t t mboweni : the state of the south african economy remarks by mr t t mboweni, governor of the south african reserve bank, at the annual dinner in honour of the ambassadors and high commissioners to the republic of south africa, pretoria, 7 december 2004. * * * your excellency, the dean of the diplomatic corps your excellencies, ambassadors and high commissioners your excellency, the chief of state protocol your excellencies, heads of international organisations represented in the republic of south africa deputy governors of the south african reserve bank senior management of the south african reserve bank and their spouses / partners media representatives ladies and gentlemen welcome once again to this annual dinner in honour of the ambassadors and high commissioners accredited to the republic of south africa. my colleagues and i always look forward with bated breath to this evening at the end of every year. this dinner represents for us the highlight of every year as we gather with you to break bread and discuss issues of common interest and relevance to our various countries. 2004 has indeed been a momentous year for the global economy. one of the distinguishing features of this year has been the oil price. when i joined the central bank in 1998, the north sea brent crude oil price was $ 9 per barrel. since then, the oil price has shot up quite considerably. the price of north sea brent crude oil is now around $ 38 per barrel and indications are that it might not come down to the opec target levels of $ 22 - $ 28 per barrel in the near future. the futures price also indicates that the oil price will stay near the $ 40 per barrel level. the behaviour of the oil prices has changed the global economic outlook in a real way. estimates by the international monetary fund researchers is that if the oil price averages $ 37 per barrel in 2004, global growth will slow down by some ½ percentage point, inflation for the advanced countries will increase by about 0. 3 percentage point and the trade balance of advanced countries will deteriorate by some 0. 3 per cent of gross domestic product. the estimates for south africa are that economic growth might decline by some 0. 6 percentage point, inflation will increase by some 1. 6 percentage point and the trade balance will worsen by some 1. 4 per cent of gross domestic product. clearly there is cause for concern all - round. at the core of these oil price developments seems to be concerns about supply constraints. these arise, in part, as a result of supply

of investment grade. on 30 november, the south african sub - index narrowed further to 92 basis points over us treasuries. the spreads of south africa ’ s us - dollar denominated bonds maturing in 2009 and 2012 narrowed to 102 and 72 basis points over us treasuries respectively between 14 october and 30 november 2004. the 10 - year us dollar global bond issued in may this year similarly tightened from 195 basis points over us treasuries at its launch in may to currently around 103 basis points. a ratings upgrade by moody ’ s would put south africa on the same scale as thailand whose ten - year us - dollar denominated bond spread is currently trading around 52 basis points over us treasuries. this suggests that south africa ’ s ten - year us dollar denominated bond, which is currently at 85 basis points above us treasuries, could rally further. another clear indication of south africa ’ s improving creditworthiness can also be seen in increasingly narrower margins paid on our international syndicated loans. whereas in 2001 we were paying 85 basis points p. a. over libor for a three - year loan, by 2003 the margin had come down to 67. 5 basis points p. a., and earlier this year we were able to improve the terms further and negotiate a margin of 47. 5 basis points p. a. over libor. 4 / 5 the relations between south africa and so many countries in the rest of the global village, evidenced by the number of embassies and high commissions stationed in south africa, bears testimony to this confidence. my colleagues and the senior management staff at your tables will hopefully clarify and amplify some of the remarks i have made during this evening. meanwhile, welcome once again and thank you for accepting our invitation to this annual dinner in honour of ambassadors and high commissioners posted to the republic of south africa. your friendship is not taken for granted, it is highly valued. thank you very much. 5 / 5