Unemployment rises in South Africa.

The biggest crisis facing this country is unemployment, and today’s data suggest we are heading backwards in tacking it. The politicians come up with grand plans and strategies for boosting the economy and growth. And yet…..I despair. Statistics South Africa announced this morning that our army of unemployed swelled by 100 000 in the first quarter of this year, rising to a scary 4.6 million jobless. Loading…The official unemployment level is up to 25.2% from 24.9% in the fourth quarter of 2012. But, of course, that headline number seriously understates the true numbers of unemployed……

Expert views

Nedbank’s Economic Unit: The unemployment rate is likely to remain high in the short term as firms will remain cautious of expanding capacity and employing more people in the current challenging economic and labour environment. Employment is likely to be driven mainly by the public sector as it rolls out its infrastructure programme. The increase in the unemployment rate adds to other evidence that the local economy is struggling to pick up. The Reserve Bank is likely to continue striking a balance between the weak economy and upside risk to the inflation outlook by keeping rates steady this year and well into 2014.

Ian Cruickshanks, Independent Economist and Analyst: Today’s data confirms the present losing battle against the current jobless growth phase. This negative development is likely to lead to increased demands for government social grants, raising pressure on already overstretched government expenditure and pushing up the Budget deficit, while increasing the risk that global ratings agencies might consider further SA sovereign credit downgrades. Until the South African labour force agrees to limit wage demands to rising productivity in addition to cost of living increases, employers will be reluctant to hire potential employees, maintaining the social burden on already stretched government resources while slowing infrastructure development. In the current scenario, South Africa remains trapped in an ongoing low growth phase.

DA Shadow Minister of Finance Tim Harris: When discouraged work-seekers are taken into account the broad unemployment rate has increased to a staggering 38%. This means that there are 1.2 million more South Africans unemployed today than there were on the day Jacob Zuma became president.The situation is simply unacceptable and a clear indication that the ANC is failing the poor and unemployed. President Zuma pays lip service to reducing unemployment in South Africa, but fails to follow through with his commitments.

Conclusion

We are facing a major crisis. Sustained unemployment will stoke social unrest, and threaten the stability of the country. And every one of those unemployed people faces poverty, a dent to their self-confidence and represents a resource which is lost to the nation. Job creation must be moved to the top of the political agenda, and with it a recognition that bureaucratic red tape, which stifles enterprise, is not the way forward.

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The QI Elves (@qikipedia)What does the Pink Panther say when he steps on an ant? Dead ant, dead ant, dead ant, dead ant, dead ant, dead ant, dead ant…

Special report: Electric Cars

It may sound far-fetched, but your car may soon help to keep the lights burning at home in the evenings. This is one of the technological possibilities which would be feasible if Trade and Industry Minister Rob Davies gets his way and South Africa becomes a significant manufacturer of electric cars.

The Minister was joined by his Environmental Affairs colleague Edna Molewa and the local CEOs of three major automotive manufacturers at the Sandton launch of his strategy this week.

He also had experts from a number of stakeholders, including Eskom’s Amal Khatri, who had some fascinating things to say about the way in which car batteries could work when plugged in to home chargers.

He suggested that while they would need to load-up on electricity for the next day, this could happen after the evening peak demand period, which is in the early evening.

“Electric vehicles charging at home could potentially supply power back to the grid,” he suggested.

This would mean that when you get home, the remaining power in the battery could help Eskom to meet peak demand. One vehicle would make little difference but if we move to an era of millions of electric cars, the impact could be significant.

Once power demand subsides, the car battery would become a consumer of electricity, and could charge up in the garage while the family is sleeping.

Rob Davies was insistent that government wants South Africa to be a manufacturer of electric vehicles, which it is not at present, and he said that a series of incentives will be put in place to encourage manufacturers, under the new ‘Electronical Vehicle Industry Road Map.’

The automotive sector currently receives incentives to produce cars in SA under a scheme which was updated this year and re-named the Automotive Production and Development Programme (APDP), and this will be amended to boost help for electric cars.

Currently, investors can earn up to 30% back on their investment over three years. Davies announced that when they invest in electric car manufacture, this will rise to 35%.

Meanwhile, the minimum annual production to qualify for state support will fall from 55 000 vehicles to 5 000.

Government will also look at incentives for consumers to purchase the vehicles, and intends to add more of these vehicles to its own fleets.

There is currently a trial of electric vehicles in Gauteng, with three solar-powered recharge points, and Minister Molewa said this number will rise to 50 in the next few years.

Davies spoke of his vision of one day every garage having not just liquid fuel pumps, but plug-in charging points for electric vehicles.

And Eskom will look at preferential tariffs for electric vehicles.

The big question is whether all of government’s efforts will be enough to make a difference and to persuade manufacturers to set up assembly lines for electric cars within South Africa.

The economic case may not yet be compelling, even with all the new support.

However, the automotive sector has received massive backing from government over the years, and may decide to put economics to one side in a bid to win a few ministerial smiles.

There are certainly other issues on which it could do with help from the state.

Toyota’s Johan van Zyl reminded the ministers at the Sandton launch that there is still a problem with the quality of fuel in South Africa.

It is of such poor quality that some models of vehicle cannot be sold here, as they cannot run on what currently comes out of the pumps.

Rob Davies insisted: “We want to ensure South Africa is not left behind” as the automotive industry moves away from liquid fuels.

In time, we may see the price government will have to pay to achieve this.

May 2nd 2013

Today’s Topic: Pay of Mining CEOs

The spokesman for the National Union of Mineworkers, Lesiba Seshoka, came up with a real shocker in the run up to this week’s May 1st Workers’ Day Holiday. He said it is wrong for mining companies to say they can’t pay big rises to workers, while executive pay is often rising at many times the rate of the increases which workers are granted. So should bosses’ wage hikes be held down to the levels of the ordinary miners? Are they too well paid?

Expert views from three top Economists

1. Chris Hart from Investment Solutions:

I would suggest that the workers bring this on themselves because of the way they negotiate. Workers seek increases of inflation plus a certain amount, but bosses remunerate themselves on performance. And performance gets a bigger pay-out than inflation. That’s why you will find many managers’ salaries have been rising over the years related to the workers. If workers were paid on productivity and boosted their performance, they should get more.

2. Christo Luus from Ecoquant:

One should probably define "too well paid". Is it too well paid in relation to other sectors’ CEOs, in relation to their workers, in relation to international peers, in relation to a previous period, in relation to productivity improvements, company performance, shareholder value added …? The list can go on. My view is that the CEO’s contribution to the company’s profitability should be a key determinant of his/her remuneration, and that the biggest part of their pay should be performance related – perhaps paid in the form of stock options.

3. Loane Sharp from Adcorp :

There is a pervasive myth, propagated by trade unions for ulterior purposes, that mining bosses are overpaid in South Africa. In actual fact, there is a high correlation (73%) between CEO remuneration and company performance of JSE-listed companies: the better a mining company performs, the more highly its CEO is paid, and vice versa. In present circumstances, where mining companies’ return on capital has fallen sharply due to stagnant or falling commodity prices and rising labour costs, performance-related pay for mining CEOs will quite naturally fall. Basic remuneration, as opposed to performance-related pay, will not fall to any material extent, because mining CEOs’ basic remuneration is determined by other, non-performance related factors, such as the size of the company, the nature and complexity of the company’s operations, the experience of its CEO, and so on. The strong link between company performance and CEOs’ performance bonuses is a great strength of South Africa’s mining industry, since it promotes very high levels of accountability to shareholders.

Conclusion

It really is going to be a winter of discontent in South Africa, and it is not hard to make workers believe that they are being badly paid, as they do appear to be when compared to their bosses. The subtleties of remunerating scarce skills are real. But this can be lost on people who are aware of the lifestyles of those at the top of the management ladder, and only feel resentment and jealousy. Those at the centre of the wage negotiations would be well advised to do their homework on this issue, to ensure the message gets out there that this is not a South African problem alone. And if the CEO enjoys travelling to work in a car that clearly cost many multiples of the annual salary of one his lowly employees, do we shed too many gasps of surprise at the odd smashed window or slashed tyre? Save the Ferrari for the weekends, my boss.

Tweet of the Day

@MaxduPreez I think kulula.com should fly to Waterkloof for those of us often going to Pretoria #nationalkeypointmyfoot

ZA CONFIDENTIAL April 23rd 2013

Today’s Topic: Pick n Pay Annual results to 3rd March 2013

The Company itself says the performance over the year was disappointing, blaming much of this on the restructuring of the business. Turnover rose by 7.1%, but headline earnings per share (HEPS) from continuing operations fell by 30.8%. New CEO Richard Brasher gave a confident presentation to analysts in Johannesburg, and his track record at the UK supermarket giant Tesco suggests that he should have the skills to help turn around Pick n Pay. However this is a highly competitive environment, and questions remain about how much Brasher will be his own man, and how much he will be held back by the supermarket chain’s founding dynasty, the Ackerman family.

Expert views

1. Lavan Gopaul from 28E Capital:

Pick n Pay have opened 107(11% increase) new stores and still delivered a 30% dip in HEPS. Higher electricity and petrol prices may have resulted in a small spend by consumers. Their model of stalling payment to suppliers translates into higher interest income during periods of high interest. Pick n Pray for higher earnings in the next report.

2. Chris Gilmour from ABSA Investments:

Pick n Pay, under the new leadership of Richard Brasher, is on the long, slow and painful path to recovery and, in the process, reclaiming its iconic status among South African shoppers. It will probably take at least two to three years before the turnaround process – which incorporates better category management, enhanced centralised distribution and greatly improved profit margins – is complete. But while we are confident that this process will work, we are not convinced that the stock offers value.

3. Ron Klipin from SA Stockbrokers:

Richard Brasher has an awesome challenge ahead of him, but I am sure he will have a major amount of autonomy. I imagine a man of that ilk would have reached an agreement with the Ackerman family so that he can run with the ball. They are trying to play a catch-up game, but hopefully they have the skills in-house to turn the company around.

Conclusion

The jury is out. Pick n Pay’s management team faces a monumental task in turning around the business with some very strong competitors barking at its heels. Do the Ackermans have the stomach for a fight, and the right new CEO, or are they just waiting for the right offer to sell up and leave?

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@wjflowers: Les Misérables is probably the only movie named after its audience.