Monthly Archives: September 2013

New Tariffs to Push Up Chicken Prices

This morning, Minister Rob Davies of Trade and Industry announced new chicken tariff rises on all imports, apart from those from the EU – with levels climbing to as much as 82%. Local producers claim they are struggling to compete against dumped chicken, and government has investigated their application for protection, and gone through an elaborate procedure – required under WTO rules. Davies said the new tariff regime has already entered into force. He claimed action was needed following a drop in the local production of poultry products, with imports rising. He said action was needed to support an industry which supports 48 000 people, with 100 000 jobs at stake if you include indirect jobs. Said Davies: “The industry is bleeding.”
There are different rates applied to 5 categories of poultry products, with the highest jump imposed on whole birds from 27% to 82%. Offal, which Davies said is an important source of protein to low-income households, saw a tariff rise from 27% to 30 %, and similarly bone-in portions saw a relatively modest rise. Aside from the whole chickens, Davies said the average tariff increase was 8.75%, and he did not appear too worried about big price rises for poorer consumers – while acknowledging there would be a noticeable impact on the cost of a Sunday roast chicken. He warned local producers not to be greedy, and said he would not tolerate uncompetitive behaviour to thrive behind a tariff wall. There would be an early review of the new tariffs – which would look at production trends, employment trends and import trends. The new tariffs don’t apply to the EU, which has its own trade agreement with ZA, but Davies said he would like to negotiate the right to more easily apply safeguard measures to imports from the EU as well. In answer to questions, he said tariff duties are imposed as tools of industrial development, and denied he is being protectionist as ZA does have the right to boost tariffs within certain limits. “This is a potential employment generating sector. If we can’t produce chickens in SA, what can we produce?”

Conclusion:
The government is clearly concerned about hitting then poorer consumer as we head to an election, but inevitably chicken prices will rise as a result of these new tariffs. The message to wealthier consumers might be: “Let Them Eat Offal”

Tweets of the Day:
Jana Marais (@janamarais): "If you like what we’re doing, buy our shares. If you don’t, buy our shares so you can fire us."- Jabu Mabuza in high spirits at #Telkom AGM
Puns (@omgthatspunny): When the TV repairman got married the reception was excellent.
SpikeWilton (@spikeWilton67): I’m a dyslexic agnostic insomniac; I’m awake all night wondering if there really is a dog.

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Die Vine Intervention. Booze Ad Ban and a Classy Chenin.

John Fraser and Michael Olivier are joined by Ian Cruickshanks and Lavan Gopaul to discuss the barmy booze ad ban, and to taste the 2012 Chenin Blanc from Kloof Street. Follow Die Vine Intervention on twitter: @DieVineIn


New Road Charges to Take Their Toll

It has finally happened. Having flown to New York at taxpayers’ expense for a UN junket, our beloved President has signed into law the new e-Tolling regulations, which will mean those of us without blue lights atop our luxury limos will have to pay extra to use many stretches of Gauteng highway. The legal challenges will continue, but this is certainly a big step in the wrong direction. Roads must be paid for, but surely not through these bureaucratic, kleptocratic and wasteful tolls. What do our experts think?

Jeff Osborne, Independent Motor Industry Analyst:
The timing of the signing of the Bill is astounding. One would have imagined that the outcome of the Supreme Court action would have been awaited. Although this now grants sweeping powers where e-tolling is concerned, one has to question, if they go ahead, whether it will work – given the myriad of unaddressed issues, and the financial woes of SANRAL?

George Glynos from ETM:
Last week we had the TransUnion Consumer Credit Index which fell to lows last seen in 2009; yesterday we had the release of the BER’s Consumer Confidence Index which fell to the lowest levels in 10 years. This frames beautifully the financial difficulties that households are faced with. The effects of a weaker ZAR which effectively reflect weakening purchasing power of every rand, and inflation – which is above 6% and eats into the disposable income of households – paint a gloomy picture for the second half of the 2013 and early 2014. The implementation of e-Tolls simply adds to that pressure and would not need to impact as heavily if the government utilised the more efficient method of tax collection through the fuel levy – rather than active tolling, which is significantly more expensive. Given that many do not have the luxury of alternative methods of transport and need to use the highway, the impact will be significant for many and we fear that there will be both economic and political ramifications to the move which we feel highlights how out of touch the government is with the will of the people.

Dawie Roodt from the Efficient Group:
My view is that the huge public protests against the tolls should rather be seen as a kind of “tax revolt” and not necessarily as anti-toll as such. Most people I have spoken to are happy to pay for the tolls as long as “my money is well spent”. People are getting tired of an ever-increasing tax burden combined with deteriorating service delivery. Once the tolls are implemented this revolt is likely to morph into another similar public protest.

Writer and motoring enthusiast David Bullard:
A bizarre move, bearing in mind that the matter is still in play, from a legal perspective. Either he (Zuma) was badly advised or the need to screw more money out of the working minority is getting rather more pressing by the day.

Leon Louw from the Free Market Foundation:
President Zuma should not sign Gauteng’s proposed gantry e-Toll system into law for reasons that are unrelated to e-Tolling. He should refer it to the Constitutional Court because the policy seems to have been adopted in violation of section 195 of our Constitution according to which policies must be preceded by effective public participation. His problem is that section 195 is routinely disregarded, especially regarding roads. A constitutional ruling in this case will have far-reaching implications for all government policies. That aside, few issues entail more muddled thinking than the e-Toll saga. What, precisely, do opponents oppose? It ranges from procedural constitutionality to whether any roads should be tolled in any way. Are objectors specifically against Gauteng gantry technology, tolling in Gauteng per se, or proposed pricing? Confusion is compounded by the fact that tolling is already commonplace and tollerated (misspelling intended) throughout the country. So why not Gauteng highways? The most distressingly idiotic objection, repeated, for instance, by leading radio talk show hosts, asserts that roads should be a free public service. Roads must be paid for, the questions are: by who; users or non-users; efficiently or inefficiently; fairly or unfairly?
Regardless of where one stands on Gauteng e-Toll technology, pricing or constitutionality, roads must be paid for. Fairness and economic efficiency suggest that people who use specific roads rather than people who don’t, should pay for them. One of the biggest problems here is that the illusion of free roads over the years has resulted in massive spacial distortions, such as people living far from where they work by virtue of the illusion that commuting is cheap. The fact that the real costs are concealed means that billions of Rands are diverted to excessive infrastructure. There should be two and only two debates, one of which is not whether there should be tolling — there should on all roads as cheap modern technology allows. Legitimate debates are (1) constitutionality and (2) best road-pricing methodology. Road tolls are, in most contexts, the best way to price and fund roads. That, emphatically, does not mean the Gauteng system, which entails real or suspected corruption on a massive scale, and, it seems, extremely cost-inefficient technology. It should be common cause that what we have now, inherited from the dreaded apartheid regime, is the worst of all worlds, whereby revenue collected from road users goes into the amorphous pot of general misallocated revenue. Until the 1980s South Africa had a sensible alternative to road tolling, a dedicated road fund, into which revenue from fuel, tyres, batteries, vehicle licences and the like was spent on roads. It was a user-pays system, albeit less precise than individual road tolls. At the very least, a dedicated road fund should be demanded by toll objectors. The debate should not be between opponents and supporters of the user pays principle, but about how best to have users fund what they use.

OUTA Chairman Wayne Duvenage:
OUTA is surprised at the President’s signing of the eToll bill into law, especially in light of very recent mention that he was considering the technicalities related to the tagging of the bill as proposed by the Freedom Front. In addition, the recent Presidential Commission on the review of State Owned Entities recommended that ‘social infrastructure, including roads, should rely less on user pays funding and more on general taxation’. Then we still have the Supreme Court’s ruling to be heard but even if this gives eTolls the green light, the real test has yet to come, that of practical implementation and enforcement. We have said in the past, laws are only as good as they are governable and eTolls will be under huge pressure in this space. It has been rejected by society at large due to its high costs, cumbersome process and anger at funds going to enrich European based Kapsch TrafficCom. The public, in my opinion, will make it unworkable, in which case, it will fail and this is the sad reality we face with a Government that refuses to listen to its people.

Conclusion::
These tolls are an inefficient way of paying for better roads. But there appear to be vested interests in the e-toll system. I worry about the impact on restaurants, gyms and other small businesses as the shrinking wallets of Gauteng motorists takes their toll, so to speak.

Tweets of the Day:
Political Humor (@PoliticalLaughs): Q: What are the three most common words in the English language? A: Made in China.
Puns (@omgthatspunny): A cardboard belt would be a waist of paper.

ZA Confidential is e-mailed to subscribers. For details on subscriptions, please contact zaconfidential@gmail.com


Good Results from Capitec, but CEO is Retiring

Capitec Bank has continued to impress with good results today for the six months to August, with headline earnings a share up 20%, and a similar hike in the interim dividend. Meanwhile, CEO Riaan Stassen has announced his intention to stand down at the end of the year. What do our experts think?

Independent Analyst Ian Cruickshanks:
Capitec continued its steady growth, but it was not as explosive as it has been in the past. Maybe it is proving difficult to continue expanding the customer base, and loan growth, in an environment where consumers remain under considerable pressure on the income and employment sides. Shareholders will welcome the 20 percent increase in dividends and I am really impressed by the cost to income ratio of 33% – way beyond the 50% where the major banks operate.

Ron Klipin from Cratos Wealth:
This was a very sound set of operational results. The diversification of the deposit base resulted in better-quality funding and liquidity. The strong growth in transactional fee income is impressive, as well as the tightening of credit criteria. Many of the above factors are absent in the business models of its peers. The next six months will remain challenging, but management has had a good track record in the past in dealing with a difficult operating environment.

Simon Brown from justonelap.com
These were solid results, showing they tightened earlier in the cycle and hence are not getting hit as hard. They also generating significant revenue from the traditional banking model and they have a cost to income at an astounding 33%. Riaan Stassen retiring as CEO won’t hurt them, but it remains a complete mystery why at a certain age companies insist on showing people the door.

Conclusion:
Capitec is no longer a young pretender, but is an established predator and must be rattling the established big banks. It may be seeing a slowdown in growth but is still performing impressively. We will wait to see the transition to the new CEO and whether this causes any fallback – not that it needs to.

Tweets of the day:

superman (@MrSandeepP): Beginning of the day: I have so much work to do. *logs onto Twitter* 8 hours later: *Goes home*

Puns (@omgthatspunny): Alcohol and calculus don’t mix so don’t drink and derive.

Funny Tweets ( Funny Tweets (@iQuoteComedy): Life is short. Smile while you still have teeth.

Frankie Boyle (@frankieboyle): The best thing about twitter is that I no longer need to carry around a box of tiny opinionated idiots

ZA Confidential is e-mailed to subscribers. For details on subscriptions, please contact zaconfidential


Die Vine Intervention 20 Sep. Amarula Cream Liquor.

Food and Wine Guru Michael Olivier presents one of the world’s best selling liquors, Amarula Cream Liquor, to John Fraser, Duane Newman of Cova Advisory, and leading Economist Mike Schussler.


Interest Rates Stable, While Economy Remains Fragile

As expected, the Monetary Policy Committee (MPC) of the Reserve Bank left interest rates unchanged today. What is of more interest is the view which the Bank is taking of the economic outlook. Our experts gave their thoughts….

Peter Attard Montalto from Nomura:
The door to cuts was closed at the last meeting. The door to hikes has now been opened. We stick with a May 2014 hike baseline but think the chances of January are higher now. The MPC held steady through the Fed dovish surprise last night – keeping rates unchanged at 5.00% as both we and the market expected. The statement shifted, however, from being on the hawkish side of neutral at the July meeting (and at the May meeting on the dovish side of neutral) to this time both the statement and the Q&A being outright hawkish. This is most obvious from the fact that the inflation forecast was revised up not only in the short term but also the long term while the growth forecast remained unchanged. But the general language also shifted on inflation, while on balance it was broadly unchanged around growth.

Dr Andrew Golding of Pam Golding Properties:
The Monetary Policy Committee today took the welcome decision to announce that the repo rate would again remain stable. Our view is that while the housing market continues to show signs of gradual recovery, underpinned by positive sentiment among home buyers, the fact is there are a number of factors impacting on the residential property market, including access to finance. Although the economic recession caused house sales to slow and as a result less new homes to be built during that time, this has now created pent-up demand for homes and we are seeing an increasing take-up of available stock – both in terms of new and existing homes. An increasing trend is that in a number of high demand areas in all the major metropolitan areas of the country (across various price ranges, particularly up to R2 million or R3 million), stock shortages are being experienced. This trend is not necessarily across the board in every area but is being fuelled by desirability of location, access to schools, the workplace and a convenient and appealing way of life. In addition, buyers remain discerning and consider their options until the right property becomes available at the right price, resulting in a market which also remains very value-conscious. Other factors that are impacting on the current market include the fact that, as always, the housing market is very much driven by sentiment. Furthermore, mortgage funding continues to be less accessible than previously and even with interest rates at historical lows, the market has not responded as it would have in the past. Buyers need substantial deposits and are staying in their properties for longer periods of time in order to accumulate equity in their current bonds before looking to relocate – and they need to invest more of their own money in property. Having said that South Africans are gradually becoming accustomed to the new market conditions and new way of purchasing property, which augurs well for a sustained, steady, albeit slow recovery. We remain optimistic regarding the remainder of 2013 and expect that interest rates will remain stable during this period. Nationally and as a group, PGP continues to achieve growth in sales across all regions, as well as in other countries in Africa.

Nedbank’s Economic Unit:
The Reserve Bank’s inflation projections have deteriorated over the next two years, albeit slightly. The Reserve Bank has maintained its growth forecasts, with the output gap remaining large over the forecast period. The MPC’s decision to leave the repo rate unchanged was in line with our and the market’s expectations. The statement remained hawkish on inflation, with the MPC stressing the risks posed by the rand’s weakness and high wage settlements. Regarding the latter, the Governor emphasised their adverse effect on employment growth. Growth is projected to remain below potential over the coming two years. The MPC statement underlined the challenge of balancing weak growth prospects and rising inflation. We therefore maintain our view that this will persuade the Committee to keep monetary policy neutral over an extended period, with interest rates remaining unchanged well into 2014.

Conclusion:
Small relief for those in debt is overshadowed by the guarded economic outlook. We saw employment numbers this week showing that jobs are still being shed in the formal economy. While the lack of a rate hike may help the environment for job creation, the expected growth rate for the ZA economy is too low to produce much in the way of new employment.

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Inflation Edges Up

The latest CPI inflation number is out, and it shows inflation rose again outside the 3% to 6% target ban of the Reserve Bank – increasing in August to 6.4% from 6.3% in July. What did our experts think?

Ettienne le Roux from RMB:
The main culprits driving inflation over the month were: Petrol (up 2.4% m/m and 23% y/y (the y/y rate is unchanged from July) Other (a collection of items showing small increases over the month, for example, food (up 0.3% m/m), non-alcohol beverages (up 0.6% m/m), clothing (up 0.8% m/m) etc.) Transport (car prices, petrol, public transport) accounted for 0.2 percentage points of the 0.3% m/m increase in CPI. Core CPI inflation (CPI ex food, petrol, electricity and non-alcohol beverages) dipped slightly to 5.1% y/y, indicative of underlying inflationary pressures still being well contained, at least for now Prospects: CPI, in all likelihood has peaked, and from September onwards should start to slowly moderate back to below 6% by year-end, ending next year at around 5.5%. Key risks to this view are wage demands, the oil price and of course the rand. If CPI inflation follows our trajectory, interest rates should remain constant for a protracted period.

Nedbank Economic Unit:
The main drivers were housing and utilities (1,3 percentage points), transport (1,4 percentage points), miscellaneous goods and services (1,1 percentage points) and food and non-alcoholic beverages (1,1 percentage point). On a monthly basis average prices increased by 0,3 %, mainly driven by the transport category, which rose by 1 % m-o-m, contributing 0,2 percentage points to the headline figure, as well as the residual, which contributed 0,1 percentage point. The food and non-alcoholic beverages category, which increased by 0,3 % m-o-m, as well as housing and utilities (up by 0,8 % m-o-m) also contributed. We expect inflation to have peaked in August and to gradually ease back gradually to within the Reserve Bank’s target range by the fourth quarter of this year. Today’s numbers do not alter our interest rate view. They are generally in line with market expectations and are therefore not expected to persuade the Reserve Bank’s MPC to change interest rates at the end of its meeting tomorrow. We believe that the committee will opt to tolerate high inflation in the short term, especially as indicators suggest that demand driven inflation remains contained, and support the weak economic growth by maintaining the current policy stance well into 2014.

Conclusion:
Inflation is around the level economists had expected, but it is still uncomfortably high. Not enough, we think, to prompt an interest rate hike, but nowhere near the level at which a cut might be contemplated.

Tweet of the day:
sabelo ndlangisa (@Bhintsintsi): If 20 South Africans got lost in a forest, the first thing they’d do is to appoint a commission or task team to figure out what happened.

ZA Confidential is e-mailed to subscribers. For details on subscriptions, please contact zaconfidential@gmail.com


Priorities for ZA with Frans Cronje of the SAIRR

It was announced today that Frans Cronje, a good friend to, and supporter of, ZA Confidential, will take over as the CEO of the SA Institute of Race Relations, of which he is currently deputy CEO. ZA Confidential caught up with Frans to get some insight into his approach and into the background against which he will be operating.

Here is the interview:

Q: Is the title for the Institute appropriate? Your work goes into the whole sphere of politics and economic life, not just race issues?

A. I agree. In fact we do very little on the subject of race relations itself. Almost all our work now is economic and social policy focussed. There is a lot of brand equity in the 85 year history of the Institute and its role in the anti-apartheid struggle. So we intend to capture that while moving away from the idea that we do race relations. A re-branding exercise to that effect is already in operation.

Q. You rely on funding to exist. Does this mean you have to tread carefully for fear of losing support from one or more benefactors?

A. It’s a constant problem. Large donors want to dictate agendas and we will never allow that. Independence is our greatest asset and we will defend it at any cost. The price we pay is to exist on very tight budgets. The antidote, and it applies to think-tanks across South Africa, is to generate your own income. This both ensures that you produce high quality work and guarantees independence.

Q: It isn’t currently clear what will happen to current secrecy legislation, but the betting is that there will be restrictive new laws. Will this affect just the media, or might it also apply to institutions like yours?

A. The threats are very serious. Do not fall for the government’s trick of revising a clause here and there in the legislation as a platitude to its critics and then still passing fundamentally objectionable legislation. No South African will be left untouched by such legislation. However, there is an upside. Thirty or forty years ago such legislation would have been very effective is stifling debate and the flow of information. However in the social media age no government will ever succeed in totally shutting down the ability of its citizens to hold it to account. I think South Africa has a very active citizenry and to misquote Winnie Mandela, with their cell phones and their iPads they will do a lot to liberate the country.

Q. We will soon be in election season. Will this increase your workload, as more and more of those you deal with and advise seek insight?

A. That is always the case. Demand for election scenarios and the implications of certain outcomes will pick up over the next four months. We anticipate no dramatic shifts in 2014- but 2019 and 2024 will be entirely different, and on current trends we expect the ANC to suffer significant setbacks, if it does not reform.

Q. You often criticise government. Does this mean you side with the opposition?

A. Of late I think the government is coming to see us as a very useful ally and we have always had a good relationship with the administration of Jacob Zuma. You see, it is under enormous pressure to grow the economy and bring more people into jobs. That will require policy reform which will in turn require the help of think-tanks. The opposition, too, will need such support – and increasingly so as its policy positions begin to change. South Africa needs serious policy reform that will drive investment-led growth and job creation. We could not care less who drives such reform, and we will support reformists wherever we find them.

Q. What do you see as the Big 5 challenges facing ZA?

A. There is only one. Attracting the investment with which to grow the economy and create jobs. That should be the singular focus of all policy makers in the country.

Tweet of the day:

Political Humor (@PoliticalLaughs (https://twitter.com/PoliticalLaughs) ): Q: What do you call a basement full of Liberals? A: A whine cellar.

ZA Confidential is e-mailed to subscribers. For details on subscriptions, please contact zaconfidential@gmail.com


Die Vine Intervention 14 Sep: Delaire Graff 2011 Cape Vintage

In their latest Die Vine Intervention wine tasting podcast, Michael Olivier and John Fraser are joined by Duane Newman and Mike Schussler to try a fine Cape port – which we can’t call port anymore. It is the Delaire Graff Cape Vintage 2011.


Grant Thornton Warns of Drop in Business Sentiment

Grant Thornton warned this week that systemic constraints are holding back South Africa’s economy and playing havoc with efforts to jumpstart growth and employment. It says concerns over labour relations, combined with sluggish economic growth, have contributed to a general sense of business unease that is reflected in the Grant Thornton International Business Report (IBR) research data for the second quarter of 2013. Business optimism as measured by this study has declined steadily from 74 points in 2007 down to 44 points according to these latest results. ZA Confidential put some questions to Ian Scott, Managing Partner, Grant Thornton Cape Town:

Q: You speak of a significant negative shift in business sentiment in SA in the last quarter. What happened, and why do you think this was?
A: Our business index shows a drop in business confidence. This probably arises from subdued economic data including: lower than expected GDP growth, a drop in the Rand, labour strikes and unrest.

Q: You suggest the economy is being held back by skills constraints. Where are these both in terms of sectors and of skills?
A. The Grant Thornton International Business Report research shows that companies in the healthcare and technology sector require skilled labour whilst engineering qualifications are needed in manufacturing and construction. The necessary skills are lacking in the utilities sector.

Q: You say business has a surprising propensity to create jobs – what is needed to trigger this job creation?
A. Companies need to be able to access the necessary skills in the market to meet demands. Nearly half the businesses surveyed increased their headcount in the past year despite problems with finding the right skills.

Q: What is wrong with the labour market, and is there any prospect of government sorting out?
A. There are structural issues which need a long term solution. We have chronic unemployment, at the same time that companies are requiring higher levels of skills. In sectors such as in healthcare, technology, manufacturing and construction, businesses are struggling to find the necessary skills. Government had a recent lekgotla on the economy and has the National Development Plan as well – but stakeholders i.e. government, businesses, trade unions, educational institutions and SETAS all need to engage.

Q: Mining played an important role in affecting business sentiment. But how widespread is it? Now the gold sector strike appears to be ending, might sentiment lift? (This questions was answered by Steven Kilfoil, Director: Corporate Finance and head of mining advisory services at Grant Thornton Johannesburg)
A Unfortunately the problem is very widespread at the moment and every time we turn around there’s another mining company striking. Mining and particularly gold mining has always been our flagship industry (even though our numbers in this sector have dropped – other countries still see mining as the flagship industry). People still look at this gold mining industry as a litmus test in terms of what is happening in the economy. The fact that negotiations which have taken place last week and this week have brought most of the unrest to an end is certainly positive. The problem is that people don’t see it as a long term solution and in 1 or 2 years time we’re in the same situation. Labour unrest seems to be ongoing.

Tweets of the Day:
BillieAniolCLJh (@BillieAniolCLJh): Always believe in God, because there are some questions that even Google can’t answer..
Puns (@omgthatspunny): Once you’ve seen one shopping center you’ve seen a mall.
Puns (@omgthatspunny): Yesterday I accidentally swallowed some food coloring. The doctor says I’m OK, but I feel like I’ve dyed a little inside.

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