francois groepe : the role of the accounting and auditing profession in south africa ’ s economic growth and development address by mr francois groepe, deputy governor of the south african reserve bank, at the saica southern region trainee accountant society, port elizabeth, 23 july 2013. * * * introduction i wish to thank the trainee accountant society from the southern region of saica for inviting me to speak this evening. it is always an honour and a great opportunity to engage with different sectors of society, in particular south africa ’ s young professionals who have a particularly important role to play in ensuring that this country realises its full potential, both socially as well as economically. the global economy there are signs that the global economy is recovering, however, the recovery at best remains fragile and weaker than what had been anticipated just a few months ago. the us recorded a quarter - on - quarter real gdp growth rate of 1. 8 % in the first quarter, somewhat lower than the earlier estimates of 2. 5 %, weighed down by the fiscal contraction. in addition to further fiscal consolidation, the debt ceiling debates, and the impact of rising long - term treasury yields and mortgage interest rates in response to expectations of a tapering in asset purchases by the us federal reserve, also pose downside risks. peripheral eurozone remains mired in recession. consequently, the euro zone contracted by 1. 1 % year - on - year in the first quarter of 2013, following a contraction of 0. 8 % in the final quarter of 2012. the imf has reduced its forecast for eurozone growth in 2013, by 0. 2 percentage points to – 0. 6 %, with a weaker recovery than previously forecast in 2014. the japanese economy recorded strong quarter - on - quarter growth of 4. 1 % in the first quarter, but it remains too soon to assess the efficacy of the various stimulus measures that were adopted. a number of the significant emerging market economies have witnessed a slowdown, and have contributed to the most recent downward revision by the imf of global growth by 0. 2 percentage points to 3. 1 % and 3. 8 % for 2013 and 2014, respectively. volatility in financial markets in recent days seems to have abated following the assurances given by the us federal reserve that it would continue to support the economy and that monetary policy would remain accommodative despite asset purchase tapering. the earlier turbulence seen, however, demonstrates that emerging and developing economies remain vulnerable to

because, in the past, these failures involved relatively small banks or banks with limited retail funding ( like african bank ), it was possible for government to compensate at least the retail depositors. over time, this practice has led many south africans to believe that their bank deposits are fully insured. however, this type of deposit protection is implicit rather than explicit, with compensation being largely dependent on the size of the failing bank and the fiscal strength of government at the time of such failure. there is unfortunately no clear, upfront guarantee of deposits in place, which creates uncertainty in the event of a payout about the deposits that will be compensated and to what amounts. such decisions are often arbitrary, depending on the circumstances at the time. furthermore, even if deposits are paid out, it can be a lengthy process to actually execute the payments in the absence of readily available depositor information and payout mechanisms. this can cause prolonged periods of hardship for depositors who do not have access to their bank accounts. page 2 of 6 another important disadvantage of an implicit deposit guarantee system is that it relies on government funding and tends to be procyclical ; as such, support is usually required at a time when the economy and the financial system may already be vulnerable as a result of wider - spread bank failures. in principle, it is not desirable that public funds are used to pay for private failures. the main advantage of the implicit deposit insurance arrangements that south africa has had in place to date, and probably the reason why we have lived with them for such a long time, is that the current framework does not put a direct cost on the banking sector – and it hardly costs the government anything unless there is actually a bank failure. however, we regard such arrangements as risky and acknowledge that they create a significant contingent liability for government. it is for all these reasons that south africa is moving away from government - funded, implicit deposit insurance scheme to a privately - funded, explicit deposit insurance scheme. an explicit deposit insurance scheme sets out payment arrangements in law and ensures there is always adequate funding available. this funding is built up by the private banking sector in good times rather than at the point of failure. and although the proposed deposit insurance scheme will be prefunded, we will endeavour to ensure that we avoid placing an excessive cost on the banking system, distorting the competitiveness in the banking sector, or causing moral hazard to the extent that it may become a threat to financial stability. south africa is currently