Die Vine Intervention. 2013 Jordan Chardonnay

An elegant and enjoyable Cape white is unveiled by food and wine guru Michael Olivier to the tasting team. It is the Jordan unoaked Chardonnay 2013.
John Fraser is joined in the Johannesburg studio by Corlien Morris from Wine Concepts and by branding legend Jeremy Sampson.

Do Restaurants Overcharge for Wine?

I was horrified.  A lunch with friends on a nice sunny day in Pretoria was ruined for me by the mark-ups on the wine.   One reliable red from Stellenbosch, the Warwick First Lady, was selling for around R220 a bottle, and R80 for a glass.  No indication how much air would accompany the wine in the glass. Now this wine can be purchased retail for around R60-R70 a bottle, depending on the retail outlet and their promotions at the time, and I am sure a restaurant would be offered a cheaper wholesale price.  I am afraid that the mark-up is just far too high – a mark-up in the order of four-fold?  That is unacceptable, and I will not be returning to that restaurant.  But am I just being mean and cork-Scroogish?  Should we happily pay so much for restaurant wines?  And what about us bringing our own bottle, and paying a corkage fee?   Here are a few comments from a few of our experts:

Food and Wine Guru Michael Olivier:

As a former restaurateur whose wine mark-up was 70%, I think 4-times is a bit rough.  There are fridges, glasses, openers and staff which need to be paid for, of course.  If guests brought their own wine and it was either an overseas wine or a particularly old vintage I did not charge corkage.  But if people bring their own wine ,the restaurateurs lose out on income.  So yes – charge corkage, perhaps equivalent to the profit on your lowest-priced bottle.   I had a guest bring a cake once, asking for it to be served for dessert!    I did not charge cake-age.

Out-to-Lunch Columnist David Bullard:

The interesting thing about moving down here to the winelands is the price of good wine in a restaurant. For example, I usually pay around R85 for an estate Sauvignon Blanc, and maybe as much as R100 for a very quaffable estate red. That’s all thanks to healthy competition and a clientele that baulks at paying more. I shudder every time I have to pay for a wine in a restaurant in Jo’burg.  To me it’s rather like the argument over the price of motor vehicles. The price is what the market will bear and, while I would no longer pay a 400% mark up on a wine (because I now know better) I am sure many people with expense accounts will.  A fair corkage charge is R50-75, depending on the restaurant. That is a more than generous fee for the hire of glasses. If I take a rare wine to a restaurant (one they do not stock) I expect to pay no corkage – in exchange for a tasting glass for the sommelier. That has always worked if I check it out while making the booking. Since my ratio of booze spend to food spend is well known to be around 60:40, most restaurants that know me are quite happy to oblige. If they don’t, I simply don’t return there or recommend it. Like everything in life, it’s a matter of give and take – and while a restaurateur is quite entitled to make a profit from what I drink, I think I am quite entitled to object when I get the feeling I am being…..  (The end of this sentence has been removed due to its graphic content.  Ed.)

Mario Pretorius from Telemasters:

The mark-up on wine of 400% follows the general restaurant rule that the food cost should be around 25% of the price of the dish.  Is this a fair mark-up? The difference is that food is altered from its raw state by expert chefs to something you probably couldn’t repeat at home; hence the culinary experience that resonates so well. To enhance the ambience, some libation is welcome, but at most some cooling and the use of a corkscrew is added.  It is a galling misuse of good faith at the 4x level, and few restaurateurs offer good value in the drinks section.  The good news is that the bile spitting will bring out the miser in most of us and we will drive home more sober. Alternatively, one should choose the most economical wine, up from cheap but not expensive. It has been exhaustively reported that few experts can distinguish good wines from ghastly, expensive, and supposedly superior, ones.   The alternative is obvious: BYOB. Since corkage is usually a fixed amount, the best strategy is to bring the most expensive or best bottle in your cellar and grin at your victory. Just don’t overdo it; jail time as a drunken driver will be phyrric.

Branding Guru Jeremy Sampson:

I think a mark-up x4 is verging on the obscene. And a glass at more than the (retail) price of a bottle is just stupid. After all, what value is being added?  There are times when I am happy to take my own bottle and pay corkage.  In brand terms we all need to be able to trust who we are dealing with.  Once we discover that we are being taken advantage of we should vote with our feet and then use the most potent form of marketing – word of mouth – to ensure they are driven out of business

 Duane Newman from Cova Advisory:  

Pricing of wine in a restaurant is an interesting challenge to deal with. I have found expensive wine has much higher mark ups – 3 to 4 times the local liquor store. It is defendable, as the restaurants whhich carry the expensive wines normally have an extensive selection – and the restaurant has to pay up-front and carry the stock. I also believe it is a price point issue. Some people buy wines in a restaurant based on price, believing the more expensive the wine, the better quality they are getting.  This is not always true, of course.  It therefore comes down to knowledge of what you are buying. The more you know, the better equipped you will be to select value for money.  Personally, I buy wines based on what my wife and I like, and based on the occasion.  We really enjoy Meerlust Rubicon or Merlot which can go for R700 in a high-end restaurant, but I can buy the same wine for R200 or below at a shop. But I would be willing to pay that for the special occasion.


Dining out should be a pleasure.   Dining out and being ripped off for wine is not.  Charge too much for your wine and I will charge for the door.  And I will not be back. 

Tweets of the Day:

Mindblowing Pictures (@GooglePics):  If a midget smokes weed, does he get high or medium?

Mark Twain (@MarkTwainQuote):  The only way to keep your health is to eat what you don’t want, drink what you don’t like, and do what you’d rather not.

NotKennyRogers (@NotKennyRogers):  Even a bad hamburger is better than good hummus.

Eli Braden (@EliBraden):  The worst part of having triplets is being pregnant for 27 months

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

Nein. (@NeinQuarterly):  Turkey walks into a bar. Orders a democracy. Bartender: Sorry, Greece got the last one.


ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:    zaconfidential@gmail.com

Are We Now in a Recession?

Well, it was worse than expected.  ZA GDP fell by 0.6% in the first quarter of the year.   What this means is that the economy is not growing; it is shrinking.  And at a time when inflation is disturbingly high.   As is unemployment.    Ouch.  Not good news for President Zuma’s new cabinet, nor indeed for any of us.    ZA Confidential secured some speedy reaction from some of our experts….

Mike Schussler from economists.co.za

Depending on how the platinum sector strike goes on, we could already be in a recession – which is 2 quarters of negative growth. Ultimately, the strike and the length of the strike in the platinum sector, and number of holidays in Q2, could cause the recession  I think manufacturing will look a lot worse in the second quarter. This is self-inflicted and it is not at all good for a new Cabinet to come in now.  We really need to sit down and talk in ZA.

Chris Hart of Investment Solutions:

This is the first GDP decline since 2009.  I think it is fair to say ZA is an a recession.   And its credit rating must be at risk.  It must, from a political point of view, be an absolute priority to get the economy going again.   Effectively, it will need a change in policy direction to generate the investor confidence needed to generate the growth. 

Ian Cruickshanks:

GDP decreased by 0.6% – at the bottom end of expectations.  This confirms that ZA is experiencing a shrinking economy.  If we get another negative quarter like this, we will be in recession.   Mining is a major factor – the sector decreased by almost a quarter- and manufacturing decreased by 4.4%, which is a big negative factor as well. Only the finance and trade sectors are carrying the economy now. Our international credit rating is at risk, threatening a reversal of recent foreign portfolios inflows. We are likely to see foreign traders punish the rand.

Nedbank’s Economic Unit:

As expected, the economy contracted in the first quarter of 2014, with real GDP shrinking by a seasonally adjusted annualized 0.6 % q-o-q, sharply down from growth of 3.8 % in the final quarter of 2013 and worse than market expectations of a quarterly decline of 0.1 %.  Predictably, the weakness mainly came from a sharp plunge in mining production, which was dragged down by the now 18-week long strike at most major platinum mines. But the economy’s fragility was on display in most other sectors, too. Manufacturing output dropped sharply, while the pace of activity in most of the services industries also slowed to the low single digits. The only rays of light came from construction and agriculture, where output rose by an annual rates of 4.9 % and 2.5 % respectively over the quarter.   The outlook for the rest of the year remains clouded by the ongoing strike in the platinum mining industry and the potential spill-over effects of lost wages on confidence and household spending. With the platinum strike claiming both April and May, production is highly unlikely to rebound strongly in the second quarter, while lost wages of over R8bn in the platinum mining industry alone and slower growth in income elsewhere – coupled with rising inflation, high unemployment, elevated debt burdens and higher interest rates – will continue to weigh on domestic spending. Once the strike is resolved, the economy should start to recover, helped by stronger global demand, a weaker rand and increased infrastructure spending by the public sector. Overall, we now expect GDP to grow by a moderate 2 % in 2014 as a whole.  

Investec’s Annabel Bishop:

The real economy shrank in size in the first quarter of this year as work stoppages (both strikes and electricity conntraints) damaged production.  South Africa saw its real economy contract in the quarter following a contraction in the mining sector of 24.7% on a qqsaa (quarter on quarter, seasonally adjusted, annualised) basis. The manufacturing sector also contracted, by 4.4% qqsaa as work stoppages caused by strike action and electricity constraints caused the worst GDP outcome since the 2008/2009 recession.  On a year on year basis the economy saw weak growth of 1.6%, which does not portend well for 2014, particularly as the constraints in the electricity supply have not been resolved and the strike action in the platinum sector is ongoing. The Reserve Bank’s leading indicator for March fell by 2.4% y/y, which implies weakened activity in the second to third quarters compared to the first, although it is only one month’s reading and cannot be fully relied on as a predictor.   Nevertheless, over the past few years South Africa’s economic growth has been deteriorating substantially, and GDP growth is at risk of approaching the 1.0% y/y mark this year after recording 1.9% y/y in 2013, 2.5% y/y in 2012 and 3.6% y/y in 2011. Strike action and reduced supply of electricity has slowed production, while real household consumption expenditure growth has deteriorated on weakened financial health, waning demand, and flagging manufacturing production.  Despite the worrying downward trend in economic growth, and strength of the rand, the SARB has clearly communicated its intention to hike interest rates further in the current cycle, with January’s 50bp hike contributing to the first quarter’s economic weakness. The wholesale, retail, motor trade, accommodation and catering sector recorded weak growth of 2.2% y/y, and is at risk of slowing further should additional interest rate hikes occur this year.  We previously forecast a 50bp interest rate hike in July, but this hike should now be delayed to the fourth quarter of this year instead. The optimal outcome would be no further rise in interest rates in 2014 as inflation is likely to be within target in 2015, and the Reserve Bank cannot influence the 2014 CPI outcome given the time lags involved between changes in interest rates and the impact on inflation. Furthermore, the path of global monetary policy normalisation is sedate and no interest rate hike is required in South Africa in 2014 (or likely 2015) from this source. Regulatory reform, specifically a reduction in red tape and reduced state intervention in, and ownership of, the economy is needed to triple the size of the private business sector. Only through improving the ease of doing business in South Africa, including adding the vital component of flexibility to the labour market, will SA be able to triple the size of the private business sector and sustainably raise economic growth to the 5% mark.



Unemployment and inflation are uncomfortable high, and now we learn the economy is shrinking.     Anyone know the way to Perth?

Some Tweets: 

Steve Stifler (@SteveStfler):  Why are there instructions on my toothpaste? That’s like putting instructions on toilet paper.


ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:    zaconfidential@gmail.com

Deloitte Technology Predictions. #TMTPredictions2014

Oversized smartphones, which the geeks call phablets, are set to overtake tablets.
This is according to Deloitte’s TMT predictions, a global technology trend analysis which was released in Johannesburg today.
“Phablets – an oversized smartphone that’s part cellphone, part tablet, will outsell tablets by $25 billion, and the total global sales of smartphones, tablets, PCs, TV sets and gaming consoles will exceed $750 billion in 2014 and then plateau as consumer usage will continue to converge,” Deloitte announced.
Phablet sales will reach a quarter of smartphones sold. These devices work better with some Asian languages, and also are better than smartphones for gaming.
It also predicted there will be a lucrative market in wearable technology devices, such as glasses, watches and fitness bands.
Smartphone growth will be strongest among the over 55s. We may need more apps for older people…
Meanwhile, by the end of 2014, up to 50 million homes around the world will have two or more pay-TV subscriptions.

A few other observations:
There are a lot of open on-line education courses, but there is a very high drop-out rate. – Many visits to doctors for basic diagnosis will be on-line in future. – Gaming is competing with TV for “relaxing moments”
– Sports broadcasting rights will jump in cost by 14%. A challenge for the broadcasters is how to pass on these increases…
– Performance rights, the payment for the right to play music to the public, will exceed $1bn.
– In sub-Saharan Africa, cordless video on demand is a growing trend. Such as Box Office from DSTV.

Conclusion: A useful bit of research, but one wonders why I needed, as a delegate to a technology conference, to ask for details of the free wi-fi log-in?

ZA Confidential is a subscription newsletter. For subscription details or any other issues, please e-mail: zaconfidential@gmail.com


Zuma’s New Cabinet

There had been a lot of speculation about big changes in President Zuma’s new Cabinet, which was unveiled this evening.   While there was significant change elsewhere, I am not convinced that there was much change in the key economics areas.   There was a big shift with Pravin Gordhan being moved from the Treasury to tackle challenges in Local Government, but he is succeeded by his deputy Nhlanhla Nene, so there is also big continuity.  The two left-leaning ministers who are of big importance to business – Rob Davies at the dti and Ebrahim Patel at Economic Development – are remaining in-situ.  A new ministry for Small Business Development may or may not be a good thing, depending on how it is established and whether it makes a real positive contribution to small business under Minister Lindiwe Zulu.  Similarly, a lot is riding on the shoulders of new Public Enterprises Minister Lynn Brown, and on those who will be steering the mining, Labour, Telecommunications and Water Ministries.   Having Cyril Ramaphosa as Deputy President may be good for business, as he has run businesses, and has done spectacularly well out of it.  But he will have a lot else to do as Zuma’s right hand man.  An immediate hope is that he does more to settle labour tensions in the mining industry from the Presidency than he ever did from the boardroom.   Let’s get a short comment from two top experts on links between industry and government

 Duane Newman from Cova Advisory:  

There is definitely stability in the economic cluster. Rob Davies is staying on at Trade & Industry which means consistency at Director General level as well. The new Finance Minister Nene is good news as he has been Deputy Minister for 6 years so he should know the job quite well already. That Pravin Gordhan has moved away from Finance should not be as bad news as he should fix local government – which is where service delivery impacts many South Africans. The restructure of creating a Communication Ministry with Brand SA included should improve the branding of South Africa internationally.  I think that Cyril Ramaphosa as Deputy President means that government should be more business friendly.  A new Small Business ministry seems stillborn. Its role needs to be clearly defined as small businesses struggle to engage with government. Small businesses just don’t have the resources and time to spend time in meetings with government. I hope the Chambers of Commerce role is now elevated.  I am still not convinced on the role of Economic Development ministry. I believe this still needs to be reviewed.

Professor Raymond Parsons From NW University:

‘The new Cabinet creates a mix of positive and negative perceptions. To begin with, unfortunately the widespread anticipation of a ‘lean and mean’ Cabinet did not materialize and the inevitable need to repay political debts and keep an ideological balance seems to have heavily dominated the appointments. It is very much President Zuma’s own team, given the political dynamics, even though the underlying message remains one of capacity-building and the need to ‘deliver’. Confirmation of Cyril Ramaphosa as Deputy President is a considerable asset to the Cabinet and the country, given his experience of organised labour, business and politics, as well as his participation in the drafting of the National Development Plan (NDP). He is potentially in a strong position to exert the necessary political clout to help push things along.

The accession of Deputy Minister Nene to the portfolio Finance Ministry was not unexpected. He comes with the necessary experience of the National Treasury stretching over several years, but has big shoes to fill at at a critical moment in SA’s business cycle. I am agnostic about whether the creation of a Small Business Ministry will be a success, given the mixed experience of similiar structures elsewhere, but we should chew it and see. There is no doubt about the real challenges facing small business and the need to urgently implement the necessary solutions to enhance their role in growth and job creation. Apart from the time it will take to settle in the new Ministry, it may also become another casualty of the ‘turf war’ and conflict over economic policy that has been apparent between the National Treasury, the DTI and Economic Development.

The move by Gordhan to Cooperative Governance brings an efficient Minister with a good track record to bear on the serious delivery problems at local government level, and should be welcomed. One suspects, however, that among investors and businesspeople the jury will remain out for the time being pending real outcomes around the implementation of the commitment by President Zuma to ‘radical economic transformation within the framework of the NDP”. Business wants to be treated more as a genuine partner in future development, rather than as an ‘alien force’. If the key targets of the NDP are written into the performance contracts of Ministers and outcomes are rigorously monitored, then in those instances where continuity in the appointments has been favored over change may work out. We still need to see whether the new cabinet as a whole can project the necessary policy coherence which creates the certainty and predictability required by investor confidence to boost economic growth.


A bit of change, but not enough to convince me that this is a new government team that is good for business.  Let’s give Zuma credit for having got rid of a few underperformers, though not all.  Many have just popped up elsewhere.

Some Tweets on the New Cabinet:

griffin (@watkykjy):  Joemat-Pietersen new minister of energy. O jirre. Winter is coming. Forever.

SaffaZimbo (@SaffaZimbo):  Most successful ministry in #ZumaCabinet will be small business. There are going to be a lot of smaller businesses in SA in 5 years.

M. Ntshobololo (@Mthetheleli15):  Cowboy Beki Cele is back on Zuma’s cabinet,ironically he was fired not long ago for not being fit for office.

Pieter du Toit (@PieterDuToit):  New propaganda minister, Faith Muthambi, was member of parliament’s Nkandla committee; she denied delaying tactics.

Lerato Mbele (@BBCLerato):  Tina Joemat-Peterson given a key portfolio like Energy Ministry, after a scathing report by Public Protector. Am I missing something here?

The Brain (@za_Thinker):  Bad ministers never really get fired. Just redeployed to stuff up another portfolio. #CabinetAnnouncement

Comedy Central AF (@ComedyCentralAF):  Disappointed that Khulubuse wasn’t made Minister of Fast Foods 😦 #newcabinet #TheFig)

Nickolaus Bauer (@NICKolausBAUER):  #ZumaCabinet We didn’t get a ministry of information. But we got a new communications ministry that will control SABC, ICASA & GCIS #Ominous

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Should Zuma Appoint a Minister to Crush Red Tape?

I spent several hours this week at the first SA Manufacturing Indaba, a worthwhile event and one I expect to see repeated.   Much was said that was worthwhile, but one idea has stuck in my mind.   One of the panelists recalled meeting a visiting Belgian trade delegation, which included that country’s Minister of Red Tape, whose job was to visit other government departments to get rid of unnecessary forms and to trim down those which were too full of useless questions.   Of course, in South Africa it is the opposite, with most ministers and bureaucrats regarding red tape as their main reason for existing.   But might this be something to emulate here, as the President prepares his new Cabinet?  Here are the views of a couple of our experts….. 

George Glynos from ETM:

Undoubtedly yes. The question will however always revolve around what is seen as red tape and whether this can genuinely be done efficiently.  The danger with central planners is that they implement regulation to solve a particular problem.  The danger in trying to address this is not that they don’t remove some red tape, but that they potentially replace it with another version.  Ultimately, if it does follow more free market ideals then by and large I would support this, but my comment may be ideological.

Mike Schussler from economists.co.za

Yes, please.  We need a ministry for business that can oversee other ministries to tell them to get rid of red tape, hurdles and restrictions such as labour law and trading laws – and see that we get the co-ordination we need to help SA firms (particularly smaller ones) export, and that we get business a voice inside cabinet. If the unions have the Department of Labour and Economic Policy can business not have a department headed by a knowledgeable business man (with friends and contacts mainly in business) in a Department of Business? This department would make everyone sit up and take notice of the term: profit. Profits create wealth, and wealth creates jobs. We have departments for the poor in Social Development so we need a department for business that does not write rules but lowers many regulations. It also will help any business that has completed its work or requirements to get paid within 30 days. It would also tell SANRAL that 7 days or pre-paid is not SA business practice – and that as they pay their suppliers this way, they will also only get paid in 30 days.  It would police government departments to see if they are helping or hindering business and set out findings in a report every year. It would also have Ombudsman for tax, banking and insurance under it. It would provide opinions and experts on small business to a small claims court that falls under Department of Justice, but for which it provides experts at reasonable fees to small and medium sized business. This is so that those people who do not pay in 30 days get to know courts better. This would make people respect the right to work as well. In a strike situation where a union claims not to know why non-striking homes are burning, this department would investigate along with the police. If a union or its members are involved, the said union will be raided and bank accounts closed and leaders made to pay back losses to the economy. If people are killed, then, and the union is found guilty this ministry would make sure that union loses its licence and its leaders are banned for life from organizing employees.  Yes to a business ministry that adds rules for others and takes away red tape and rules for business.


I have a horror of form-filling, but have done some writing work recently for large organisations, whose form-filling requirements were ridiculous.   The only good thing is that having jumped through all these red tape hurdles I have at last been paid!  But a proper pruning of red tape in both the public and private sector would be really welcome – and would hopefully improve productivity as well.   

Tweet of the Day:

Nein. (@NeinQuarterly):  Somewhere a painting of a pipe is sitting quietly at its desk. Smoking an artist.

ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:    zaconfidential@gmail.com


Die Vine Intervention: Perdeberg MCC Brut Reserve 2012

For the latest Die Vine Intervention wine tasting podcast, food and wine guru Michael Olivier introduces a dry and refreshing Cape bubbly – the Perdeberg Chenin Blanc Brut Reserve 2012.
John Fraser is joined in the Johannesburg studio by branding legend Jeremy Sampson and by Malcolm MacDonald from Tersos.

No Change in Interest Rates but Economic Worries Grow

Reserve Bank Governor Gill Marcus announced no change in interest rates today, following the latest meeting of the Reserve Bank’s Monetary Policy Committee (MPC), but she certainly did not rule out rises at future meetings.  She said 5 members of the MPC wanted to hold rates, while 2 wanted to raise rates.  The Governor noted that at 6.1% CPI inflation, the rate has moved above the 6% ceiling – and is expected to remain outside to 3% to 6% target band for some time.  There is a host of worrying economic data.  The strike in the platinum sector is expected to have a significant negative impact on exports, as stocks of platinum are depleted.  The Bank’s GDP prediction for this year has been revised downwards from 2.6% to 2.1%.  Unemployment remains elevated in a declining growth environment.  Sobering stuff.  But what did our experts make of it all? 

Dr Andrew Golding, CE of the Pam Golding Property Group:

Maintaining stability in the interest rate sends a positive message and reinforces much-needed confidence among home buyers and investors, and hopefully will further improve sentiment and add impetus to the recovery in the property market. Coupled with this is the fact that mortgage lenders are demonstrating an increased appetite for lending which is ultimately the most important driver of activity in our property market.  One does however need to be circumspect regarding this optimism  in the light of the Consumer Price Index inflation edging upwards – and as a consequence the fact that consumers continue to be beset by rising food and fuel costs, as well as electricity, water and municipal rates and tariffs, all of which erode disposable income. Another source of concern is the extent to which the country’s GDP growth is lagging targets required for sustainable growth, which is necessary for the property market to prosper and thrive.

Ian Cruickshanks from the SA institute of Race Relations:

This decision not to change interest rates was expected.  The Reserve Bank’s economic forecasts have led to expectations of stagflation, with GDP growth downgraded from 2.6% to 2.1% for 2014, with downside risk.  This comes with the JSE at record high prices, at levels difficult to justify.  

Sizwe Nxedlana from FNB:

Despite the Reserve Bank’s decision not to raise interest rates at today’s meeting we think it is only a matter of time before interest rates are raised further. Domestic inflation is now above the upper limit of the Reserve Bank’s 3% to 6% target. We expect inflation to accelerate further and to remain above 6% for the rest of this year. The South African economy also remains vulnerable to rising global interest rates given its large current account deficit, which has been placed under more pressure by the impact of labour unrest on platinum production and exports so far this year. Rising US rates will increase the difficulty of funding the current account deficit. This is likely to keep the rand under pressure and place further upward pressure on consumer inflation. Against this background we think it is only a matter of when, not if, interest rates will be raised again. However, the magnitude of the interest rate hiking cycle may not be as severe as previous cycles given current weak economic growth.

Nedbank Economic Unit:

The inflation outlook has improved on a firmer rand and growing evidence that the change in US monetary policy is unlikely to alter global liquidity dramatically in the short term or result in a one-way bet against emerging market assets and currencies. The risk to the inflation outlook remains on the upside given the rand’s vulnerability, sticky administered prices and the negative relationship between wages and productivity growth. The Reserve Bank tweaked its inflation forecasts slightly downwards, with headline inflation now expected to rise to a peak of 6.5 % (6.6 % previously) in the final quarter of 2014, before drifting back into the target band by the second quarter of 2015. Real economic conditions deteriorated sharply in the first quarter and the outlook for growth remains subdued. The strikes in the platinum mining industry continue to cast a long shadow over the economy, undermining confidence throughout and limiting the upside for the year as a whole.  The MPC is still left with the unenviable task of countering rising inflation in a weak and vulnerable economy. With inflation already outside the Bank’s target range and expected to remain so for some time to come, the Governor once again reiterated the MPC’s bias towards tighter monetary policy over the medium term. The pace and magnitude of the tightening will depend on trends in the rand, inflation and the real economy. Given the setbacks to the economy and the lack of underlying consumer and business confidence, the MPC will try to limit rate hikes to modest increments until more convincing evidence of economic recovery emerges. We expect that the MPC will raise rates by only 25 basis points in two of next few meetings, with the repo rate ending the year a cumulative 100 basis points higher.


A sigh of relief from borrowers, but no joy for lenders.  But what was really of note was the catalogue of economic woes outlined by the Governor.  Especially the downgrading of expected GDP growth this year.   Not good for job creation! 

ZA Confidential is a subscription newsletter.   For subscription details or any other communication, please contact:    zaconfidential@gmail.com


Worrying Upcreep in Inflation

CPI inflation in April rose above the target band of 3-6%, registering 6.1%. This is not good.   Most commentators feel this won’t prompt an interest rate hike tomorrow, but it doesn’t help, and inflation is generally a horrid thing, particularly in a country like ZA with such sluggish GDP growth…

But what do our experts say? 

John Loos from FNB:

Most obvious, given that the overall CPI inflation rate has risen further and is outside the 3-6% target range, is that the numbers exert potential upward pressure on interest rates. Indeed, we do expect further mild interest rate hiking during the course of 2014, to a level where the Prime rate ends the year at 9.75%. However, our CPI forecast is an average of 6.1% for the entire 2014, implying that we don’t expect it to get much worse from here on. And there are encouraging signs in form of a Rand that has behaved itself fairly well of late. This has resulted in a diminishing year-on-year depreciation in the Trade-Weighted Effective Exchange Rate, from a low of -19% in February 2014 to -12.3% as at May (to date). This should see a diminishing imported inflationary effect from currency weakness in the coming months should the Rand continue its period of relative stability.   The 2nd impact of the elevated CPI inflation is likely to be increased downward pressure in Real Household Disposable Income growth, which has already been slowing gradually in recent years. The cumulative rise in consumer price inflation, which amounts to 0.8 of a percentage point since November 2013, increases the possibility that Real Household Sector Disposable Income growth in real terms has slowed further from its 4th quarter 2013 rate of 2.1% year-on-year, especially given the signs that economic growth slowed once again in the 1st quarter.  A 3rd key impact can be in the area of the Food and Beverages Sector. Given that food is where the sharpest inflation surge has been in recent months, one could expect some consumer belt tightening in this area, resulting in further weakness in real Food and Beverage sales especially in the Restaurant and Catering sector, but also in the area of Food Retail. Finally, the 4th of the key impact points that are worth highlighting is the fact that food price inflation has shown a sharp acceleration, and the fact that this impacts more severely on the poor, given the higher weighting of food expenditure in their overall expenditure basket. Therefore, whereas the “Very Low Expenditure Group” (now termed Expenditure Quintile 1) had a 4.7% consumer price inflation rate at the end of 2013, compared to the Very High Expenditure Group’s (Expenditure Quintile 5) significantly higher 5.6%, by April the Very Low Expenditure Group’s inflation rate had accelerated to 6.5%, now higher than the Very High Expenditure Group’s rate of 6%, and the gap is widening.   While a higher overall inflation rate, and potentially higher interest rates, are a negative for everyone, the 4th potential impact, i.e. the greater impact of food price inflation on the poor, remains a key concern in the current time of elevated” social tensions and their potentially disruptive nature towards the economy.

Nedbank’s Economic unit:

On a monthly basis, inflation rose by 0,5 % mainly as a result of a 1,4 % m-o-m rise in food prices which led to a 0,2 percentage point contribution from the food and non-alcoholic beverages category. We expect inflation to rise further in the short term and to remain above the Reserve Bank’s 6 % upper target range throughout this year and into the first half of 2015 due to a fragile rand and higher food prices.    The inflation outlook remains poor in the short term. The Reserve Bank has made it clear that we are in a rate-hiking cycle, but the extent and speed will be rand and data dependent. We do not expect the Reserve Bank to raise rates at this Thursday’s meeting, given that the rand has strengthened substantially since the bank’s last meeting. However, given the need to balance growth prospects with higher inflation we anticipate that rates will rise by 25 basis points at two of the following four meetings.

Annabel Bishop from Investec:

Demand pressures remain modest in South Africa on low confidence, weak employment, slowing real disposable income growth and high indebtedness. The economy continues to run well below potential, and no further increases in interest rates are warranted this year, particularly as economic growth is at risk of coming out below last year’s 1.9% y/y. However, the SARB has communicated its intention to hike interest rates further, even though the signalled sedate trajectory of global monetary policy normalisation over the next twelve months does not warrant it.  The 50bp hike in interest rates in January will serve to moderate demand further this year, keeping the demand component of CPI inflation (CPI excluding all administered prices and food and beverage prices) subdued.  The marginal uptick in CPI inflation in April should not be misinterpreted to read that demand price pressure is rising worryingly, or even that higher prices at the tills are being absorbed by the consumer, and so will become entrenched. Instead, retailers have been battling under sharply escalating State controlled prices such as water, electricity, property rates and taxes and transport. Labour costs have been rising rapidly too, partly also because of the escalation in administered prices. Consumers will not necessarily absorb the higher prices at the tills. 




For many South Africans, high inflation is terrible news, and it is worrying that this strike-bound, snail-pace red-tape tangled economy also has high inflation.  


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Reputation: Woolies gets a Tick, and Vodacom a Cross

What is Vodacom doing wrong that Woolworths is doing right?  Well, a recent announcement by the Reputation Institute suggests that the telecoms giant is not doing a good job at managing its reputation, while the retailer is doing a stellar job.   To find out more about the research, ZA Confidential spoke to Trevor Ndlazi, country manager for the Reputation Institute in South Africa:


ZAC:   What is Woolworths doing right that many other firms are failing to do?

TN: Woolworths have embedded into their business culture and business processes a way of doing business that has as its outcome a strong reputation. They are not building reputation by PR and marketing but by actually doing business in way that talks to the needs of their stakeholders. This is captured in their Good Business Journey approach.


ZAC:   Is its strong reputation just a feel-good matter, or does it help the business? 

TN: Reputation drives support, so it is absolutely critical to business. People will support a business, either by buying from it, recommending it, saying good things about it, etc, based on its reputation. All of these things have an impact on the bottom line.   Reputation is therefore critical to sustainable business success.

ZAC:   To what extent might a new threat be just around the corner – as it was with Woolworths over allegations it had breached the rights of a small producer when it produces a Ginger Beer, and also with its perceived whites-only recruiting stance?

TN: It is because a new threat is around the corner that companies need strong reputations. A strong reputation allows companies to survive these types of threats because the company builds goodwill and reputation capital over time and when mistakes in companies happen, as they invariable will, the reputation that has been built helps the company to weather the crisis as stakeholders’ faith in the company will allow them to give the company the benefit of the doubt.


ZAC:     What has Vodacom done wrong to suffer such a big fall?

TN: It is difficult to say with absolute certainty, as we did not ask respondents for reasons for their ratings. We do know however that negative changes in reputation perceptions are preceded or triggered by incidents or events. These events would generally be where the company acts in a way that stakeholders did not expect it to act, for example the company may have positioned itself as working to give stakeholders the best value. But if it happens that the company is then found or seen to be acting against this position, this may damage its reputation. We suspect that may be the case with Vodacom and the mobile termination issue.

ZAC:  Neither the mining nor the financial services sector do well, either.   Might it be that we now live in times when most people are pretty suspicious of corporates?

TN: We have witnessed declines in scores in all but two companies; we also see a similar trend internationally. There does seem to be a loss of faith in companies currently happening, post the global financial meltdown.


ZAC:  The construction sector suffered a lot of reputational harm due to many breaches of competition law over bids for World Cup Stadia, Gauteng highway improvements, and other projects.   Is this reflected in your research?

TN: Yes. The construction company that was included in the study was placed with the mining companies in terms of its reputation score.


ZAC:  Do you do a similar exercise on political parties, and if not what do you think it might show?

TN: No we do not. It would be very difficult to speculate, but might show interesting results.



I am not sure about this research.  While Woolworths may be doing well, my own annoyance at its recent failure to sell wine on a public holiday, when it was on sale at a rival supermarket, really annoyed me.   It probably happened after this research, but I was even more annoyed when Vodacom offered 1Gig of free data on a recent Sunday – but the network was rubbish and I am not sure I was able to get any benefit from it.  Will Woolworths latest corporate expansion in Australia boost its image, or does it face a big disaster, as has happened to other ZA companies in Oz? Admittedly Woolworths knows the Australian market well, and has a CEO who worked there.   And how will Vodacom’s reputation fare in the tie up with Neotel?  If this leads to new offerings at good prices, it will win my vote.  And let’s face it, the borderline anti-white bosses at Telkom are not likely to win much respect from many South Africans. 


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