EU Again Hits Out at Davies Over Scrapped Investment Protection

South Africa’s sudden and ill-mannered decision to scrap a series of bilateral investment treaties with a number of EU member states has come under fresh fire from the EU’s Ambassador in Pretoria Roeland van de Geer. The move was slammed during a recent visit to Pretoria by EU Trade Commissioner Karel de Gught, with a warning that it might have an impact on foreign investment in ZA. Within months, German car giant BMW announced that it was not going to open a new production line at its South African plant, as had earlier been hoped for. The main reason given was the month-long strike in the automotive sector, which caused production to halt and exports to plummet. However, some trade watchers believe that South Africa’s rudeness and arrogance over the investment agreements also played a part in scaring off the Germans. At a media breakfast in Johannesburg today, the Ambassador and his trade sidekick explained why they were so upset with Davies’ announcement that the Bilateral Investment Treaties (BITs) would be scrapped. Said the Ambassador: “We feel there is a partnership. If one of the parties says we will stop with this, you expect a consultative procedure. What has happened literally is that ambassadors were called in the morning, and received in the afternoon a note saying: “it’s over”. It was the way in which it was done which we all agreed in the diplomatic field – you don’t do it in that way. It was an unnecessarily heavy-handed approach. I spoke to investors in Europe and they (spoke their concerns about) Marikana, and then while this was happening, the BITs were thrown away as well. It was the approach and the timing. To be competitive as an investment destination you have to compete with everybody out there, and tick all the boxes. To voluntarily weaken your position- why do you do it? We felt obliged say to the government: don’t do it this way….this is not the way you should proceed.” The Ambassador said he could not comment on detail on the BMW decision to walk away from a new investment in South Africa. “I have to say from my position I would have hoped they would have bid,” he said. “They feel under the current circumstances there is a risk they may not perform. They feel: if they have to present the bid in an international competition, they might not be able to deliver. There is an element of (what is happening in) SA, but is there something internal to BMW? It is not the sign that we need. I would have hoped they would bid for that. I know the Mercedes factory in SA is in the top of the Mercedes factories in the world – so it can be done. Foreign investors look at the global map and choose the most cost-efficient place. Investors hate uncertainty. It is a very delicate, subtle, sensitive, issue to deal with. The EU accounts for 70% of past FDI into ZA.”
On other issues, the Ambassador expressed his optimism that a new Economic Partnership Accord (EPA) would be negotiated between the EU and Southern Africa before the end of this year. This would give ZA extra access for fresh and tinned fruit to Europe, but ZA is under pressure to also make concessions to European exporters. Meanwhile, discussions continue on a disease called citrus black spot, which has caused the EU to monitor imports of citrus fruit from ZA, has already led to some restrictions, and could lead to a ban. The EU is expected to scale down its development funding to ZA, but details are not clear as the new 7-year European spending plan has yet to be decided by the EU authorities, and notably the European Parliament.
The Ambassador said that ZA has begun investigations into chicken imports from Europe, following the recent tariff increases on imports from many other countries,. The EU was not affected because of its existing trade deal with ZA, but Davies wants the right to trigger so-called safeguard measures, if there is a surge of European imports. The Ambassador warned that inefficient ZA chicken producers must not be cushioned. He said: “Protectionist measures can’t be seen as a solution to the competitiveness problems of the South Africa industry – which include the price of electricity, labour productivity, and the level of the rand.” He said it would be tempting to bring in new measures to support the ZA poultry producers “to give a breathing space to the industry, but that will not solve the long term problems which need to be dealt with.”

Tweets of the Day:
Bartinney (@Bartinney): Around here, we only drink Wine on days that end in Y

Puns (@omgthatspunny): The international jewel thieves were hard to catch because they had a good ring leader.

Nein. (@NeinQuarterly): You’ve seen one Doppelgänger, you’ve seen’m all.

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Chicken Prices Already on the Rise

Trade and Industry Minister Rob Davies played down the impact on consumers of the new tariffs on imported chicken when he recently announced the measures. However, ZA Confidential has discovered that there has already been shockingly high inflation in chicken prices in the local market, running at way above the general annual inflation rate of just over 6%. One supplier of food products to restaurants announced a 5% jump in June, followed by a further 5% at the end of September, and a massive further 12% this week. Meanwhile, the prices of other food items – from nuts, to cherries to cheese to chocolate to chips – have also been spiralling upwards. What do our experts make of it all?

Duane Newman from Cova Advisory:
We have a family-owned coffee ship in Kyalami, which my wife runs, and I can confirm that we are being faced with really high price increases – and chicken is a big problem, with price rises this year of several times the general inflation rate. I fear there may be more to come, with our suppliers warning that some chicken importers have closed their doors due to the new tariffs. That will give local chicken producers yet another opening to further raise their prices. It is difficult to pass on these rises to our customers, who are often not aware of the big jump in food inflation. It gets worrying when you combine this with the electricity hikes, increased transport costs once the e-Tolls kick in, and an expectation from the staff for wage increases to match those recently awarded across the economy. And if inflationary pressure is happening at the wholesale end of the food market, it must also come through with retailers facing higher costs, and needing to pass these on to their customers.

Food and Wine Writer and TV Chef Michael Olivier:
I think that suppliers need to justify this type of iniquitous price rise of basic foods. Chicken used to be one of the cheapest forms of protein and it should be kept so. I also feel very strongly about imports of chicken from places like Brazil getting in as processed food simply by sprinkling some salt and black pepper on top of it! I don’t mind cherries and chocolate prices going up, but I feel for the poor – with basic protein prices skyrocketing. Add the electricity prices going up, fuel etc and it impacts hugely on the poor.

Independent Economist Ian Cruikshanks:
Consumers’ basic expenditure potential is being squeezed by spiralling food costs, which is likely to dent alternative discretionary spending. As consumer expenditure contributes over 60 percent of ZA’s GDP, higher food prices will definitely negatively impact the retail sector – casting doubt over the stocks maintaining their high share prices. Monetary policy will be forced to remain unchanged despite higher inflation – as consumers are certainly at the limit of affordability. The 2 percent estimate for GDP growth this year could be in danger of downside risk.

Dawie Roodt from the Efficient Group:
Part of the reason why the minister announced the recent increases in chicken duties is because he mostly concentrates on revenue side of the income statements of chicken producers in the country. He saw, and the local pressure group made very sure that it was very well emphasised, that their revenue was “not enough” and that something needs to be done to make sure that the revenue side of the income statements of the local chicken guys were boosted; import duties were the obvious and easy choice. That is wrong. Instead the minister should have looked at the expenditure side of their income statements to see if it was possible to make life a little easier for them. And there are plenty opportunities: for example, he would have seen that the cost of labour doesn’t match labour’s productivity, that skills are lacking, that electricity prices just keep on going up, that tax compliance is very high, that red tapes strangles these business, that security is expensive and plenty of other very expensive expenditure items. Instead of “increasing” the revenue of chicken producers we can reduce the cost of chicken production by liberalising labour legislation, by improving education, by privatising Eskom, by overall-ing the tax system, by cutting red tape and by doing many other things that make it easier and more viable to do business in SA. Chicken producers will make more money and we will now have to pay more for chickens; but that is the more difficult option, not an option our politicians are usually keen to pursue.

Mike Schussler from economists.co.za:
Chicken, along with some fish, is a cheap source of protein – and South African consumers spend a lot of money on chicken. It is, by far, the protein source with the highest weight in the CPI – at 1,7 of the total in urban areas. With the rand’s decline, I had thought that chicken farmers would get a break – but now the tariffs have been introduced, it is clear that prices are now on the way up. It may save the poultry industry, but it may just be another nail in the consumer’s coffin. As interest rates are likely to remain low for now, the bigger effect would just be on the consumer’s pocket, and particularly that of poorer the consumer.

Chris Hart from Investment Solutions:
While it is appreciated that there are genuine and complex issues around chicken imports, the recent measures to protect the local industry are likely to have a negative impact for consumers and for inflation. Protectionism helps one set of stakeholder but has a negative impact on others. The imposition of tariffs on imported chicken did not come with any local efficiency caveats or any time limits. South Africa has suffered before by supporting local inefficiency through high tariff barriers, which stunted growth and reduced the incentives to greater efficiency and competitiveness. Ultimately, this will prove to be unsustainable and the industry will be left worse off that if the tariffs had not been raised. Sustainability over the medium to longer term will require that South African industry (in this case poultry) be structured in a way that is globally competitive. Protectionism leads to rent-seeking behaviour, where stakeholders seek out soft options or special favours for themselves but to the cost of the more productive. South Africa will be left poorer if rent-seeking behaviour is encouraged at the expense of industries that genuinely add value.

Conclusion:
Chicken prices have been going up, along with other food prices, and there are more rises in the pipeline. Sadly, it is the consumer who is taking the roasting.

Tweets of the Day:
Funny Tweets (@iQuoteComedy): The only honest people in the world are small children and drunk people.
Funny Tweets (@iQuoteComedy): Mom: how are your grades this term? Me: mother what’s important is that we have our health

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Interview with Brian Riley of Wesbank

It was recently announced that one of our more impressive business leaders will soon be standing down. As CEO of WesBank, Brian Riley has played a key role in both the financial services industry and the automotive sector. While he may not have had the same high profile as his FirstRand Group counterpart, FNB’s Michael Jordaan, who has also stood down this year, Brian’s impressive track record at WesBank speaks for itself. ZA Confidential caught up with Brian to get his views on the industry, and to find out his plans for the future.

ZAC. It’s often said that buying a car is the second biggest purchase after your house. Is that still true?
BR: Yes, this is definitely still the case. However, looking at the most recent Consumer Credit Market report, Secured Lending (mainly vehicle finance), is currently exceeding Mortgage Finance. WesBank’s average transaction value for new cars has doubled from R120 000 to R240 000 from 2006 to the present; during this same period the average transaction value for used cars grew from R94 000 to R165 000, an increase of 75%.

ZAC: What big changes have you seen during your time at WesBank, in terms of the emergence of the black consumer, trends in bad debt, length of loans, move to more fuel-efficient cars and so on…….?
BR: Since 2006 we have seen a change in the demographic makeup of our new business production, as follow:
2006 Present
Indian 5.5% 5.0%
Coloured 5.4% 5.5%
African 24.1% 34.4%
White 51.9% 45.5%
Companies 13.1% 9.6%

This clearly shows a transformation of wealth, in particular to the African customer. There has been a plethora of governance and compliance related changes. From a regulatory perspective, the introduction of FICA, FAIS, CPA as well as the NCA have quite rightly afforded the customer more protection, fundamentally changing the way we do business. Risk Management has also taken a new form in the banking environment with the introduction of the Basel Accords. The cost of compliance has grown significantly but at the end of the day the sustainability of a strong banking environment is at the heart of any economy and the legislation should be welcomed. The NCA was the most significant introduction for us as it affected our credit assessment methodologies, resulting in improved assessment and risk management capabilities. The NCA has also provided the customer more flexibility in structuring their finance agreements such that, more recently, we have witnessed average contract periods extending from 54 months to 68. It has also afforded the client clear rights and more protection from unscrupulous lending practices. WesBank has invested considerably in technological innovations which include the electronic submission of applications directly from the dealer floor. WesBank pioneered the first web-based contracting process with the launch of iContract. In order to empower our customers and address the ever increasing need for instant service gratification, WesBank also recently launched the online self-help account management service. We have seen a direct correlation between self-help functionality and improved customer service. These improvements have been significant contributors to ensuring WesBank is a highly efficient, cost effective organization delivering excellent service to both dealers and clients.

ZAC: WesBank has been an impressive contributor to the fortunes of the FirstRand group, but has tended to fly under the radar. Was this deliberate?
BR: It was, and for two reasons. Firstly, WesBank isn’t a big public-facing brand. 95% of our business is written through the brands of other companies, in return for which we jointly share, to some degree, in the profits we make. There are very few companies around the world which successfully specialize in partnership business models. When you are leveraging the strength of your partner’s brand, it makes little sense in spending large sums of money building your own. The other reason is a matter of personal style. Getting the job done is far more important to me than being a public figure. It is impossible to avoid media and public attention but I limited my involvement to events and interviews which I felt added value to WesBank.

ZAC: Your departure from the group follows that of former FNB CEO Michael Jordaan, who has already announced new interests. What about you? Are you staying in ZA? Will you be taking on new roles? And why are you now leaving WesBank?
BR: I am certainly remaining in South Africa. I became a citizen quite some time ago which hopefully confirms my commitment and loyalty to the country. I have a 26 year old son in the UK and a 17 year old son schooling here in South Africa. My partner, Fiona, has two children being educated in the country and quite frankly South Africa is a wonderful place to live and whilst it is not perfect, it is full of promise and opportunity. I can’t imagine myself living anywhere else. I am also too young (56) and too energetic to finish working just yet. I have received a couple of offers but want to take a couple of months to wind down a little before deciding upon what I am going to do next. I have worked for 37 years in the instalment finance industry. I started working for a small personal loan company in the UK straight from school before working for Lloyds Bank and Barclays. My move to WesBank in 1990 occurred as a result of Barclays selling its instalment finance ‘arm’ to GEC. When I took over the reins in 2007 I made it public knowledge that I would stay for 7 years. It created certainty for those aspiring to run the business one day. It also meant that to achieve the success I envisioned, it required a significant bias for action within a limited time period. It’s time to do something else. I’m sure that what I will be doing will become clearer in the next couple of months – but it will not be in the instalment finance business.

ZAC: Looking at the auto industry, we have seen a lot of strike action, BMW SA recently announcing it is losing a new ZA investment, and surveys showing low business confidence. What is your view on the outlook for the automotive sector and the broader economy?
BR: The Automotive Industry contributes approximately 7% to SA’s GDP and is therefore a significant contributor to the broader economy. Without the APDP which heavily subsidises the Motor Manufacturing industry we would not be producing vehicles at all in South Africa. I must believe that disruptions to the production geared for export will raise questions in manufacturing boardrooms around the world. We are not ideally located for export, and CEOs of Original Equipment Manufacturers in Asia, Europe and the USA will ultimately make the right decisions for their shareholders, and at some stage that may exclude the production operations in South Africa. Workers have the right to fight for better working conditions and better wages, but the decision to remain in South Africa will ultimately come down to economics and quality. If vehicles can be produced at the right quality and at an appropriate return for shareholders, productions plants in SA have a future. If not, they will be closed. If we import all of our vehicles they will become more expensive, but South Africans love their cars and the retail market will continue to perform in sync with the GDP of the country.

ZAC: There is a growing likelihood that e-Tolls are coming. Do you feel sorry for the Gauteng motorist?
BR: The South African Government needs to invest in the maintenance and upgrade of infrastructure. However, the viability of e-Tolls as a preferred funding mechanism for this is debatable. With improved transparency and pro-active consultation with the public, the perceptions of e-Tolling may have been different. Either way, infrastructure investment has to be recovered through taxes one way or another, and for South Africa to thrive, far more development has to take place.

ZAC: Road safety is a big issue. Are there any measures you would favour to make ZA roads safer?
BR: WesBank acknowledges the importance of maintenance and the general roadworthiness of vehicles in order to improve the safety of road users. The major contributors to road accidents occur because of worn shock absorbers, brakes and tyres. The introduction of an annual test to ensure vehicles over 5 years old are roadworthy would be an initiative we would support. This has been discussed for quite some time and why it hasn’t been introduced yet, is beyond me. This would help improve the roadworthiness of vehicles. In addition the upkeep of roads along with strict adherence to the legislation, in particular drinking and driving and speeding, would benefit safety. The long awaited points system should also be introduced sooner rather than later.

Tweets of the Day:
Puns (@omgthatspunny): It’s a lengthy article on Japanese Sword Fighters but I can Samurais it for you.
Politics & Law (@PoliticsL): "The problem with socialism is that eventually you run out of other people’s money." — Margaret Thatcher
The QI Elves (@qikipedia): If the Romans had been obliged to learn Latin, they would never have found time to conquer the world. HEINRICH HEINE

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Die Vine Intervention. Noble Hill Cabernet Sauvignon 2009

In our latest podcast, Michael Olivier introduces another robust red, the Noble Hill 2009 Cabernet Sauvignon to John Fraser and guest tasters Ian Cruickshanks and Lavan Gopaul. They also chat about why size really does matter when you are stocking up on pork chops, and pay homage to Malva Pudding. Click and enjoy…..

The Touchy Topic of Classroom Language

There has been an active debate recently, sparked by UFS Vice Chancellor and education superstar Jonathan Jansen, on the benefits, or otherwise, of teaching Afrikaans kids in English, so ZA Confidential decided to take a look at the topic. What do our experts make of it?

Mario Pretorius from Telemasters:
The great Noam Chomsky, the expert in human language learning, says the capacity to successfully use language requires one to acquire a range of tools including phonology, morphology, syntax, semantics, and an extensive vocabulary. When our kids are capable of doing that by age 5, when they go to school, we can teach them in any second language. Until then, please let’s teach everyone in their native language and introduce an international language (Mandarin, French, English, Spanish, Afrikaans, Zulu) as an interaction language and keep each kid learning in that kid’s preferred language. I sense huge numbers of parents are ignorant of, and absent in, the learning process and abdicate that to school – which puts their kids at a severe disadvantage to those whose parents actively teach and coach their kids. For once, let’s get the politics of language out the way and do what’s best for the kids themselves.

Frans Cronje from the SAIRR:
Mother-tongue education in early years has educational benefits. But that is not what this controversy is about. What we are dealing with here is parents who use language to isolate their own children, preserve pure racial enclaves, and therefore stunt the development of those children as future citizens in what will become an increasingly integrated society. I regard this as something akin to child abuse and believe that it harms human relations in South Africa.

Conclusion:
I was brought up in an English-speaking family and was atrocious in Afrikaans when taught it as a youngster. However, I fully support the widest possible access to language teaching for all young people. Like it or not, people entering the workforce or higher education need to have a good grasp of English. How early they have to set aside their own language outside the home – be it Afrikaans or any other language – should be an area where the parent is consulted and comfortable. We must, however, be careful to ensure the interests of the child are not obscured by the more political aspects of all this. But we must also ensure that the family language, which is an important part of one’s cultural heritage and legacy, remains alive through the growth and development of a young person, and is preserved for future generations as well. This is a tricky one. Ja, nee?

Tweet of the Day:
Puns (@omgthatspunny): When the window fell into the incinerator, it was a pane in the ash to retrieve.

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OUTA Will Take eToll Battle to Constitutional Court, if it can get Funding

The anti-eToll Alliance OUTA made it clear today that if it can get the funding, it will take its battle against the planned tolls to the Constitutional Court. OUTA boss Wayne Duvenage told a media briefing that the pressure group will decide the way forward at a meeting on Monday. This follows a major legal setback, with the Supreme Court rejecting the latest legal challenge to the new tolls. Duvenage warned that whatever happens on the legal front, the enforcing of eTolling will be impossible, with the authorities being forced to deal with numerous defaulters per month. He suggested that the Supreme Court had rejected OUTA’s latest appeal largely on the technical basis that there had been too long a delay in challenging eTolls – so the decision was not on the merits of the case. “OUTA and road users still have no clarity on the lawfulness of eTolling. It remains open to any citizen to lawfully decide not to pay eTolls,” he said. “We are bitterly disappointed the Supreme Court took the decision it did. This will be felt most acutely by persons with low income.” He said OUTA has a couple of avenues open to it – it could take this matter to the Constitutional Court, and has been advised there are solid grounds for an appeal. But there is a shortage of funds. “We are 1.5m rand short, and another appeal will be around 1.5m rand,” he explained. “Maybe there is an organisation or an individual who will fund us? It is not impossible that one, two or three individuals will help us see the light of day in the Constitutional Court.” He said that if this is decided against, OUTA would still be able to support one or more individuals who go to court once tolls are implemented – something that is expect before the end of this year. Duvenage pointed to the backing the anti-eToll movement has received from political parties, business, the unions and religious organisations. He emphasised that the cost of eToll collection and administration is over 30% of the fee, and he charged that roads agency Sanral made just a cursory glance in consideration of a fuel levy, which is the chosen alternative way of funding the Gauteng highways of most protestors. “Sanral’s Achilles heel might be their blind obsession to enforce eTolls against the opposition of the people,” he warned. “It is not a legal requirement to get an eTag. The chances of this working and being enforced, and being practically applicable, are slim. It doesn’t work in other parts of the world. Passive resistance in the form of exercising your legal rights – if enough people do that, this system will collapse. Don’t rush out (and buy an eTag); you don’t need to rush out. You can wait and see what happens. We are convinced that sufficient numbers of citizens will be defiant. There are so many avenues for non-compliance that I believe we are seeing the birth of a full-scale tax revolt by society. They are going to arrest people, use force. There will be patrols. This is aggression expressed towards society, the same aggression that was used in the apartheid era. Sanral needs to spell out clearly the full enforcement process. Are they seriously going to arrest people who don’t pay?”

Tweet of the Day:
Political Humor (@PoliticalLaughs): Q. What’s an example of irony? A. Bruce Springsteen singing "Born in the USA" at Barack Obama’s inauguration.
Puns (@omgthatspunny): Just went to an emotional wedding. Even the cake was in tiers.

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Government Wants BMW To Change Its Mind Over ZA’s Investment Attractiveness

Trade and Industry Minister Rob Davies has told the media he is seeing BMW today to discuss their recent decision to walk away from an expansion in ZA, by not building a new model at their Rosslyn plant near Pretoria. He was briefing journalists on next week’s visit to ZA by the French President, with his spokesman keen to dispel myths that this country is no longer a good place to invest. We were repeatedly told that things are better now than they were under apartheid. Davies said that he was seeing BMW after they had sent him a letter “clarifying” what they had recently said about the new investment.
He insisted: “They are continuing with operations in ZA. They had a possibility for competing for an additional model, and that was jeopardised by the recent strikes.” BMW had said the decision not to expand their operations had been taken because of the protracted strike in the automotive sector.
Davies said: “The strikes concluded with a three year agreement. We want to work with BMW to improve the investment climate from their point of view.”
He said he had met a delegation from the auto sector during the strike “and basically they are here for the long haul. Yes, we are having to work, and to compete for investments, and that is what this government is committed to doing.”
When asked about ZA unilaterally scrapping bilateral investment treaties with a number of EU countries, Davies said that these would be replaced by national legislation, but that the protection of investment is enshrined in the constitution. The EU Trade Commissioner had recently warned that ZA was at risk of losing investment through the scrapping of the treaties. The Minister tried to play down the impact of the automotive strikes on investment attractiveness, saying:
“It is not every part of manufacturing or every part of the South African economy with strikes – it was the automotive sector. The strikes are over, and over with a three year wage agreement. There won’t be a strike next year or the year after. On BMW, we thought it was important to engage the company as soon as possible. We need to put this in some perspective. A number of investment projects are on the cards, and there is not a trend where everyone is saying: we are getting out of here.”
When asked why government had not done more to end the auto sector strikes, he said that they had ended earlier than they might have done because of discussions with government. But he insisted that in a democracy, government cannot tell people not to strike, even though that might have happened under apartheid.

Tweet of the day: Puns (@omgthatspunny): I only listen to waltzes 3/4 of the time.

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Altron Still Needs to Convince the Analysts

Technology group Altron has produced its first interim results, for the six months to August, since two major developments. The first was the full incorporation of listed subsidiary Altech, and the second was the disposal of Altech’s loss-making African operations. CEO Robbie Venter told analysts that today’s were the first results to exclude underperforming and disposed-of East and West African Altech operations, plus the Altech integration (for one month of the reporting period.) He said it was the end of a long journey in consolidating the group, and accessing synergies. Already some benefits are being realised, including R10 million a year in terms of saved listing costs, the expense of a separate board, and so on. But the Powertech division of Altron is still underperforming. On a more positive note, Venter said he detects tangible signs of recovery in the building and construction industry. Revenue was up 6%, normalised heps up 15%. What did our experts make of it?

Lavan Gopaul of 28E:
The income stream is a combination of residual income and contracts they are able to secure in both the public and private sectors. The requirement to consolidate their two listed entities into one doesn’t have apparent benefits. It might have been more transparent if they had continued as separate entities, written off the losses in East and West Africa completely, and then consolidated. I would like to see them prove the savings they are claiming from the consolidation, when we get results for the full year.

Independent Analyst Ian Cruickshanks:
Certainly they are serious about cost-cutting. It is necessary. But one is left with the question of why the consolidation has taken so long. There was some shareholder disapproval earlier, but that was because of the way the consolidation had been structured. Many of the areas in which they operate are unlikely to grow much faster than GDP growth. It will be difficult to see them growing above that – which does not make a convincing argument for new shareholdings.

Craig Pheiffer from Absa Investments:
The first-half numbers from Altron were a first glance at the group in its newly constituted form, and reflected the benefits of having exited the loss-making East and West African operations that had dogged Altech’s numbers for some time. Following the buy-out of Altech minorities (effective 1 Aug 2013), Altech was included as a 100% subsidiary in the financials at the end of the half-year, but the benefits were limited to just the last month of the reporting period. While the operating environment remained tough there were numerous positives in the results, which lead one to believe that a turning point has been reached. The UEC set-top box business within Altech is producing at record levels with a good order book and the annuity business of Altech Autopage had a good earnings showing, despite lower revenues. Good top line growth in the Bytes business more than compensated for the slightly lower margins to produce a respectable 14% growth in headline earnings. The Powertech business struggled over the year but there are very positive signs of recovery in the order books for cables, transformers and system integrators. Much store is being placed on the benefits to be derived from amalgamating the Altech and Bytes businesses into a TMT cluster. Management points to potential cross-sell opportunities, better capital allocation and efficiencies through shared services that could boost revenues and profits (rather than only cost-savings from property consolidation and the audit fee and listings fee savings from one less company listing). Much store is also being placed on growing future revenue from Africa and the public sector. The market will like the turnaround and the outlook – but management ultimately has to deliver on the promises.

Conclusion:
After a long struggle, there is now just one entry point for investors into the Venter family empire that is Altron. It is now up to management to convince the investment community of the soundness of their strategy – by producing some worthwhile results. We shall watch this space.

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More on BMW

ZA Confidential is not going to become repetitive, but for the first time, we are going to feature the same topic for a second day. It is the BMW decision to pull a big investment from ZA because of the impact of the trigger-happy strikers in the local automotive sector. There are two reasons for returning to the topic. The first is the feedback we received that this was a BIG investment, which is now lost to ZA. And secondly, we received some useful comment from two of our esteemed economists that came too late for yesterday’s newsletter. So here goes – more comment on the BMW decision……..

Peter Attard Montalto from Nomura:
We hear of these things all the time from companies, but they normally are not in the public eye and in the media because they are decisions made in quiet back rooms by management and not trumpeted. However BWM has clearly had enough of the labour situation and the risk/reward of further investment simply doesn’t make sense for them. There are many other companies thinking the same thing because of labour issues. Plus remember that in the car sector electricity supply quality and the stalling by government of allowing major co-generation by manufactures is a big issue. The car manufacturing strike has gone on for four weeks and the media has, till the BMW headline, given up noticing – the market too gets bored on the story dragging on – until it appears in current account and trade figures. Remember the key issue of the last trade print was that it was too EARLY for this car strike and other strikes to fully appear. It’s the next trade number that is going to be the bumper, scary one. We must not forget that strikes are ongoing in a whole host of different sectors around the economy. It appears in nominal level data but not growth data because this is a yearly phenomenon to some extent on a macro level, though the car sector is certainly much worse than last year. The key areas to watch are this car sector strike given even the upside of investment being effected now, Eskom related construction given delays in power stations coming on stream, the Platinum wage round which hasn’t even started yet (we are seeing restructuring strikes ‘only’ at this stage), and gold to see if AMCU tries and obtains a larger increase than the NUM.

Mike Schussler from economists.co.za:
The fact is companies need to make profits to stay in SA and they need to deliver on the contracts. No one in the world has six to seven weeks of disruptions to an industry. That was last the case in the Britain of the late seventies and early eighties. We lose more man days per 1000 workers than the UK did in the winter of discontent in 78/79! We will not create the jobs or the wealth we need – that is fast becoming a future fact. We are now in danger of losing the jobs we already have! The madness of strike after strike in a particular industry must stop. If the leaders of our country do nothing then we will be talking extreme poverty in 2050. The ultra left wing NUMSA who get Ultra Left wing monies via the Rosa Luxembourg foundation do not even know that they are being used to get jobs going in Germany again!