dr x p guma : economic developments in south africa during 2005 and prospects for 2006 address by dr x p guma, deputy govenor of the south african reserve bank, at the conference on south africa : today and tomorrow, london, 24 january 2006. * * * 1. chairperson, distinguished guests, ladies and gentlemen, it is a great honour for me to address you this morning, not least because the confluence of favourable developments referred to by president thabo mbeki in his state of the nation address early last year has indeed contributed to another banner year for south africa. today, i wish to highlight only a few of the most important domestic economic developments that have transpired during 2005 and some of the encouraging prospects for 2006. 2. growth in real gross domestic product amounted to 4, 5 per cent in 2004, and preliminary anecdotal evidence suggests that this performance may have been exceeded somewhat in 2005. the record economic upswing in south africa continued apace throughout 2005 and the third quarter marked the twenty - fourth consecutive quarter of uninterrupted growth since the economy began the current upswing in 1999. this is the longest upswing in the recorded economic history of the country. 2. 1 the performance of the south african economy in recent times has also been more solid and consistent than before. one of the reasons is that the economy is in the process of changing from one driven predominantly by consumption, to one driven to a greater degree by fixed investment. the growth momentum over the past year - and - a - half was sustained by strong domestic expenditure, alongside the stronger world economy and generally favourable terms of trade. 2. 2 growth in real gross domestic expenditure picked up considerably in the third quarter of 2005 as both fixed capital formation and inventory accumulation gained momentum. growth in real fixed capital formation accelerated mainly on account of higher capital spending by the private sector. 3. with gross domestic expenditure consistently exceeding gross domestic product over the past three years, the current account of the balance of payments has recorded a deficit during ten consecutive quarters. buoyed by rising imports of capital and consumer goods as well as crude oil, the volume of imports rose faster than the volume of exports over this period. favourable export prices and the fairly strong external terms of trade nevertheless contributed to the containment of the current - account deficit. surpluses on the financial account of the balance of payments moreover more than fully covered the deficits on the current account, leading to continued surpluses on the overall balance of

##mise that regulations relating to aml / cft and the increase in the number of cross - border money remittance or transfer companies could be contributing factors to this declining trend. in the case of the money remittance companies, it can be argued that global banks may have concerns about the high risks of uncertainty in facilitating transactions with unknown / nonvetted clients, especially those in emde ’ s 1, in terms of the aml / cft 2 rules. this raises the potential for fines and reputational risks for these banks and therefore reduces the appetite for exposure to specific jurisdictions by banks participating in this environment. there are emerging markets and developing economies ( emdes ). aml – anti money laundering ; cft – counter terrorist financing. bis central bankers ’ speeches also potential downsides to decreased cross - border transactions. for example, it is a wellknown fact that money remittances attract high costs, and it is therefore likely that small companies would be more affected by the reduction in global correspondent activity. in both instances, it would be the poor and smaller commercial entities that would be most vulnerable if correspondent banking activities are not replaced by more efficient and reliable alternatives. regional solutions, implemented in the payment system environment, will go a long way to address constraints that may be introduced by the reduction of correspondent banking services, as well as to bring overall efficiencies in the execution of intra - regional cross border payments. i would now like to share with you developments relating to three of these regional initiatives as examples. in 2000, five countries of west africa ( gambia, ghana, guinea, nigeria and sierra leone ) established the west african monetary zone ( wamz ). at the same time they also set - up the west african monetary institute ( wami ). liberia joined in 2010. the objective of the countries was to establish the west african monetary zone ( wamz ) as a monetary and customs union with a common currency. initially they proposed to introduce a single currency in 2003, but subsequently agreed to launch the new single currency in 2015. as these countries are represented at this conference, you will benefit from updates on progress made with this initiative. the main objectives of wamz were agreed as : • the promotion of trade integration in the region ; • trade and financial facilitation ; • harmonisation of legislation and statistics ; and • payment systems and macroeconomic convergence. the wami was established as the main body responsible of the creation of