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It is a great honour for me to be able to address you this morning.

Your are the most skilled and highly qualified group in the insurance business. I consequently regard it as a positive reflection on my sales resistance that although I have been here for some time already, I have not yet been signed up for a new policy. Admittedly, the morning is still young!

Your industry represents a very important pillar of our economy. The Government is very much aware of the contribution that you make to the well-being of South Africa. Contractual savings account for almost 55 per cent of total gross domestic savings. This represents a very important source of finance for domestic investment, including investment in economic and socio-economic infrastructure.

Your industry specialises in risk analysis and depends on a healthy long term economic environment for its success. You are therefore probably more aware than most professions of the economic and political factors that can affect the future of our country.

This morning I shall share with you some of my own views on these factors.

Let us suppose that South Africa is one of your prospective clients and that it is in the market for a large life insurance policy. How would we assess the actuarial risk?

No doubt, some of your assessors would point out that the client lives in a dangerous area. The neighbours are not renowned for paying their premiums on time. Others might refer to the client's unhappy childhood and traumatic youth.

I am sure that you would want to know more about the client's basic health and prospects for a long and productive life. Naturally, you would also be interested in the client's financial position and in its ability to pay your premiums.

So, how does client South Africa shape up on an actuarial basis?

Alles in ag genome, het ons darem rede tot tevredenheid met die wyse waarop ons ekonomie in onlangse jare presteer het. Dit staan in skerp kontras met die moeilike omstandighede in die driejaar-periode voor 1993.

'n Sleutelfaktor in hierdie positiewe verandering van ons ekonomiese vooruitsigte, was die vordering met betrekking tot die normalisering van ons samelewing. Die vreedsame oorgang van Suid-Afrika na 'n ten volle verteenwoordigende demokrasie, het plaaslike en internasionale vertroue in ons langtermyn lewensvatbaarheid gebou. Hierdie hernieude vertroue word weerspieel in ekonomiese resultate:

Die ekonomiese groeikoers het verhoog na 3,3% in 1995, die hoogste koers die afgelope sewe jaar.

Bruto vaste investering het met 9,5% per jaar oor die afgelope twee jaar toegeneem, na skerp afnames tydens die voorafgaande vier jaar.

Ten spyte daarvan dat daar bykans geen reele groei in staatsverbruiksbesteding in 1995 was nie, het bruto binnelandse vraag toegeneem teen 'n re%le gemiddelde koers van 6,1% per jaar oor die afgelope twee jaar.

Inflasie het in 1995 gedaal tot 8,7% - die laagste koers in 23 jaar.

Die informele sektore van die ekonomie het aansienlik gegroei.

Economic growth, as measured by the annual average increase in the GDP, is expected to increase further this year, if the agricultural prospects remain as good as they are at present. The average annual inflation rate could also show a further decline this year.

The improved economic conditions can be ascribed to various factors which include:

improvement in agricultural conditions,
the upsurge in exports and export prices,
an improvement in the terms of trade,
strengthened consumer and business confidence brought about by the relatively peaceful political transformation; and
the improvement in capacity utilisation as a result of the increased growth in demand.

These positive developments in the economy reflect qualified confidence in the new South Africa - in the ability of the GNU to maintain macro-economic stability, and to apply sound economic policies. This confidence was strengthened by various factors such as

the removal of all foreign exchange controls on non-residents;

the Government's undertaking not to raise the general tax burden on a permanent basis; to reduce the fiscal deficit and government dissavings over time; and to increase capital expenditure whilst at the same time curtailing the growth in government consumption expenditure.

Factors such as

the serious efforts by the monetary authorities to maintain monetary discipline and to protect the internal and external value of the Rand.

Our actuarial examination of client South Africa would, however, also reveal a number of potential problems, which include:

the failure of the formal economy to create new employment opportunities;

the apparent slow-down in the growth in manufacturing production and in fixed investment;

the increase in the deficit on the current account of the balance of payments to R12,5 billion or 2,5 per cent of GDP in 1995;

the volatility of the capital inflows which have been used to finance the large deficits on the current account and to build up the country's foreign reserves;

the unpredictability of the financial markets, which have recently reacted nervously to rumours and perceived trends and events;

the low investment ratio of 16,9 per cent of GDP recorded in 1995 which is insufficient to support a reasonable economic growth rate;

poor domestic savings of only 16,7 per cent of GDP in 1995 with dissavings of the general government sector amounting to 4 per cent of the GDP.

Although none of these problems are life threatening they might indicate a need for our prospective client to change his habits or improve his diet. If left unattended it might lead to serious illness. In particular, the Government must

improve the investment climate;
alleviate the balance of payments constraints on growth;
strengthen the employment creating capacity of the economy and the income generating capacity of the people, especially that of the less privileged members of society;
improve the distribution of income; and
improve the country's domestic savings performance.

The insurance and retirement industries are, of course, particularly relevant to our need to improve our domestic savings performance. The Minister of Finance's decision to impose a levy of 17% on the rental and interest income of the retirement industry is relevant to this debate.

The GNU is committed to a tax system which is not only efficient and cost-effective, but which is also equitable. Against this background the Government has formulated the following principles for a new system of retirement fund taxation:

consistent treatment of private and public sector funds;
neutrality between forms of retirement provision;
minimisation of opportunities for tax arbitrage;
an incentive in favour of lifetime annuities; and
taxation of income as it arises, rather than when paid out.

The tax of 17% on rental and interest income should therefore be seen as a step toward a new tax dispensation for the retirement fund industry based on the above principles. The eventual dispensation will be finalised through a process agreed on between Government, business and labour. Your industry will obviously be intimately involved. This process will also make provision for a holistic review of a retirement fund strategy through a discussion of all the relevant issues and proposals.

In the process, due cognisance will also be taken of the possible effect of such a new tax dispensation on the country's saving performance.

However, finding new sources of revenue should never be used as a excuse for not finding better ways of reducing government expenditure.

One of the main criticisms of the client South Africa's health is that, frankly, he is overweight. Government is consuming too much and has been doing so for a number of years now. This is reflected in the deficit which is still far too high by international standards - even though it has been reduced from 9,8% to 6% during the last two years. Our national debt now stands at R256 billion and represents more than half of our GDP. This year 19,1% of the budget will be spent on interest payments, before the Government can even begin to allocate resources to meet the pressing social and development needs of our people.

Die Regering kan slegs op drie wyses die begrotingstekort verlaag: belastings kan verhoog word; die vrugte van privatisering kan aangewend word; of regeringsbesteding kan ingekort word.

Die Regering is teensinnig om belastings te verhoog. Ons belastingvlakke is reeds te hoog. Die Regering besef ook dat enige verhoging uit pas sou wees met sy oorhoofse doelwit, naamlik die skepping van 'n beleggersvriendelike klimaat.

Die Regering moet derhalwe voortgaan met privatisering. Daar moet egter verseker word dat die middele wat gegenereer word uit die verkoop van staatsbates, aangewend word om of die begrotingstekort te verlaag of om kapitaaluitgawes te finansier. Dit mag nooit gebruik word om vir lopende uitgawes te betaal nie.

Die heel beste wyse om die begrotingstekort te verlaag bly egter om staatsbesteding te verlaag. Staatsverbruiksbesteding staan tans op 20,5% van ons Bruto Binnelandse Produk - 'n syfer wat hoer is as die van die meeste Eerste Węreld lande en aansienlik hoer is as die 12 - 15% van baie van die middelinkomste lande waarmee ons meeding.

Die hoofoorsaak vir ons hoe staatsverbruiksbesteding is die grootte van die Staatsdiens. Dit weet ons almal. Daar is tans bykans 1,25 miljoen staatsamptenare in die eerste en tweede vlakke van regering. Bykans 40% van die begroting bestaan uit salarisse en lone.

Clearly, one of the main requirements that actuaries would therefore identify in respect of their prospective client would be the need for a leaner, more effective and more affordable public service. The Government accepts this as well and has announced its intention to cut the size of the public service by 100 000 employees.

Another problem that would be diagnosed by our actuaries would be the failure of our growing economy to create new jobs. They would quickly identify our rigid labour practices as one of the main causes of this condition. The fact is that the Northern European labour standards demanded by our unions are making it increasingly difficult for our exporters to compete in global markets. These rigid standards are simply not suited for a country rating unemployment as one of its most serious problems.

The actuaries would also recommend that their prospective client addresses this problem by negotiating more flexible agreements with the trade unions particularly with regard to medium and smaller businesses.

Ultimately, however, the actuaries would be interested in the long-term viability and stability of the prospective client. They would want to assess the likelihood that the peace, stability and goodwill that have characterised the client's performance during the past two years will continue. In particular, they would examine the client's constitution.

Here, the prognostication is good. South Africa's present Constitution is a healthy one. It is reasonably suited to the complex nature of our society and sets out to assure a proper balance between all our constituent elements. I am confident that during the coming weeks we shall also succeed in negotiating a sound final constitution that will also make adequate provision for our complex society.

Our future constitutional health will be determined by the manner in which we adhere to the constitution and the integrity with which it is upheld by the Government and the courts.

It will be determined by the degree to which we will be able to create breathing space for all our cultural minorities, particularly with regard to their right to mothertongue education.

It will be determined by the degree to which we succeed in devolving power to autonomous provincial governments and local authorities, to the lowest level at which it can be effectively administered.

It will be determined by the degree to which we can maintain a genuine and vibrant multi-party democracy in our country - in which people vote according to their values and political preferences, rather than according to their ethnic origin.

I am confident that we will be successful in passing most of these tests - just as we have succeeded during the past few years with the far more difficult task of transforming our society.

I would accordingly have no hesitation in recommending the client to any insurance company. He is basically fit - although he needs to lose some weight and change some bad habits. He can - if he takes the right medicine in terms of commitments already made - expect a long, happy and prosperous life.

And that, I am sure, is the kind of client that you would like to sign up.

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