 2009 on decreased risk aversion, corporate activity and economic recovery prospects 15

Rand should maintain short-term recovery § Rand’s recent recovery against US dollar likely to be maintained by: – Global dollar weakness – Higher gold price – Global risk appetite recovering – Equity markets rising, led by emerging markets – Lower current account deficit/ GDP ratio – IMF/special drawing rights boost reserves +$2 bn – Capital inflows (MTN/Bharti) § Long-term inflation differential likely to drive weakening ZAR trend against major currencies 16

Stronger rand – Positives/ Negatives Positives: § Limits imported producer inputs – capital equipment, commodities/oil § Reduces producer inflation, § Lower unit production costs § Reduces consumer inflation after lagged effect § Long-term positive GDP impact Negatives: § Reduces global export price competitiveness § Diminishes rand export earnings 17

Rand tests stronger trading range against US dollar 18

Rand consolidates against globally strong euro 19

Rand tests medium-term British pound support level 20

Rand appreciation against yen cuts import costs (proxy for Asia/Middle East bloc) 21

Rand Nominal Effective Exchange Rate (NEER) consolidates. Rand – PPI – CPI – Exporters – GDP - employment 22

Trade weighted dollar reflects global weakness 23

Euro gains as alternative reserve currency 24

Gold advances towards record high as alternative store of value, reflects anxiety on value of US dollar (Gold: 1. 2% of SA GDP) 25

Gold has huge potential above $1000/oz provided new higher base established 26

JSE All Share Index (ALSI) advance reflects investors’ positive outlook 27

SA financial sector § Banks’ exposure controlled in strictly regulated environment- capital, risk, exchange controls – ensures maintained independent operations § Finance Minister Pravin Gordhan comments – SA business cycle lagged developed economies downturn by 6 -12 months, easier monetary policy delayed – postponing domestic recovery, early signs should be visible in 2010/H 1. § SA inventories/GDP ratio fallen to record low, rebuild likely supporting manufacturing recovery § Summary 2009/10: § Positive outlook for muted global recovery leading SA upturn after 6 -12 month lag. § Greater rand stability, lower inflation, stable interest rates, rising opportunities for business growth. 28

Nedbank Business Banking and Treasury Strategic Research § Committed to partnership with business (Gauteng environmental advantages) § “Adding value to your business” § Delivery? § “Yes, we can!” § • Ian Cruickshanks (011) 295 8640 - Ian. Cr@Nedbank. co. za Publications available: § Daily markets and economic comment § Daily Forex News § Liquid Fuel Hedging News § Monthly Currency insights § Monthly Interest rate insights § Business Banking presentation – 11 September • Michelle Pingo-de Abreu (011) 294 1753 - Michelle. P@Nedbank. co. za • Tasnim Rawat (011) 294 3744 - Tasnim. R@Nedbank. co. za 29

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