with determination. in a recent study of the south african economy, economists from goldman sachs of new york concluded as follows : “ the gnu ( government of national unity ) successfully led the country through the first phase of the transition ( 1994 - 98 ) from the apartheid era. the gnu completed a program of structural reforms, including progressive current and capital account liberalization, committed to respect the independence of the sarb ( south african reserve bank ), and announced a development strategy emphasizing gradual fiscal consolidation. however, a second round of structural reforms to address structural rigidities on the supply - side of the economy are required if real gdp growth and employment are to be boosted in a significant and sustainable way. these reforms include liberalization of labor markets, completion of the trade reforms, completion of capital account liberalization, and further public sector reform - - including an aggressive privatization program ”. 3. longer - term developments in the south african economy turning to the longer - term developments in the south african economy, it is interesting to note that some remarkable improvements did take place in parts of the economy over the past five years. an analysis of a few selected key economic indicators of developments over the past ten years ( see table 1 attached to this document ) reveals the following : • the rate of growth in real economic activity as reflected in changes in gross domestic product increased from a yearly average of 0 per cent in the first period ( 1989 to 1993 ) to 2 per cent in the second period ( 1994 to 1998 ). similarly, the rate of growth in real gross domestic expenditure changed from minus ½ per cent to positive growth of 3 per cent per annum. greater confidence was also reflected in a substantial improvement in gross domestic fixed investment, which declined by 2½ per cent per year from 1989 to 1993, but then increased by 7 per cent per year from 1994 to 1998. one of the emerging weaknesses in the economy is reflected in the decline over these two periods in gross domestic saving as a percentage of gross domestic product, from an annual average of 19 per cent in the first, to 16 per cent in the second period. • where the economy failed most was in the creation of jobs. total employment indeed declined by an average annual rate of 2 per cent from 1994 to 1998, which was even worse than the average decline of 1. 3 per cent in the preceding period of five years. despite the further increase in unemployment, the annual rate of increase in average real wages and salaries more than doubled, from 1. 7 per cent

by 4. 9 % in 2011, down to 2. 6 % in 2013 and about 1. 7 % average for q1 and q2 2014. debt service cost to disposable income : 12. 5 % in 2008 ; 7. 9 % in 2014. bis central bankers ’ speeches encourage households to reduce debt levels faster neither do they impose a penalty on government borrowing, to speed up the process of shedding excess debt. more broadly, this debt constraint continues to have implications for economic growth. with the stock of household and public debt remaining high relative to historic norms, there is insufficient domestic investment or productivity growth, or exports, to offset the slower consumption growth attributable to our weaker terms of trade and over indebted households. 9 low rates are also not doing much for investment in fixed capital, with gross fixed capital formation growing by just under half the pace of the 2000s and a third of the rate achieved in the six years before the crisis. 10 of course the stronger rise in loans and advances to firms seen in 2014 so far is welcome. but we have some distance to go before we move beyond the minimal investment in productive capacity we have seen in recent years. this suggests that future growth in the economy will be handicapped unless investment becomes much stronger. for many years we took the view that the economy ’ s potential growth rate hovered somewhere around 4 percent. this was optimistic. our current estimates suggest that it could be considerably lower, in part because we overestimated historical growth and in part because of the effects of the economic slowdown. negative supply shocks explain some good part of our lower potential growth. one recent shock was the strikes i referred to earlier. another more distant shock was the sharp rise in unit labour costs that occurred in 2008 and 2009 just as the global crisis hit. these factors have also dragged down confidence. reversing negative supply shocks will be an important part of achieving better growth rates and reducing macroeconomic imbalances. but the role of monetary policy is limited – for instance, having no impact on building additional electricity production capacity. however, inflation differentials and cost differentials with the rest of the world continue to weigh heavily on south african competitiveness. the exchange rate has supported domestic producers, with the nominal effective rate falling 36 % from the end of 2010 and the real effective rate falling 20 %. but if we measure our competitiveness by unit labour costs, say against the us dollar, sa has about 20 % more real depre