Economic Impact of the SA drone industry- with reflections on the state of the macro-economy Dr Roelof Botha

Global rankings for the quality of air transport infrastructure –selected countries & BRICS (Source: WEF)

2.5 3 3.5 4 4.5 5 5.5

Nigeria (125)

Brazil (95)

Argentina (78)

India (61)

Russia (59)

Greece (53)

China (45)

Australia (36)

Portugal (29)

South Africa (25)

Score

CAASA Aviation Activity Index (CAAI) for South Africa(Trend = 3-quarter moving average)

85

100

115

130

145

160

175

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

Index; Q1 2014=100

Index value

Trend

Key sectors for the application of UA services (selection)

Agriculture Filming

Real estate Private security

Ø Purchases of homes Public safety

Ø Home rentals National defence systems

Ø Property development Road & railway inspections

Mining & quarrying Water reservoir inspections

Energy grid Border control

Industrial infrastructure Sea rescue operations

Shipping Emergency medical services

Postage & courier services Fire fighting

Impact of global UA industry – some facts

Number of global drone sales in 2018 (est.) 3 million

Value of global drone sales in 2017 R 12 billion

Number of UAs (for leisure) in the US in 2021 (est.) 3.5 million

Number of UAs (commercial) in the US in 2021 (est.) 1 million

Remote pilots in the US in 2012 (est.) 281,000

Value of European demand for UAS services (p.a.) Euro 10 bn

Timing of launch of one-ton capacity drone 1 year

Cost saving on delivering by drone in rural Asia (vs. truck) 70%

Number of firms in Europe that can utilise drones 7.7 million

Est. Drone industry contribution to US GDP until 2025 $82 bn

Number of firms in Europe (by sector) that can use drones (‘000) (Source: Eurostat)

Agriculture & mining - 197.3

Advertising, marketing & TV/video - 438.6

Architecture & engineering - 1005.7

Construction - 3441.3

Security - 56

Land & pipeline transport - 916.5

Real estate - 1369.5

Utilities, couriers & communication 274.4

Total number: 7.7 million

Methodology for determining the economic impact of the Unmanned Aircraft (UA) Industry

Step Method

1 Sample survey conducted amongst members of CUAASA

2 Extrapolation of results into total estimated turnover

3 Determination of average multiplier effects for relevant sectors

4 Classification of multiplier effects into direct, indirect & induced

5 Calculation of impact on output, jobs & tax revenues6 Comparison of results with SA/EU and SA/US GDP ratios

Sources(selection)

(i) CUAASA(iii) Quantec Data(iv) Stats SA(v) Association for Unmanned Vehicle Systems International(vi) Single European Sky ATM Research/EU

Anticipated % increase in key UA indicators 2018 to 2019

80

105

130

155

180

205

230

Employment Number of Uas Value ofequipment

Turnover Value of aircraft

%

Summary of macro-economic impact of the South African drone industry in 2018

Economic output R million

Industry turnover 3 379

Contribution to total SA output 10 702

Broadening of tax base R million

Personal income tax 1 193

Corporate tax 1 151

Indirect taxes 1 939

Employment creation Number

Formal employment 40 627

Informal employment 16 079

Composition of the economic impact of the UA industry in 2018 (Rm)

Industry salaries - 2,040

Direct output (other sectors) - 1,352

Industry sales - 3,379

Corporate tax - 1,148

Indirect taxes - 1,935

Indirect output (other sectors) - 1,742

Personal income tax - 1,191

Industry value added - 2,164

Total output: R10.7bTotal taxes: R4.3b

Comparison of Economic Impact of the UA industry with past six AAD Exhibitions (Sources: AAD Organisers’ Office; Botha RF)

0

1500

3000

4500

6000

7500

9000

10500

AAD 2006 AAD 2008 AAD 2010 AAD 2012 AAD 2014 AAD 2016 UA

R million

5-year GDP impact of UA industry in SA based on different scenarios

15

18

21

24

27

30

10% growth SA/US GDP ratio 15% growth 20% growth SA/EU GDP ratio

R billion

Macroeconomic advantages of the expansion of the UA industry

Higher level of efficiency due to automation

Higher level of customer satisfaction

Cost savings to a wide range of businesses

Shareholders receive higher dividends

Broadening of the taxation base

Positive effect on GDP

Diffusion of technological advancement

More emphasis on appropriate skills development

More accurate data collection

Mapping of inaccessible locations

Macroeconomic advantages of the expansion of the UA industry (continued)

Preventative maintenance inspections in energy sector

Enabling of precision agriculture

Assistance with humanitarian assistance

More effective policing via identification of endangered citizens & hazards

More effective maritime surveillance

Enhanced border security

Combating of poaching

More accurate topographic surveying

More efficient stock-pile management

Transfer of real time data from fire & emergency scenes

The Southern African economy

Prospects for

sustained growth

The land reform threat & other problems

• Sassa grant debacle (Minister found guilty of fraud in 2006)• Energy policy fiasco (100% increase in electricity tariffs in 3years)• PetroSA loss in 2015 = R14.5 billion (due to incompetence)*• SAA loss in 2015 = R5.6 billion*• Irregular municipal expenditure doubles to R14.8 billion*• High Court of SA exposes DMR as “irrational & incompetent”• 3,600 public servants found guilty of corruption• Hawks’ attack on Finance Minister Gordhan nonsensical• Reckless cabinet reshuffle; clearly influenced by Guptas• 80 ANC municipalities dysfunctional due to corruption/incompetence• ANC admits it may be destroyed by corruption & fraud• *Note: 650k houses, 210k jobs, R100b output

A “state of capture/incompetence”?

• Exodus of an estimated 3 million people (to SA, UK & Australia)

• Unemployment rate of 95%

• GDP declines by 20% since 2000 to $14 billion

• Per capita GDP declines by 36% to $979

• Public debt/GDP ratio doubles to 60%

• 6th most repressed regime in the world

• 72% of population living under the poverty line

• Prevalence of stunting amongst children = 28%

• Reliance on ODA (6% of GDP)

• 70% of population depends on agriculture

• Insecurity of land tenure persists

• Maize harvest area declines from 1,4m ha to 0.8m ha

Land expropriation without compensation – a case study in Zimbabwe

Ranking of specific problem areas in Africa that require government intervention (% cited in top-three) (Source: Afro Barometer)

0 5 10 15 20 25 30 35 40

Socio-political violence

Housing

Corruption

Electricity

Food shortages

Crime & security

Water supply

Roads

Education

Health

Unemployment

%

Background to land reform debate

Background to land reform

2007 ANC conference abandons “willing buyer-willing seller” principle

Land expropriation subsequently based on “just & equitable” compensation

Discounted compensation possible where “public interest” is compelling

Market-related compensation for all improvements still required

Provisos to any future radical land reform policies

Change in ownership has to be sustainable

No harm to the agriculture sector

No harm to the economy

Likely results of constitutional amendment for radical land reform

Protection of property rights in SA is diminished

Heightened policy uncertainty

Decline in the prices of land & related assets

Negative impact on balance sheets of banks and their ability to provide loans

Foreign assets will gain value, leading to currency weakness

Disinvestment in agriculture and food processing

Threat to food security

Substantial litigation costs arise

Negative impact on GDP and fiscal revenues

Unemployment rises

Potential for heightened socio-political unrest

Agriculture exports to SADC 2010 & 2016 (at constant 2015 prices) (Sources: SARS; own calc.)

0

4

8

12

16

20

24

Oils & fats Animals Veg. & fruit Prep. Food

2010

2016

Rb

Real GDP and the value of agricultural production in sub-Saharan Africa (Sources: IMF; et. al.)

90

100

110

120

130

140

150

160

170

180

2000 2002 2004 2006 2008 2010 2012 2014 2016

Index, 2000 = 100

GDP

Agriculture value added

Total Primary Agriculture Output

R244bSecondary Agriculture

(Processing)R391b

Wholesale trade R345b

Retail trade R347b

Restaurants & caterers R43b

Electricity & Water R39bn

Finance R155b

Estimated output (turnover) for all agricultural activityIn SA - 2015

CommunicationR63b

Transport & Construction R26b

Total linked turnover R1.65

trillion

ü Meat, fish, fruit & vegü Dairyü Grain millsü Beveragesü Tobaccoü Sawmillingü Leather productsü Other food

Agriculture Value Added R84

Speculation over downgrade fuelled by the increase in total public sector gross debt as % of GDP since the recession…

25

30

35

40

45

1998199920002001200220032004200520062007200820092010201120122013201420152016

%

Average ratio of foreign direct investment to GDP from 2010 to 2015 – selected emerging markets (Source: Unctad)

0 1 2 3 4 5 6 7 8

South Africa

Egypt

Turkey

Poland

Mexico

Brazil

Tanzania

Zambia

Chile

Ghana

%

South Africa’s ratio of foreign direct investment to GDP (3-year averages) (Sources: SARB; own calculations)

0.6

0.8

1

1.2

1.4

1.6

1.8

2003-'05 2006-'08 2009-'11 2012-'14 2015-'17

%

GDP growth remains lethargic, but has bottomed out (Source: Stats SA)

-3

-1.5

0

1.5

3

4.5

Q1'08 3

Q1'09 3

Q1'10 3

Q1'11 3

Q1'12 3

Q1'13 3

Q1'14 3

Q1'15 3

Q1'16 3

Q1'17 3

Year-on-year %

FNB house price index (as at March) and inflation(Sources: StatsSA; FNB)

90

140

190

240

290

340

390

200120022003200420052006200720082009201020112012201320142015201620172018

House price index

CPI

Index; 2000 = 100

Value of outstanding mortgage loans (constant 2017 p)(Sources: SARB; own calculations)

1.32

1.34

1.36

1.38

1.4

1.42

1.44

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

R trillion

Real prime rate remains too high to encourage growth & continues to increase (Sources: Stats SA; SARB; own calculations)

2

2.5

3

3.5

4

4.5

5

5.5

6

6.5

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 3 4

Q1'17 2 3 4

Q1'18

%

The recession is over – prepare for higher growth

Dr Roelof Botha

The Ramaphosa effect

#1: Short-term currency strength(Source: Oanda)

11.5

12

12.5

13

13.5

14

14.5

03-Jan24-Jan

07-Feb07-Mar

21-Mar

04-Apr

25-Apr

05-May

08-Sep10-Oct

16-Oct

26-Oct

14-Nov

21-Dec29-Jan

19-Feb

14-May

Rand/$

Real effective exchange rate of the rand now over-valued(Sources: SARB; own calculations)

70

75

80

85

90

95

100

2001

2003

2005

2007

2009

2011

2013

2015

2017

2018

REER

Long-termaverage

Index; 2010 = 100

#2: Long-term bond yield(Source: Investing.com)

8

8.2

8.4

8.6

8.8

9

9.2

9.4

Mar'16 Ap

rMay Ju

n Jul

Aug

Sep Oct

Nov DecJa

n'17

Feb

Mar Apr

May Jun Ju

lAu

gSe

p OctNov Dec

Jan '1

8Fe

bMay

%

#3: Business Confidence Index of the SA Chamber of Commerce & Industry starts improving (Source: SACCI)

90

95

100

105

110

115

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

Q1'18

Index; 2015 = 100

#4: Retail trade sales hit new record high (constant 2017 prices; (seasonally adjusted) (Sources: Stats SA, SARB, own calculations)

190

200

210

220

230

240

250

Q1'11 2 3 4

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

R billion

Note: Q4’17 nominal = R295bn

#5: Eskom profligacy reined in(Sources: Eskom; SARB)

0

5

10

15

20

25

30

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

%

Eskom tariffincreases

CPI

#6: Nuclear power project canned (Sources: eePublishers; CSIR; P van Berge)

0.5 0.65 0.8 0.95 1.1 1.25 1.4 1.55

Wind

Photo-voltaic

Gas turbines

Coal IPP

Mid-merit gas

Baseload coal

New nuclear

Mid-merit coal

EnergyCosts

R/kWh

Trends in household financial resilience

Real remuneration per worker(Sources: SARB; Stats)

98

101

104

107

110

113

116

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3

Public sector

Private sector

Index; 2010 = 100

Continued progress with employment creation in South Africa (2.3 million jobs created since Q1 2010)

13.8

14.1

14.4

14.7

15

15.3

15.6

15.9

16.2

Q2'09 4

Q2'10 4

Q2'11 4

Q2'12 4

Q2'13 4

Q2'14 4

Q2'15 4

Q2'16 4

Q2'17 4

Q1'18

Million (formal sector = 70%)

Source: Stats SA

Ratio of household disposable income to household debt(Source: SARB)

123

126

129

132

135

138

141

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

%

Ratio of household debt to household disposable income(Sources: SARB)

70

72

74

76

78

80

82

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

%

Household expenditure on durables & semi-durables (annualised at constant 2017p) (Sources: SARB; own calculations)

185

192.5

200

207.5

215

222.5

230

237.5

Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

R billion

Semi-durables

Durables

Household disposable income (constant 2017 p)(Sources: SARB; own calculations)

1.9

2

2.1

2.2

2.3

2.4

2.5

2.6

2.7

2.8Q1'12 2 3 4

Q1'13 2 3 4

Q1'14 2 3 4

Q1'15 2 3 4

Q1'16 2 3 4

Q1'17 2 3 4

R trillion

Junk status averted & other

good news

% change in average household income 2005 to 2015

0

25

50

75

100

125

150

White Indian Coloured Black

%

CPI

Number of SA households in the expenditure category of R650k per annum (avg.) (Sources: Stats SA; own calculations)

0

150

300

450

600

750

900

1050

Indian Coloured White Black

2011

2015

Number

Gross public debt/GDP ratios – selected countries(Source: IMF)

20 35 50 65 80 95 110

Turkey

Australia

South Africa

Mexico

Germany

India

Brazil

UK

US

Singapore

%

Composition of government expenditure (functional classification) FY 2018/19 (Rb)

General & other ser. 111

Public order 144

Other economic ser. 76

Health 200

Education 343

Social protection 197

Interest 180

Transport 84

Housing & comm. Ser. 144

Defence 48

Total R 1.53trillion

According to the World Economic Forum, South Africa remains the most competitive large economy in sub-Saharan Africa - out of 144 countries

30 40 50 60 70 80 90 100 110

Ethiopia

Gabon

Kenya

Zambia

Ivory Coast

Namibia

Botswana

South Africa

MauritiusRanking

-250

-200

-150

-100

-50

0

50

100

150

200

250

'03 '04 '05 '06 '07 '08 '09 '10 '11 '12 '13 '14 '15 '16 '17

R billion

South Africa possesses balance of payments stability, due to a huge financial account surplus (Source: SARB)

Financial account

Current account

Real GDP growth estimates for 2017 – the world’s ten largest economies (Source: IMF)

0 1 2 3 4 5 6 7

Brazil

Japan

Italy

France

UK

Germany

US

Canada

India

China

%

Tourist arrivals from overseas(Source: Stats SA)

1 800

1 900

2 000

2 100

2 200

2 300

2 400

2 500

2 600

2 700

2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

‘000

Selected commodity price increases between Q1 2016 and Q4 2017 (Sources: World Bank; own calculations)

0 10 20 30 40 50 60 70

Platinum

Oranges

Groundnuts

Gold

Soya bean oil

Mutton

Nickel

Aluminium

Iron ore

Coal

%

Biographical notes:

ü Dr Roelof Botha received his early schooling in Sweden, Germany, the Netherlands and three different provinces in South Africa

ü A diversified career has been followed in management accounting; financial journalism; lecturing; consulting; and economic research

ü He is a regular commentator & columnist in the national media and has authored more than 500 articles, books and research publications

ü Honours and Masters degrees, both obtained cum laude at the University of Pretoria, Doctorate completed at the University of Johannesburg

ü In 2005, he received the prestigious Finmedia Economist of the Year award, based on the accuracy of forecasts of key economic indicators

ü Economic advisor to PricewaterhouseCoopers for 28 yearsü Current activities include Senior Adjunct Faculty member of the Gordon

Institute of Business Science (GIBS) & Economic Advisor to the Optimum Financial Services Group

Mobile no: 083 226 8921; E-mail: gopasa@worldonline.co.za

Researched & prepared by Dr Roelof BothaSources of basic data include the SA Reserve Bank, Stats SA, The Economist Intelligence Unit, the IMF & the World Bank Group