SWEET ‘16? - masterbuilders.org.za · India 3,298 7 6.4 1,210 Indonesia 4,363 10 5.6 237 Iraq...
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SWEET ‘16?
IMPLICATIONS FOR BUILDING, CONSTRUCTION, ENGINEERING & RELATED SECTORS
@AdrianSaville
Visiting Professor, Economics & Finance, GIBS
Chief Strategist, Citadel
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ALSI Index and Index Earnings (1995=100)
ALSI Index
Index Earnings
South Africa
0.93
Adrian Saville & Seleho Tsatsi, Cannon Asset Managers (2014, updated 2015 Citadel Investment Services)
NET WORTH FOLLOWS EARNINGS
World
0.81
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LeadershipHumanCapital
BusinessProcesses &
Analytics
Dominant Market Share
Economies of Scale & Efficiency
Economiesof Scope
LogisticsLeading
BrandMonopoly
Customer Clusters & Networks
Barney, J. B. (1991) Firm resources and sustained competitive advantage. Journal of Management, 17: 99–120; available at www3.uma.pt/filipejmsousa/ge/Barney,%201991.pdf
IF BY MAGIC, YOU COULD ADD AN
INGREDIENT TO DRIVE EARNINGS …
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CHOOSE THE ECONOMY
Economy World CHN DEU FRA IND ITA SGP USA ZAF
Correlation 0.66 0.62 0.61 0.81 0.52 0.43 0.90 0.65 0.71
-15,0
-10,0
-5,0
0,0
5,0
10,0
15,0
20,0
-2,0
-1,0
0,0
1,0
2,0
3,0
4,0
5,0
6,0
1998 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015
GDP Growth (% p.a.) & Growth In Real Corporate Earnings (% p.a.): 1998-2015
GDP Growth (%)
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IF THE ECONOMY MATTERS …
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SLUGGISH EVERYWHERE
Samantha Pauwels, Cannon Asset Managers (2016)
-8,0%
-4,0%
0,0%
4,0%
8,0%Vehicle Sales
Retail Trade
Electricity Output
GDP
Gross Fixed Spend
Disposable Income
Manufacturing Production
Business Cylce Indicator
10 Year Average
Latest 3 Figures
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FALLING BEHIND
1,7
3,3
5,3
8,8
0,9
3,03,7
2,9
1,3
0,0
1,0
2,0
3,0
4,0
5,0
6,0
7,0
8,0
9,0
10,0
Growth in Income Per Person Per
Year: 1994-2014 (2011 $, PPP, %)
0,00
0,20
0,40
0,60
0,80
1,00
1,20
1,40
1,60
1,80
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20
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South Africa's Share of World Export
Markets: 1970-2014 (%)
Adrian Saville (2015) Citadel Investment Services
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A NEW DEAL
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LES TRENTE GLORIEUSES & SIX PACKERS
Data via World Bank (2015), IMF (2015) and Angus Maddison via Maddison Project (2014); ggdc.net/maddison/maddison-project/home.htm; France:
1945-1975 France 5x 1965-1995 South Korea 8x 1975-2005 Chile 6x
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Savings & Investment Demography Policy & Institutions
Education Health Openness
David Landes (1998) Wealth & Poverty of Nations; Daron Acemoglu and James Robinson (2012) Why Nations Fail; Abhijit Banerjee and Esther Duflo (2011) Poor Economics; RuchirSharma (2012) Breakout Nations
NEW DEALS & SIX PACKERS
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Six Packers
Six Cylinders
Industrial Engines
Evolution from Imitators
to Innovators
GDP per Capita ($, 2010)
Relative US per Capita GDP (%)
Forecast Growth 2010-2050 (%)
Population (mn, 2010)
Bangladesh 1,735 4 6.3 151
China 7,430 16 5.0 1,339
Egypt 5,878 13 5.0 80
India 3,298 7 6.4 1,210
Indonesia 4,363 10 5.6 237
Iraq 3,538 8 6.1 32
Mongolia 3,764 8 6.3 3
Nigeria 2,335 5 6.9 158
Philippines 3,684 8 5.5 94
Sri Lanka 4,988 11 5.5 21
Vietnam 3,108 7 6.4 87
Brazil 10,980 24 3.5 190
Chile 14,956 33 3.4 17
Colombia 9,302 20 3.8 46
Kazakhstan 12,121 27 4.2 16
Korea 29,538 65 3.0 49
Mexico 13,689 30 3.0 112
Peru 9,470 21 4.0 29
Russia 15,701 34 3.7 143
South Africa 10,360 23 3.8 50
Thailand 8,638 19 4.4 67
Turkey 13,063 29 3.5 73
Adrian Saville, Cannon Asset Managers (2014) based on derivations of method via Citigroup Global Markets (2011) Global Growth Generators
4.1bn
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Savings & Investment Demography Policy & Institutions
Education Health Openness
David Landes (1998) Wealth & Poverty of Nations; Daron Acemoglu and James Robinson (2012) Why Nations Fail; Abhijit Banerjee and Esther Duflo (2011) Poor Economics; RuchirSharma (2012) Breakout Nations
SOUTH AFRICA'S DEAL
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Six Packers
Six Cylinders
Industrial Engines
Evolution from Imitators
to Innovators
GDP per Capita ($, 2010)
Relative US per Capita GDP (%)
Forecast Growth 2010-2050 (%)
Population (mn, 2010)
Bangladesh 1,735 4 6.3 151
China 7,430 16 5.0 1,339
Egypt 5,878 13 5.0 80
India 3,298 7 6.4 1,210
Indonesia 4,363 10 5.6 237
Iraq 3,538 8 6.1 32
Mongolia 3,764 8 6.3 3
Nigeria 2,335 5 6.9 158
Philippines 3,684 8 5.5 94
Sri Lanka 4,988 11 5.5 21
Vietnam 3,108 7 6.4 87
Brazil 10,980 24 3.5 190
Chile 14,956 33 3.4 17
Colombia 9,302 20 3.8 46
Kazakhstan 12,121 27 4.2 16
Korea 29,538 65 3.0 49
Mexico 13,689 30 3.0 112
Peru 9,470 21 4.0 29
Russia 15,701 34 3.7 143
South Africa 10,360 23 3.8 50
Thailand 8,638 19 4.4 67
Turkey 13,063 29 3.5 73
Adrian Saville, Cannon Asset Managers (2014) based on derivations of method via Citigroup Global Markets (2011) Global Growth Generators
4.1bn
1992-2011
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SOCIAL IMPACT
Nic Borain, Joan Tshivhinda & Jeffry Schultz(2014) BNP Paribas Cadiz Securities; data via RESEP, PSLSD, 1993, NIDS 2012 ; Dambisa Moyo (2013) TED
0
5
10
15
20
25
30
LSM 1 LSM 2 LSM 3 LSM 4 LSM 5 LSM 6 LSM 7 LSM 8 LSM 9 LSM 10
Proportion of Black Population per LSM Group (%)
2001 2013
“... the black
middle class
has been
the fastest
growing
population
group ...
since the
early 2000s.”
Nic Borain, Joan
Tshivinda & Jeffry
Schultz (2014)
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Real GDP Growth (%): 1980-2018
World
South Africa
“In From The Cold”
3.4%
3.2%
Cannon Asset Managers (2015); IMF: Selected Country Groups Data (2015)
“Boom Bust”
1.4%
2.9%
0.29 0.86
“Hard Yards”
1.5%
3.0%
CATCHUP & THREE NOT SIX
Growth globally
co-ordinated
Past 20 years 2x
previous 20 years
Per capita income growth:
3.2% > 1.5%
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
GROWTH STRUCTURE = 3 NOT 6
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
GROWTH CYCLE
Drought &
Resources
Energy
2016 = 0.5%
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
TRAPPED GROWTH = 1.7%
1.7% = zero
per capita
2016 = 0.5%
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
REQUIRED GROWTH = 2.7% = STRUCTURAL
1.7% = zero
per capita
+1.0% per
capita = 2.7%
2016 = 0.5%
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
ENOUGH TO STAY IN THE GAME …
BUT IT’S JUST MORE OF THE SAME
1.7% = zero
per capita
+1.0% per
capita = 2.7%
2016 = 0.5%
Three Great Throttles
1. Savings
2. Connectedness
3. Industrial Exclusion
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1 & 2. FAST GROWTH NEEDS TWO THINGS
y = 0,2904x - 3,8707
R² = 0,5164
0
2
4
6
8
10
12
15 20 25 30 35 40 45
Re
al G
DP
Gro
wth
(A
ve
rag
e %
, 2
00
1-2
010)
Investment Share of GDP (Average %, 2001-2010)
R² = 0,4985
0
10
20
30
40
50
60
70
80
90
100
100 1 000 10 000 100 000
TCIP
(C
on
ne
cte
dn
ess
) Sc
ore
GDP per Person ($)
GDFI TCIP
Adrian Saville, Citadel Investment Services (2015)
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1 & 2. FAST GROWTH NEEDS TWO THINGS
y = 0,2904x - 3,8707
R² = 0,5164
0
2
4
6
8
10
12
15 20 25 30 35 40 45
Re
al G
DP
Gro
wth
(A
ve
rag
e %
, 2
00
1-2
010)
Investment Share of GDP (Average %, 2001-2010)
R² = 0,4985
0
10
20
30
40
50
60
70
80
90
100
100 1 000 10 000 100 000
TCIP
(C
on
ne
cte
dn
ess
) Sc
ore
GDP per Person ($)
GDFI TCIP
Adrian Saville, Citadel Investment Services (2015)
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IMF(2016); analysis by Adrian Saville, Citadel (2016)
0,0
1,0
2,0
3,0
4,0
5,0
6,0
Advanced
Economies
Rest of the World World South Africa
Structural Economic Growth Rates (% p.a.): 2016-2025
GD
FI
TCIP
3. GROWTH POTENTIAL IS GREAT BUT …
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Statistics South Africa; Gallup; SAIRR; Youth Enterprise Development Strategy : 2013-2023; interpretation and analysis Adrian Saville (2016)
0
5
10
15
20
25
30
35
40
1994 1996 1998 2000 2002 2004 2006 2008 2010 2012 2014
South African Unemployment Rate (%): 1994-
2015
Unemployment Rate: Expanded (%)
Unemployment Rate: Strict (%)
24,7
0 20 40 60 80
15-19
20-24
25-29
30-34
35-39
40-44
45-49
50-54
55-59
60-65
Total
Unemployment Rate (%) by Age
Group (2010)
3. STRUCTURAL CHOKE: INEQUALITY &
EXCLUSION
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businessinsider.com/gini-index-income-inequality-world-map-2014-1; extreme poverty is defined by the food poverty line of R335 per month in 2015
Gini 0.65
Top 10% 53.8%
Bottom 10% 1.1%
Unemployment 25.0%
Extreme Poverty 21%
3. STRUCTURAL CHOKE: INEQUALITY &
EXCLUSION
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-
500
1 000
1 500
2 000
2 500
3 000
3 500
4 000
4 500
5 000
Chile Malaysia South Korea South Africa
Small Firms per One Million People
1987-2012
100 Biggest -30%
100 Smallest 15x
Adrian Saville & Andrew Dittberner (Cannon Asset Managers, 2013)
3. STRUCTURAL CHOKE: INEQUALITY &
EXCLUSION
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BEING A MIRACLE NATION IS INSIDE OF
OUR REACH
In 35 years, even with 5.4%
economic growth, he will
probably be poor
Growth is exclusive
He’s trapped
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1918-1931
1931-1951
1951-1970
1971-1980
1981-1999
2000-2011
2012-2016
y = 0.1x + 1.4
R² = 0.72
-2
0
2
4
6
8
10
-20,0 -10,0 0,0 10,0 20,0 30,0 40,0 50,0 60,0
Ave
rag
e E
co
no
mic
Gro
wth
Ra
te (
%)
Average Real Commodity Price Change (%)
The Commodity Cycle & South African Economic Growth:
1918-2015 (Modified for Fixed Price)
Adapted from Mike Schussler (2016) via www.moneyweb.co.za/news/economy/what-long-term-slow-growth-means-for-sa/
THE REALITY … & SOME GOOD NEWS
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1918-1931
1931-1951
1951-1970
1971-1980
1981-1999
2000-2011
2012-2016
y = 0.1x + 1.4
R² = 0.72
-2
0
2
4
6
8
10
-20,0 -10,0 0,0 10,0 20,0 30,0 40,0 50,0 60,0
Ave
rag
e E
co
no
mic
Gro
wth
Ra
te (
%)
Average Real Commodity Price Change (%)
The Commodity Cycle & South African Economic Growth:
1918-2015 (Modified for Fixed Price)
Adapted from Mike Schussler (2016) via www.moneyweb.co.za/news/economy/what-long-term-slow-growth-means-for-sa/
1. ‘17 BEATS ‘16
Points to 2017
beating 2016
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2. GDFI IS KEY … AND WAY TOO LOW
YoY Growth (%) Gross Fixed Capital Formation: 1961-2015 Growth (%) Gross Fixed Capital Formation By Decade
-25
-20
-15
-10
-5
0
5
10
15
20
25
196
1
196
4
196
7
197
0
197
3
197
6
197
9
198
2
198
5
198
8
199
1
199
4
199
7
200
0
200
3
200
6
200
9
201
2
201
5
7,9
4,7
0,71,5
7,6
2,3
0
1
2
3
4
5
6
7
8
9
1960-1969
1970-1979
1980-1989
1990-1999
2000-2009
2010-2015
South African Reserve Bank (2016); interpretation and analysis Adrian Saville and Kelly Firth (2016)
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2. BUT THE DRIVERS ARE KNOWN AND
AVAILABLE
Real Interest Rate & Gross Fixed Capital Formation: (% GDP)
R² = 0,1898
-15
-10
-5
0
5
10
15
10 15 20 25 30 35
Kelly Firth (2016)
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2. BUT THE DRIVERS ARE KNOWN AND
AVAILABLE
Real Interest Rate & Gross Fixed Capital Formation: (% GDP)
R² = 0,1898
-15
-10
-5
0
5
10
15
10 15 20 25 30 35
Public & Private Sector Investment (% GDP)
R² = 0,7396
0
5
10
15
20
25
0 1 2 3 4 5 6
Priva
te In
ve
stm
en
t
Public Investment
Kelly Firth (2016) adapted from Robert Matsila (2013)
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Public & private infrastructure projects:
• multiplier & supply-side effects • impacts on growth, jobs & sustainability vary across sectors and by technology used• labour-intensive projects boost short-term growth & low-skilled jobs• biggest impact via telecommunications, roads and electricity
• lower transaction costs, more efficient use of inputs (especially transport costs)
• enhanced TFP promotes competitiveness• network externalities and improved market access• one standard deviation in infrastructure reduces Gini coefficient by 0.06
UNCTAD (2008); Kumo (2012); Bhattacharya, Oppenheim, & Stern (2015); African Competitiveness Report (2013); additional 1% GDP invested in transportation and communications sustains 0.6% increase GDP per capita growth rate
3. PUBLIC SECTOR AS A TRUE MULTIPLIER
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Public & private infrastructure projects:
• multiplier & supply-side effects • impacts on growth, jobs & sustainability vary across sectors and by technology used• labour-intensive projects boost short-term growth & low-skilled jobs• biggest impact via telecommunications, roads and electricity
• lower transaction costs, more efficient use of inputs (especially transport costs)
• enhanced TFP promotes competitiveness• network externalities and improved market access• one standard deviation in infrastructure reduces Gini coefficient by 0.06
UNCTAD (2008); Kumo (2012); Bhattacharya, Oppenheim, & Stern (2015); African Competitiveness Report (2013); additional 1% GDP invested in transportation and communications sustains 0.6% increase GDP per capita growth rate
3. PUBLIC SECTOR AS A TRUE MULTIPLIER
Required infrastructure investment rate 7%-9%
South Africa has invested 5.2% from 2010-2015
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4. ALREADY PRICED IN
Source: MRB Partners (August 30, 2016); *average of long-term credit ratings of Moody’s, Standard & Poor’s and Fitch; 0 is equivalent to investment grade; (+) higher than investment grade; (-) lower than investment grade; according to the relationship between credit ratings and nominal bond yields in the commodity-exporting EM universe, the highest rated non-investment grade sovereign bonds ought to yield 9.3-10%, only 30-90 bps higher than the current yield on local bonds respectively
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5. WORLD CLASS CAPABILITY IN 43.03’
Wayde Van Niekerk, Olympic 400m champion and world record holder (2016)
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5. OTHER WORLD CLASS CAPABILITY
http://www.dailymaverick.co.za/article/2016-08-31-africas-only-solar-panel-manufacturer-shines-brightly/#.V8ae2qKAW75
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6. A WORLD BEATING TRUMP CARD
Dr Nthabiseng Legoete, Founder QualiHealth, Diepsloot (2016)
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In 35 years, she’ll be 47
5.4% pa produces 6x South Africa
$2.1tn economy (India)
$23,000 per person (South Korea)
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Citadel Investment Services Proprietary Limited is licensed as a financial services provider in terms
of the Financial Advisory and Intermediary Services Act, 2002.
THANK YOU
@AdrianSaville @CitadelSA