Address By Mr TT Mboweni at the Microsoft Senior Information Technology Officer Summit, George, 18 May 2006 1. INTRODUCTION Ladies and Gentlemen, thank you for the invitation as keynote speaker at this event in one of the most beautiful parts of our country. Please allow me also to congratulate you on the selection of your theme for this year, “Pathways to Growth”, which I think is most appropriate in the light of the current state of the domestic and global economy. Indeed, it is a pleasure to deliver a speech focussing on recent economic and financial market developments in the current environment. In your sector, no one needs to remind you of the painful experience when the Nasdaq Composite Index lost almost 70 per cent of its value between 2000 and 2002. Giving a speech of this nature at that time would have been considerably more difficult. Fortunately, those times are now well past, and the picture today is a much rosier one.   2.  Developments in the world economy and financial markets The Ministers of Finance and central bank governors of the Group of Seven industrialised countries issued a statement, after their most recent meeting on 21 April 2006, in which they confirmed that the strong global economic expansion continues into its fourth year and that the outlook remains favourable. Being then on a “pathway to growth”, we should not miss this opportunity to take a step back and assess some of the recent developments in international and domestic financial markets. World output has grown by 5,3 per cent in 2004 and by 4,8 per cent in 2005, and is forecast to remain close to the 5,0 per cent level over the next two years, according to the IMF’s latest World Economic Outlook. Growth in emerging markets has been particularly strong, staying well above 7,0 per cent in 2004 and 2005, and forecast to remain in that region over the next two years. Sub-Saharan Africa, which has historically suffered from low or even negative growth rates, managed to grow by close to 6,0 per cent. Generally, these growth numbers have exceeded expectations. One of the clerks working in the SA Reserve Bank has over the past few years qualified herself through part-time study as an Advocate of the High Court of South Africa under very difficult circumstances, whilst at the same time raising two small children. She quoted Einstein as saying that: “In the middle of difficulty lies opportunity”. To a large extent this wisdom can be applied to the world economy and financial markets. There are numerous examples of how it sometimes takes a disaster or a crisis for a structural improvement to occur. It was only after the Asian crises of the late 1990s that Asian emerging markets started to build foreign exchange reserves and strengthen their macroeconomic fundamentals. Today, emerging markets are the net savers of the world, and reap the good results of their macroeconomic discipline in the form of low risk premiums and borrowing rates, ratings upgrades, increased foreign investment and accelerated growth rates. On a micro level, companies have behaved in much the same way. After having been plagued by accounting scandals, downgrades to “junk” status, section 11 classifications and some verging on the edge of bankruptcy, they have pulled themselves together. Corporations have deleveraged their balance sheets and became net savers, accounting standards have improved and corporate governance has become a major focus area. In an environment of strong economic growth, this should definitely put them on a ‘pathway to higher growth’. Consistent with the strength of corporate profits, improved balance sheets and diminishing excess capacity, investment is expected to be strong, contributing to renewed growth. A positive development in the global economy that tentatively seems to be emerging is that growth is becoming more balanced and broad-based. In 2004, the US growth rate was double that of Europe and Japan. Although the US remains the main engine of growth among the industrialised countries, the gap in growth rates is expected to narrow, with US gro