Monthly Archives: May 2013

31 May, 2013 10:42

The Rand

Have you heard? Jacob Zuma is to become a volunteer firefighter. But instead of a fire engine with a big water reservoir, he is going to drive around in a petrol tanker, using Unleaded 95 to try to douse the flames…. The extent to which the rand’s leap yesterday above (below?) that critical level of 10 to the dollar was caused by Zuma is debatable, but there are a number of factors driving down the rand. So ZA Confidential called on our Panel of Experts to assess the chances of an even weaker rand, and whether this would be such a bad thing…..?

Expert views:

John Cairns at RMB:

The rand is now almost certainly undervalued. History shows that things can still get a lot worse. Remember USD/ZAR got to 13.88 in 2001 and 11.84 in 2008. The extent of this weakness and, more particularly, the speed of the adjustment are still nothing like that seen in 1998, 2001 or 2008. When the rand runs, its moves become erratic, extremely volatile and impossible to predict. To some extent, how far we run is completely random. The market has learnt that the rand always recovers strongly from blowouts. Rational investors use rand weakness as an opportunity to buy, which in turn limits the extent of the fall. Consider that the 2008 move was far less extreme than that of 2001, even though fundamentals were a lot worse. The underlying cyclical backdrop for the rand is terrible. At a time when South Africa is running a massive current account deficit, any upset to financial inflows would have major repercussions. A slowdown would hurt; a complete stop would be disastrous; a reversal would be catastrophic.

Mike Schussler from economists.co.za:

Oh yes, it can get weaker. But I think in the short term (the next month or two) a pull-back is on the cards. World growth is not expected to increase enough (particularly in China) to help commodity prices and therefore commodity exporters are seen as having weaker growth and bigger current account deficits, as commodity prices have all declined by around 10% or more in the last two months. The markets are now also scared that QE 3 is going to end, and hence a "flight to quality" again. Having said that, I think the weaker rand will help exports – at least in the medium term of, say, the next 18 months or so.

Mario Pretorius from Telemasters:

Landing in London with impeccable timing as a reluctant tourist, even the border- control person sneered at my currency. If my currency is the barometer of international sentiment towards ZA’s future, then the world is catching up with local expectations and reality. How many Gupta, Marikana, Nkandla scandals will there be before we face up to the very un-PC reality that the Lady is not Chaste? That the ZA cadre-infiltration has now sapped even SARS’ abilities? That there is no, absolutely NO, prospect of turning around the state socialisation of every resource, every asset and every job as if it is Moscow in 1917? I pity every liberal that peddles blind hope and faith – as if we will wake up tomorrow in a liberal’s paradise from our quicksand revolutionary hell. So ZA is leading the pack in the race to the bottom, where weak currencies will triumph as their exports will soar? Dream on Messrs Gordhan and Manuel. If this is the outcome of the National Planning Commission and its implementation, we will need Gideon Gono here to QE us. What shall we export more of in the downward commodity cycle? Platinum? Ostrich? Exactly.

Craig Pheiffer from Absa Investments:

With the negative sentiment prevailing and wage strikes ongoing, the rand could well get weaker, particularly if we see further US and local bond weakness on top of that (we had big bond outflows on Wednesday). Successfully and peacefully concluded wage negotiations – when and if they come – could well see the rand rally from the weaker levels, though. The big issues remain government’s limited ability to improve the social welfare of the state with an already large budget deficit. On top of the that is the widening current account deficit and those are the issues that the ratings agencies focus on – along with the negative effects of the strike actions (which really just impoverishes more of the populace the longer they are drawn out). The theory is that a weak rand makes our exports more competitive and that’s a good thing that should help reduce the current account deficit. But "compulsory" imports such as oil and capital equipment carry a heftier price tag in rand, and that hurts the deficit. Broader than that, though, a weaker rand is inflationary and that impacts household consumption directly (food and fuel are more expensive for example) and indirectly (potentially through higher interest rates – which also hurts investment). So it doesn’t necessarily follow that a weak rand is the panacea that’s going to reduce the deficit and lift domestic growth prospects.

Russell Lamberti from ETM:

Like a neglected house that looks structurally sturdy until one day it crumbles into a heap, so has been the rand’s slump. The seeds of this crash started being sown in 2010 already, but no house crumbles overnight. The beauty of a (roughly) free-floating currency is that it exposes macroeconomic mismanagement with consummate ease; South Africa has plenty of macroeconomic mismanagement to go around. In the past, when the rand has depreciated so sharply, the Reserve Bank has favoured hiking rates, but the class of 2013 has a low interest rate paradigm, and so interest rate protection for the rand may not be forthcoming in the weeks and months ahead. This does raise the prospect of continued depreciation, even if the currency is becoming cyclically undervalued. When the rand gets into these moods, prediction becomes something of a fools game – but if the past is anything to go by, we may have to brace ourselves for R10.50 or even R11.00 per dollar. Does a weak/weaker rand benefit SA? Not in the least. Some pockets of the economy will undoubtedly benefit, but these benefits are on the whole greatly offset by inflation pressures, rising wage demands, soaring fuel prices, and financial panic. It is no surprise that after two years of steady rand depreciation GDP growth has now slumped to below 1%. If it weakens further, recession beckons.

Chris Hart from Investment Solutions:

The rand remains highly vulnerable to further weakness because:

1) There is a huge external deficit

2) Foreigners have big holdings in both the bond and stock markets

3) Investor sentiment is therefore a bigger factor than normal

4) Investor sentiment is being hammered by strikes, policy uncertainty, slowing growth, and the increasing risk of a credit rating downgrade

The rand could weaken by a further rand or two against the dollar – i.e. to 12 or so – in the short term. At that point, SA assets will look cheap again and capital flows should stabilise and the rand start to recover. Externally, the picture is also bleak. Zero yield, recession, sovereign solvency challenges, so South Africa is in a better position. I would think that by year-end the rand would be recovering back below the 10 level again, based on further deterioration in Europe, and consequent inward capital flows.

Conclusion

There is a lot of uncertainty and whatever else, the floppy rand is now a major talking point…..

Tweet of the Day

Viktor Winetrout, Jr (@Cpin42: The Bible says homosexuality is wrong. I forget the chapter. It’s somewhere between the talking snake and the virgin birth


30 May, 2013 18:37

Tiger Brands Results for 6 Months to March

A brief look at Tiger Brands. The company told analysts this morning that the environment remains challenging – with a constrained consumer and intense competition, and this is not about to change in the short term. The slowdown in consumer spending is going to continue. Rising cost inflation is another worry. Diluted headline earnings per share (heps) were up 4.7% in the half year. Revenue was up 20.6%. They have a portfolio of impressive brands, mainly in the food arena, and are working hard on expansion into Nigeria.

Expert view:

Ron Klipin from SA Stockbrokers:

They face major challenges. They are under pressure as consumers buy value. Then there is Nigeria and their brand portfolio.

Conclusion

With the rand having broken through the 10 to the dollar level this afternoon, the economy is a big worry. People will always need to buy food, but will they trade down to less-Famous but equally Tigerish Brands? We should learn more in the second half of their financial year.

Tweets of the Day

Michael Jordaan @MichaelJordaan: Why does everyone all of a sudden want to have coffee with me? Don’t they know I prefer wine?

Ryan @ryguy_smith: 50 Shades of Grey is actually a story about Brussels’ weather.


Focus on Health

Discovery Health media briefing.

Here are some bullet points from today’s Discovery media briefing, which gave some fascinating insights into one of those businesses you love to hate. Nobody likes to pay for private health care, but given the dire state of State facilities, there isn’t a lot of choice. But we were told that members who are most most active in working with Discovery’s Vitality scheme can live 8 years longer. A staggering number.

Dr Jonathan Broomberg, CEO of Discovery Health:

– Tariffs are closely linked to CPI inflation levels and are not the only factor in medical inflation
– There will be a Competition inquiry in September, and much comment has identified pricing as a key issue, but in Discovery’s view, utilisation is a bigger issue.
– “High tech creep” means the average hospital admission is increasing in cost
– 350 000 to 400 000 rand for some new types of aortic valve surgery for the elderly – can give 5 or 10 years of good life
– Growth of chronic illness adds to the burden of disease – significantly higher in ZA compared to many countries > – High rates of TB in ZA and of infant mortality. As well as HIV/AIDS
– An awareness of wellness is leading to more screening. Doctors are picking things up earlier
– Inflation is not all the fault of people who are charging too much. There are other issues
– In healthcare you can cut costs and improve quality at the same time, if you eliminate waste. US studies suggest 21% wastage in private healthcare
– 254 million rand recovered in fraud from Discovery members. One way is claims being made for one person on another member’s card
– Big move to generics, with spend on generics exceeding spend on brands in the chronic environment
– Vitality helps to identify people at risk. Once diagnosed there is disease management
– There is a significant increase in numbers of high-cost patients. 2 percent of members account for 50 % of expenditure
– We save money on patient care by ensuring better coordination among care givers, with bette team work
– The most active Vitality members live longer – as much as 8 years of life expectancy
– There is a shortage of doctors inZA. Ned to train 2400 a year to stay at current levels, but graduate levels of 1200 a year for last 2 decades
– Technology can change the way doctors can operate. Doctors have electronic access to health records, details of drugs being prescribed and so on
– You can read brochures and watch videos on the Discovery smartphone app
– Diabetic data from glucose meters can be sent to Discovery and can save lives and reduce the numbers of hospital admissions
– In the US there is an equivalent of Trip Advisor for doctors. This revolution in data will help healthcare consumers.

Dr Craig Nossel, Head of Vitality Wellness:

– 60 percent of deaths globally are related to chronic diseases
– It’s not just about mortality, it’s about how many quality years we are missing
– These are critical issues about the economic development of our country
– “If we can get just people to exercise, stop smoking and eat a healthy diet, we are there. Smoking and obesity are the two big issues.”
– Health promotion has limited impact, the shift is to behavioral economics
– With wellness you don’t get the benefit today. The benefits are down the line
– By giving people a payment to stop smoking, you increase the numbers who stop
– In ZA we have a 20 to 21 percent rate of smoking among adolescents, which is the highest rate in Africa
– “We are less active and we are consuming more, and consuming more of the wrong things.”
– “If you discount healthy food by up to 25%, people will buy more of it
– The extent of diseases is big, the impact is big, so we need big remedies
– A lot of what has been done in South Africa is having a broader impact”


28 May, 2013 13:58

Scary GDP Number

GDP grew by just 0.9% in the first quarter of this year – a scary number. Most experts believe that growth needs to be in the order of 6% for significant job growth to occur. At these levels we are more likely to be destroying jobs.

Expert views:

Goolam Ballim from Standard Bank

South Africa continues to cement its relative underperformance among emerging economies. The confluence of tepid external demand, fragile local consumer fundamentals and constrained policy stimulus has contributed to marked, sustained momentum loss in South Africa. One notable consequence of the generalised economic weakness will be further restlessness among workers, which in itself is retarding of economic activity.

Loane Sharp from Adcorp

According to official GDP figures released today, economic activity in South Africa stalled in the first quarter of 2013. This presents a bleak picture for the labour market. According to Adcorp’s modelling, the economy needs to grow between 4% and 5% per annum just to absorb all the new entrants entering the labour market from the secondary and tertiary education sectors in search of work each year. The economy needs to grow 8%-9% to make substantial inroads into the country’s formal sector unemployment problem. However, at the same time, there are good reasons to believe that Statistics SA is not on top of its game in terms of recording the full scope and extent of economic activity. Based on cash in use in the informal economy, GDP is, in fact, 15.7% – bigger than Statistics SA’s figures suggest. Based on electricity usage patterns, the economy is 10.7% larger than the official figures suggest. There are thus two realities in the labour market: a troubled and shrinking formal sector, where employment (at least in the private sector) is falling; and a vibrant and growing informal sector, where employment (broadly defined to include all available means of obtaining a regular income) is rising sharply. Unless labour laws and income taxes (as the primary causes of growth of the informal sector) are revisited, the economy and labour market will continue to be subject to powerful forces of informalisation.

Shadow Minister of Finance Tim Harris

GDP growth statistics released today by Stats SA reveal that South Africa’s economic growth has collapsed to 0.9% in the first quarter of 2013. This means we are completely out-of-step with growth rates in developing economies like Thailand (5,4%), Indonesia (6%) and Chile (4,1%). In fact, we are now growing slower than several embattled first world economies like the United States (1,8%) and Canada (1,1%). This is the strongest indication yet that this government has the wrong economic policies and lacks the leadership to implement reforms that will grow the economy and create the jobs South Africa needs. President Zuma’s government has only taken us from one scandal to the next, when it should have been putting in place growth-oriented policies such as those set out in the DA’s Plan for Growth and Jobs. The current economic performance of developing countries around the world shows that it is possible to achieve high growth rates today. African countries in particular are expected to achieve exceptionally high growth this year. According to the African Economic Outlook Report Ghana will grow at 7.1%, Mozambique at 7.4% and Zambia at 7.3% in 2013. We are confident that, with the right policies and strong leadership, South Africa has the potential to achieve similar growth rates. The DA’s top priorities remain growing the economy and creating jobs. The GDP figures released today are a reminder of how this government is failing to prioritise either of these. Next year’s elections will allow South Africans an opportunity to show their disappointment with this government by voting for a party with a plan to grow the economy and create the jobs needed to undo the legacy of Apartheid.

Coenraad Bezuidenhout of the Manufacturing Circle

The manufacturing sector’s minus 1.2% contribution to GDP growth confirms that although a more competitive rand presented some opportunities for retaining their ground, a cocktail of high domestic costs, supply constraints and low global demand are still holding the sector back.While domestic costs remain high due to bunched-up administered price increases and wage increases which have not been matched by productivity improvements, supply constraints have been driven by steel shortages, power outages, water scarcity, the emergency shutdown of a liquefied petroleum gas refinery and a shortage of tin plates. Manufacturers also reported shortages of high grade coal, insufficient inbound and outbound railway services, outbound harbour capacity and service delivery constraints, as well as inadequate foundry capacity. While the rand has weakened even further in the second quarter, any benefit to manufacturing growth will remain suppressed as long as domestic cost pressures and supply constraints remain unadressed. In light of the latest warnings on reserve margins by Eskom, the situation is clearly deserving of attention by labour, business and government.

Dawie Roodt from the Efficient Group:

The numbers were a real shocker; much lower than what we expected. It probably means that GDP for 2013 could come in below 2% – less than population growth. This is a recession for all practical purposes. Furthermore, manufacturing was the main drag on the figures, contracting by 7.9% – and it’s the only sector that can really create a significant numbers of jobs. Unemployment will remain high and may even increase further.

Ettienne Le Roux of RMB:

The 0.9% quarter on quarter, annualised, GDP number was much weaker than our forecast (2.2%) and the market consensus projection of 1.6% (Reuters). The negative surprises: contraction in real value-add was deeper than anticipated in agriculture, manufacturing and utilities. Modest growth accelerations in the trade, transport and finance sectors were in line with projections. Elsewhere, growth in employee compensation moderated to 7.4% y/y, from 9.1% in 4Q12 and 8% in 3Q12. Gains in the gross operating surplus (a macroeconomic measure of companies’ earnings) improved marginally, but remains weak at 6% y/y in 1Q13. Both these outcomes suggest the weakening trend in consumer (as well as private sector fixed investment) spending continued in 1Q13. For confirmation we await the release of the SARB Quarterly Bulletin later this month.

As for the outlook: today’s number implies the economy started the year on a much weaker footing than initially anticipated. What’s more, prospects are poor: the 1Q13 rebound in mining is most unlikely to last (labour unrest, strike action etc), while manufacturing output should remain under pressure, despite the weaker currency (tepid global growth, potential electricity shortages and slowing consumer expenditure). The 1Q13 shock forced us to lower our full-year 2013 GDP growth estimate from 2.4% to +-2%. In the context of low (if not falling) consumer and business confidence, as well as a weak (if not weakening) external environment, the risks to our new GDP forecast are skewed to the downside. We maintain our view of another 50 basis point interest rate cut in 3Q13. Slower growth also poses a threat to the government’s budget position (The National Treasury still expects GDP to expand by 2.7% this year).

Conclusion

This is a worrying growth number, suggesting a virtually stagnant economy. The Reserve Bank’s Monetary Policy Committee declined to reduce interest rates last week. Armed with today’s GDP number, they might have come to a different conclusion.

Tweets of the Day

Barney Stinson (@stinsonsays): Beer is good but beers are better.

Mark Twain (@MarkTwainTwtr): Man – a creature made at the end of the week’s work when God was tired.


27 May, 2013 16:56

Famous Brands Annual Results to Feb 2013?

Famous Brands claimed in its results announcement that its performance had been “impressive”. Revenue was up 17%, headlines earnings a share (heps) rose by 22%, and the dividend was boosted by 25%? This food business includes several well-known franchises such as Steers, Whimpy, Mugg & Bean, Debonair’s Pizza and tashas. It operates in South Africa, and beyond, and also manufactures many inputs for its restaurants. It is now making its own mozzarella cheese in Coega – not sure what the Italians think of that? It is planning new tashas outlets in the plush Cape Town Waterfront and probably in Sandton’s Mandela Square, and it is clearly determined to grow aggressively in Africa. So what do our experts think of the group’s performance?

Expert views

1. Chris Gilmour of ABSA Investments

This was another outstanding result from SA’s biggest quick service restaurant chain. Although the local economic background didn’t help, a host of new acquisitions and a strong contribution from the small but growing rest-of-Africa segment helped to produce this strong result. Two new acquisitions – Bread basket and Turn ‘n Tender – kick in from the new financial year. While it is getting tougher to make meaningful acquisitions due to a) Famous Brands’ large size and b) the difficulty in finding good new targets, the group will undoubtedly manage to find something to which they can add value in the coming year, and beyond. The Wimpy chain in the UK continues to under-perform, but it is not proving to be a distraction to management – and the group plans to open its first Steers outlet in Clapham in London very shortly. African operations should continue to grow strongly into the future. This is an exceptionally well-managed company at all levels and, while expensive, deserves its premium rating on the JSE.

2. Independent Analyst Ian Cruickshanks

With heps up 22% on the year, on revenue up 17%, this points to improved operating efficiencies. The company continues the strong growth trend of the past 8 years, as they remain close to their franchisees and their customers. Centralised manufacturing and marketing have led to improved operating efficiencies. Location is vital to this business and they are getting it right as they remain strategically well- positioned for SA’s fast growing urbanisation. Outlets continue to offer value for money compared to competitors. They are already operating in 15 countries in Africa, and this is a high growth area.

3. Ron Klipin from SA Stockbrokers

Logistics, manufacturing and franchising are three profit streams which compliment and supplement each other. They are planning African expansion to tie-up with Shoprite and other developers in Africa, and this has major potential for expansion. They go top to bottom – with offerings for all income groups. I expect the revamp of Mandela square has potential for a major tashas outlet, as well as in the Cape Town Waterfront.

4. Lavan Gopaul from 28e.co.za

A further 55 stores across Africa and entry into India and the UK consolidates a commitment to international expansion. Completion of the acquisition of Fego, Europa, Bread Basket and Turn n Tender affirms their wide network of food brands for the wealthier income groups. The Coega cheese joint-venture helps build a vertical supply chain. Famous Brands is a success story – of growth by international expansion, acquisition, organic growth and right-sizing vertical inputs such as cheese. The fast food giant looks set to deliver healthy earnings growth in the next report.

Conclusion

This is an impressive business, cutting throats skilfully in a cutthroat industry. Hedderwick told analysts that it has been a year of extreme margin pressure in a very competitive environment. Famous Brands has exceeded its 4-year vision of doubling the size of its business. While the opening of a new outlet in Dubai in a few months time is impressive, the Rest of Africa is the real expansion zone. It is happy to trade in just 15 African countries and plans a narrow focus in terms of geography and in terms of brand portfolio. The Rest of Africa now accounts for 7% of its business, and it grew 44.7% in the Rest of Africa in the past year. The emergence of US fast food chain Burger King might be a concern. “We are not petrified,” said Hedderwick. “We welcome competition. If the burger category grows, we will grow with it.”

Tweet of the Day

DMoose Allain (@MooseAllain): Papers just released from MI5 under the statute of limitations have revealed there was a mole in Wind In The Willows.


25 May, 2013 10:33

English AND Afrikaans at University?

I was fascinated by an Engineering News article about English and Afrikaans being available to engineering students at Stellenbosch University (SU). This is a reminder that many South Africans would prefer not to have English as the dominant taal. However, it is the language of business, and arguably engineers are best equipped to find work if they are fluent in English and have been taught in English. So what do our Experts think?

Expert views

1. Frans Cronje of the SA Institute of Race Relations

This is an old debate. My view is that market demand needs to lead it. If the state were to use pressure to push the university into English then that would be wrong and we would oppose it. We have, for example, been critical of the University of KZN policy of forcing Zulu in first year. Likewise, if the University of Stellenbosch sought to force students into English, we would oppose that. However, where student demand evolves and the university responds to that, then there is no problem. It is probably indicative of natural economic evolution. Afrikaans will, however, be the poorer for it.

2. Mario Pretorius from Telemasters

Language enforcement gave us the Great Trek, the ’76 riots and more to come. NWU at Potch is accommodating local and international students by simultaneous class translation to English. This is the best current solution. Forcing Natal students into Zulu proficiency as a prelude to all Zulu lectures is short- sighted. Tuks (Pretoria University) has a majority of Black students, probably Setswana speaking. Is the idea to exclude non- native speaking lecturers and students from attending and participating? Goodbye international profile? Language proficiency can at best add flavour to a student’s participation. It will be impossible to gain the proficiency required in 6 months; it would be a step backward to stop translations and revert to a ‘Learn or Lose out’. It would be best to focus on access, cost, efficiency and outcome for young and eager minds needing tertiary training for career preparation.

3. Multi-lingual lawyer Emile Myburgh

When I was at Stellenbosch, our lectures were de-facto bilingual already, and that was 1991 – 1996. The lecturers repeated most of what they had said in Afrikaans in English as well. Exam papers were bilingual in any event, and students could answer the exams in either English or Afrikaans.

4. Duane Newman of Cova Advisory

Any initiative which makes a person’s choice of university larger should be supported. An Afrikaans-medium university could be a barrier to many students. Consideration should be given to using this in the schooling system as well. There are many high quality Afrikaans-medium schools which are not an option to many children, due to the language barrier.

Conclusion

There will always be sensitivities about English, Afrikaans and our other languages. As long as students are receiving top quality tuition and study hard, I have no problem with them being offered an array of language options. We are all richer when we have exposure to more than one language.

Tweet of the Day

Dara O Briain (@daraobriain) There’s nothing I adore more on twitter than people who tweet when you’re offline, wait, and then tweet "See! You have no answer to that"


23 May, 2013 17:41

Interest Rates to Remain Unchanged

The Reserve Bank Governor Gill Marcus is concerned about the outlook for the economy, but as expected she announced no change in interest rates, when reporting this afternoon on the latest deliberations of the Bank’s Monetary Policy Committee (MPC). The inflation outlook is being stoked by a number of factors, which include rises in water, municipal rates and taxes, and medical insurance. Internationally, the developed world is hobbling along, while Marcus detected signs of “moderation” in growth in China, India and Brazil. The rand has seen 4.6 % depreciation since the last MPC. Possibly the most significant part of her statement was when she revealed that the Reserve Bank’s GDP growth forecasts are down: to 2.4% this year, from an earlier 2.7%, and for next year down to 3.5% from 3.7%. There is a worrying outlook for mining sector, and concern about strikes and wage settlements above inflation. And we should expect to see further petrol price increases.

Expert views

1. Sizwe Nxedlana of FNB

Gill Marcus painted a very similar view of the economy to our own, with her GDP growth forecast for this year of 2.4%. You have weakening aggregate demand and unsecured lending that needs to be tightened up. Sixty percent of our exports are commodities, and we have much turmoil in the mining sector – so we are likely to export lower volumes at weak commodity prices. It is difficult to see further acceleration in GDP in 2014.

2. Russell Lamberti from ETM Analytics

The decision and statement by the MPC reflect profound confusion about what lies ahead. The Reserve Bank would probably like to cut – the Governor even indicated that the decision to hold was not unanimous, and that one member wants to cut rates – sensing an economic downturn on the way. But it knows to do so risks a rand firestorm that would create greater inflation pressures, and probably an even deeper recession as a result. The Bank, of course, should hike rates to restore strongly positive real interest rates, but it has an ideological block to such a move and wants to avoid having to hike at (almost) all costs. So the Bank has decided that discretion is the better part of valour, which is a magnanimous way of saying that it’s deeply confused.

3. Nedbank Economic Unit

The MPC’s decision to leave the repo rate unchanged was in line with our and the market’s expectations. The statement was hawkish on inflation, with the MPC concerned about the likely impact of high wage settlements and the weaker rand. However, growth is still subdued and downside risks persist. The MPC faces the challenge of balancing weak growth prospects and rising inflation. We believe that this will persuade the Committee to keep monetary policy neutral over an extended period, with interest rates remaining unchanged well into 2014.

Conclusion

Lots to concern me in today’s announcement by the Governess. She sees so many troubling factors, there is a lot of uncertainty about the future, and the economy is to grow at a slower pace. Don’t rule out an interest rate cut later in the year.

Tweets of the Day:

Michael Jordaan (@MichaelJordaan): As expected no change in repo. With Rand targeting 10 to $ we may even see a surprise hike next time.

Harry Potter’s Dad (@SimonCavadino): Wearing a pink shirt and this teenage kid called me a ‘poof’! I replied that I had once shagged someone with a beard, but that was his mum.


23 May, 2013 09:54

ZA Confidential Speaks to Michael Jordaan.

We caught up with the CEO of FNB Michael Jordaan to chat about his announcement that he is standing down at the end of the year, his future on twitter and his hope to create jobs in the future……

ZAC: Why are you stepping down when still so young, just 45?

MJ: 1 will have been CEO for 10 years, a good innings. Leaders should not hang in too long. I have been commuting from Cape Town for 5 years, and now have time to reflect on my life and plan the second half.

ZAC: FNB was in the spotlight over the recent advertising campaign featuring the wishes and thoughts of young children – and there was anger over some of the critical material posted on U Tube, leading to your chairman apologising to the government. There is a natural suspicion that you may now be taking the fall for that. Any truth in this?

MJ: No, not related at all.

ZAC: You have been an innovative leader at FNB, with cheap iPad offers, apps and other technology. Is this sustainable after you leave?

MJ: Yes. Innovation is in our DNA, the culture will persist, the momentum is strong and there are some exciting launches in the pipeline

ZAC: It is a cliche to say you are going to spend more time with the family. Do they still recognise you? And how disruptive has it been having a job in Jo’burg and a family in the Cape?

MJ: I see my kids two nights a week, and promised my oldest daughter, who is nine, that I will come home "forever" when she turns ten.

ZAC: Where do you want to work after a break? Director-at-large like (former McCarthy head) Brand Pretorius, wine farmer, IT innovator, lecturer and mentor, or a bit of everything?

MJ: I want to do something significant, which is quite a challenge after this big job I am leaving behind. I like to get my hands dirty. I admire entrepreneurs and am fascinated by technology and innovation. I want to create jobs and add value – and also to give back academically.

ZAC: Any further big ambitions ….learning to fly, to fly-fish, marathon running….?

MJ: I want to travel – Silicon Valley, Tel Aviv, Turkey- to read, to think, to cheer on my kids at school games, then start the next big thing.

ZAC: What have been your biggest achievement and your biggest mistake?

MJ: I am proud of the cultural revolution at FNB, the reduced hierarchy, that we have created space so people can empower themselves, and that innovation is so widely practiced. My mistake was in not taking more risk – both earlier in my career and as CEO.

ZAC: Are you going to play any direct or indirect part in politics?

MJ: No, I am useless at politics. Entrepreneurs are the only ones that create value.

ZAC: Does your future lie in SA?

MJ: Yes, and Stellenbosch more specifically.

ZAC: Will you stay active on twitter?

MJ: Of course. I am addicted to twitter.


22 May, 2013 17:23

CPI Inflation at 5.9%. Update

1. Dawie Roodt from the Efficient Group

I am afraid that the recent weakness in the currency is likely to push inflation higher in coming months. Food inflation is also likely to accelerate – and the poor, as usual, will be hardest hit. A weak currency doesn’t seem to be such a good idea after all…


22 May, 2013 13:37

CPI Inflation at 5.9%.

Inflation is within the Reserve Bank’s target range. Just. But the economy is limping badly. So will there be an interest rate cut tomorrow? We asked a few experts/?

Expert views

1. Nedbank’s economic unit

Annual consumer inflation at 5,9 % in April came in higher than market and Nedbank expectations of 5,7 %. On a monthly basis inflation increased by 0,4 %. The upside surprise relative to our forecast stemmed from food prices which increased 0,5 % m-o-m in April. Despite just hovering below the Reserve Bank’s 6 % upper target range, we do not foresee annual inflation breaching 6 % in the May release as the fuel price declined considerably in that month. We still expect inflation though to marginally breach 6 % later in the year. The biggest upside risk still remains the rand which has now reached a four year low against the US dollar. The latest inflation numbers do not alter our interest rate view. We believe that rates will remain at current levels for the rest of this year. The MPC will need to strike a balance between high inflation and still poor economic growth outcomes, with the current policy stance likely to remain in place well into 2014.

2)John Loos from FNB:

This rate comes as a slightly negative surprise, perhaps, with some expectation that lower year-on-year petrol price inflation may have contributed to a slightly lower overall inflation rate. The current 5.9% CPI inflation rate remains negative for disposable income growth in real terms compared to recent years where it was considerably lower. This relatively high inflation rate, coupled with ongoing mediocrity in economic growth, makes it likely that real household disposable income growth will continue its slowing trend in the near term. The current 5.9% CPI inflation rate, which is very near to the 6% upper inflation target limit, coupled to recent Rand weakness which could conceivably exert some upward pressure on imported goods prices should it be sustained, probably doesn’t make a SARB interest rate cut likely at the present time. The FNB view is that interest rates will remain unchanged until the 2nd half of 2013. At that stage, dampened inflationary pressures in a mediocre global and domestic economic environment are expected to make an interest rate reduction more likely. No interest rate reduction would mean no decline in household net interest payments, and thus a neutral impact on disposable income growth. The key “upside risk” to inflation forecasts, however, is high wage demands which threaten to exert upward pressure on inflation. However, this is not a foregone conclusion, as such demand need not translate into actual wage increases, and if they do, labour shedding can still contain unit labour cost increases.

3)Jeff Osborne from the RMI:

Inflation is not being driven by consumer spending – it’s cost driven. The weak rand and the high price of crude oil are stoking inflation. I don’t think the authorities should be influenced by the inflation rate against a further reduction in interest rates. The economy needs stimulation, and a cut in interest rates could help consumers bring down their debt, and could bring greater disposable income for consumers. Lower interest rates would serve to boost levels of trading within the motor industry. Our members are predominately small businesses, and have seen a decline in consumer spending.

Conclusion

Most experts expect no change in interest rates tomorrow. But ZA Confidential wants to see a cut. Watch this space.

Tweet of the Day

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