When asked during his trip to Japan about the possibility of South Africa hosting the Olympics, President Jacob Zuma gave a positive response. So what might the benefits be? ZA Confidential asked a few experts for their views….

Expert views:

Graham Wood, MD Tsogo Sun:

Can we host the Olympics as a country – of course we can!! We have demonstrated as a country that we can host high-profile mega events, from the Soccer World Cup to the COP17 Climate Change conference. We have superb infrastructure, magnificent stadia and, most importantly, a hospitable approach to all our international visitors who attend these mega events! At some point Africa needs to host the Olympics – and SA is the logical option!

Peter Attard Montalto of Nomura :

SA most likely will make a concerted effort to host the Olympics, and would be able to deliver in terms of building works and projects etc. However the lack of public transport and even hotel capacity I think is far more of an issue for the Olympics – which is geographically much more compact than a World Cup, by definition. We should consider, though, if this is really the best use of money for SA – given there is probably only marginal return on investment for the country. Spending the money on potential growth-boosting infrastructure would probably be better for development in the long run.

Greg Mills from the Brenthurst Foundation:

There are two schools of thought about hosting big sporting and other global events: those who believe it’s a good thing as it promotes the country and focuses infrastructure delivery against a timeline; and those who see it as an investment in unimportant and largely useless bits of infrastructure and a distraction for government. While SA now has some of the necessary infrastructure from the World Cup, and the Olympics would undoubtedly provide an opportunity for a great party for local bigwigs and visitors, the jury is still out on the benefits from the World Cup. Would hosting the Olympics be the optimum use of government resources when we have so many pressing social and economic problems? Why should South Africans be paying for this party? Hosting the Olympics is not a substitute for a failure to deliver better schooling, housing, and other basic services. But none of this is likely to stop those who see the Olympics as offering a feeding opportunity from big government projects.

Michael Tatalias from SATSA:

It’s about time. I am glad to see this idea is back on the table. The Olympics would be of immense benefit in promoting South Africa, and even if we were only finalists in an Olympic bid, it would bring immense benefits in promoting the country.

Leon Louw from the Free Market Foundation:

Few realise what a financial debacle hosting the World Cup was. Only a social psychologist can say whether we benefited enough in terms of national arousal and watching soccer to justify it. The point is that many billions were diverted from welfare, housing, policing, education, health and the like. We are left with moribund stadiums (without maintenance budgets), failed investment in accommodation and transport, and much more for which we lick our wounds. Before deciding to host the Olympics a proper independent cost-benefit analysis should be undertaken, so that South Africans can make informed choices between what we sacrifice in return for what we gain. That calculation must not obfuscate reality with such jumbo-jumbo as “it’s nation-building” or “good for our image” or “brings tourists”. We must know at what price we will enjoy a fleeting “feel-good” high. Like taking recreational drugs, we must familiarise ourselves with all the implications. Having said that, the soccer World Cup was phenomenal and benefits may well have exceeded costs. The tragedy is not so much that we were a nation in denial about costs, as that we squandered the World Cup “dividend” as we did the rugby World Cup dividend, by not sustaining the positive message we sent to the world. We have since been downgraded on every index and by every rating agency. What we should learn from this, but won’t, is that we should not just plan for, say, the Olympics, but ensure that what precedes and follows is in harmony with it.

Conclusion:

The first Olympic games in Africa? It would not just be about sport, but about marketing the country. If it happens there will be a lot of job creation, a lot of construction…. and brown envelopes as far as the eye can see?

Tweet of the Day:

Russell Lamberti (@RussLamberti): Zuma, brimming with confidence at SA’s limitless wealth & prosperity, now wants to channel billions into a frivolous 2-week sporting event

More disturbing data out today with the RMB/BER Business Confidence Index (BCI), which dropped by four points to 48 in the second quarter. The index is now under 50, which means it is in negative territory, with pessimists exceeding the optimists. Meanwhile SACCI’s BCI for May was also released, and is also heading downwards. It came in at 90.4, which is 1.9 index points lower than in April 2013.

Expert views:

Ettienne le Roux at Rand Merchant Bank:

In the context of continued labour unrest, warnings of power outages and the sharp fall in the value of the rand, one could easily have expected a decline bigger than the actual four index points in the RMB/BER BCI. The fact that it did not materialise points to underlying business conditions which, although relatively poor, have not collapsed. Indeed, the performance of the economy can be described as one of weakness, mixed together with some pockets of resilience. Although less vibrant than last year, retail, wholesale and new car sales volumes continue to expand, while manufacturing keeps wobbling along. On a brighter side, the recovery in building activity appears to be gaining some strength. For South Africa to break loose from this low and unsatisfactory growth path, the global economy needs to recover more forcefully and the local constraints holding the economy back must be tackled with greater vigour. Addressing infrastructure bottlenecks, skills shortages, high (and rising) administered price inflation, as well as persistent strong growth in unit labour costs, will have a notable impact on raising the country’s competitiveness and, ultimately its growth potential.

SACCI on the SACCI BCI:

The negative impact on the business climate came mainly from causes exogenous to private business activity but which play a cardinal role in affecting business confidence, economic performance and financial markets. Socio-political events, including on-going militant labour action, are having a harmful impact on the business mood and commercial and industrial activity levels while also distorting financial market performance. For SACCI it is disconcerting that major economic sectors that have the ability to create employment growth, are contracting while others are experiencing exceptional cost pressures resulting from rising labour costs and intermediary inputs like fuel, electricity and water prices that are increasing faster than the general price level as measured by the CPI (5.9%) and the PPI (5.4%). The decline in the SACCI BCI in May 2013 shows that non-economic factors can have a damaging impact on the economy and on the business climate. Ill-disciplined and lawless conduct by economic role players leads to undesirable effects on growth, the rand and unemployment, which could have been avoided. If business confidence is to rise above its current levels of vulnerability, it is essential that economic role players urgently rally around a common vision of sound business values and economic progress.

Mike Schussler from economists.co.za:

Disappointing to say the least, but with all the bad news around it is not surprising. I expect better growth in the 2nd quarter, however, as the 1st quarter was down – on the technicality of seasonal adjustment gone wrong.

Conclusion

Not very cheery news in these two releases on business sentiment. And with mining and industrial unrest on the rise it may get worse before it gets better.

Tweet of the Day

@Genius_Holmes: The past, present and future walk into a bar. It was tense

An important economic indicator came out today – the Purchasing Managers’ Index, or PMI. It is published by Kagiso Asset Management and gives an insight into the state of the manufacturing sector. The index number for May came in at 50.4 points, unchanged from the previous month. This suggests there is little momentum in this key sector of the South African economy.

Expert views:

Chriosto Luus at Ecoquamnt:

The unchanged PMI for May – against the consensus view of a drop to below the 50 point level – can probably be construed as good news. However, the relatively low and unchanged PMI level shows that the manufacturing sector is still struggling. This is borne out by the fact that the PMI’s business activity and new sales orders indices both lost ground, while the inventory level subcomponent increased.

Abdul Davids of Kagiso Asset Management

Conditions in the manufacturing sector remain tough. The outlook, albeit bleak, is quite mixed with the expected business conditions index posting its second consecutive gain.

Coenraad Bezuidenhout of the Manufacturing Circle:

Manufacturers are holding the fort in tough trading conditions. Kagiso asset management is correct in their assessment that the slow international demand, slowing local demand, and significant cost pressures remain significant challenges. Manufacturing costs are still driven chiefly by rapid, bunched-up administered price (those set by the authorities such as electricity tariffs) increases and the productivity that has not kept apace with salary increases. This leads to unavoidable margin squeeze, especially where the local manufacturer is unable to pass the cost increases on to the consumer, as a result of competition in the domestic environment from unfairly-incentivised imports. A more competitive currency will only aid manufacturing growth significantly if the former can be can be sustained, if we address numerous domestic policy challenges, if demand picks up in the Eurozone and America, if we can secure improved access to Asian and South American markets, and the systemic complexities challenging expansion into Africa receive resolute attention. Whereas manufacturing’s employment outlook remains stable at present, industrial unrest in the upstream sectors of mining and agriculture remains a significant risk.

George Glynos of ETM

The reading suggests that upside traction in the manufacturing sector lacks momentum as aggregate conditions remain tough. Despite a relatively sharp increase seen in employment which added 5.1 points to 47.2, the sub-component still remains below the 50 mark for the sixth consecutive month. Labour market dynamics continue to be of concern with the industry remaining hindered by labour unrest. Upcoming wage negotiations are a significant factor going forward as to the extent of employment growth for the rest of the year. Of the past 53 months, the employment index has been above 50, eight times. Had it not been for the rise in expected business conditions which is a very volatile subcomponent which can also reverse quickly, one suspects that the number would have printed sub-50 just as the non-seasonally adjusted reading has done for the past three readings. May’s PMI reading suggests that the manufacturing sector is still struggling to gain traction despite being above the neutral 50 level. With risks to growth tilted towards the downside, the SARB is expected to maintain an accommodative monetary policy stance. In the months ahead, weaker consumption spending will if anything contribute negatively towards internal demand conditions and consequently weigh on PMI. At the margin, this would offset any effects that a weak ZAR would have on bolstering demand for SA exports.

Conclusion

If the rand stays weak, there should in theory be a boost for our exporters, but overall the economy is limping along and manufacturing is in the doldrums.

Tweet of the Day

Token Geezer (@Token_Geezer): A vegan, an atheist and a reformed ex-smoker walk into a bar. Everyone else in the bar leaves.