Monthly Archives: September 2014

Half Way There. The BRICS Book.

I must first declare an interest.   In the first half of this year I worked as part of the project team for this book.

‘Half Way There’ is being launched this evening.  It is a book on the five-nation BRICS alliance, exploring the political, economic and social structures in these five nations – Brazil, Russia, India, China and South Africa.

The authors are Chris Hart and Glenn Silverman, and along with their Investment Solutions colleague Lesiba Mothata, they visited all five BRICS nations to explore not only how these countries fit together – or not – but also the complexities of each individual country.

‘Halfway There’ is an excellent title.  Where are the BRICS going, and what progress are they making?   Is this a convenient club uniting an anti-Western grouping of nations, or is it something which will develop its own reason for existence, in economic terms?  All these questions are addressed.

There is also a series of analytical tools which are used by the authors to probe below the surface of each country, with possibly the most impressive being the concept of National Scars.   These are the issues or eras which have scarred each nation, and which form the backdrop to their policies of today.  In South Africa, the scar is apartheid, and similar scars have been identified for the other BRICS as well.

Many other clusters of nations have emerged since the BRIC grouping (later to become the BRICS) was identified by economist Jim O’Neill.  But the BRICS now have their own development bank, a business council, and regular summits.

The grouping is important to South Africa, which arguably is too puny a nation to really belong in this club.  I was lucky enough to sit in on many of the research meetings with CEOs, academics and others as the team did a thorough job of researching their own country, looking at it through fresh eyes.

Chris Hart and Glenn Silverman are both impressive individuals and took on this marathon task in a short time period, not neglecting their day jobs. Together they led a team of talented people, and it is a remarkable achievement that this book has now been written and published.

This is an excellent and important book.   Buy it.

Tweets of the Day:

Funny Tweets (@Funny_TweetsQ):  Could you please put your crying kid on vibrate?

Ellen DeGeneres (@TheEllenShow):  What do you call a deer with no eyes? No eye deer. #ClassicJokeFriday

Male Thoughts (@SteveStfler):  I broke up with my gym we were just not working out

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My Living Room is now Smarter than I

In a cupboard at home I have two old DSTV decoders, which at the time I bought them seemed very advanced.  I also have a cassette deck, a laser disc player and piles of old VHS tapes, which I will get around to throwing out sometime.  The emerging generation would probably collapse in a fit of laughter and ridicule if they could see the number of CDs I have bought over the years, and they knew how infrequently I listen to them. And don’t get me started on my Betamax video tapes….  Ironically, I got rid of most of my vinyl records, and vinyl is making a comeback.

I would probably be able to retire by now if instead of buying books and magazines, tapes and records, discs and cassettes, I had instead put the cash into shares, the bank or even on the horses.

However, that is the past and just as I was excited and delighted by every purchase I made over the past decades, I couldn’t help but be tempted by some of the new black boxes which have recently been launched in South Africa.

One from Times Media promises a great library of films and TV show, while Altech’s new Node will not only offer an array of entertainment; it will also have all sorts of other facilities for turning my dumb house into a smart one.

The computer is becoming king in the world of entertainment, be it a normal-looking laptop, a tablet, a smartphone or one of these black boxes.

I have bad news for advertisers – I hardly ever watch TV shows live anymore.  It is more convenient to record them on my current DSTV box, and then watch them later, fast-forwarding through the adverts as I do so.

The real breakthrough will come once my home is connected to an efficient line along which data can be squirted, although at least one of the new boxes appears to use satellites to load the material, while offering other connectivity which does not rely on a fixed line.

A tech-savvy friend of mine has no subscription to any local TV services.  Instead he has devised a way of tapping into US sites where he can enjoy a vast choice of TV shows and films for a negligible fee.   He has a good data link, and that is the crucial factor.   He can’t watch SA Idols, or Big Brother Africa or the local version of Masterchef – which is arguably more of a benefit than a disadvantage.

So I have seen the future, and as the tech companies tie up with the content providers and the telecoms firms, this revolution will continue.

A report from PwC last week identified data as the big growth area in ZA telecommunications, and this came as no surprise to anyone.

What is certain is that the way we more affluent South Africans package and stream our home viewing will change a lot over the next few years.

What is also fairly certain that that whatever new black box I buy in the next year or so, a few years after that it will take its place alongside all the other boxes in the cupboard, as my house continues to become far smarter than I.

Tweets of the Day:

Fake Dispatch (@Fake_Dispatch):  Due to a mix-up during the clean-up of a big coffee and milk spill at Starbucks, the company’s newest size is served out of a mop bucket.

The QI Elves (@qikipedia):  I like coffee because it gives me the illusion that I might be awake. – LEWIS BLACK

Funny One Liners (@funnyoneliners):  My dog is like one of the family. And I’m not saying which one.

Ellen DeGeneres (@TheEllenShow):  What did the duck say when she bought lipstick at the department store? Put it on my bill. #ClassicJokeFriday

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

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Old Vines Chenins Blanc 2013 and 2003

A special treat for the Die Vine Intervention tasting panel – a wine which will feature in this weekend’s Nederburg auction: the Old Vines 2003 Chenin Blanc. And also a taste of a young cousin – the 2012 Chenin Blanc.
Food and wine guru Michael Olivier introduces the wines to Malcolm MacDonald from Tersos, to Vincent Le Roux from the Beer Keg and to analyst Chris Gilmour.


Manufacturing (and Mining) Malaise

Manufacturing data out today from Stats SA show that July saw drop in manufacturing output of 7.9% – the biggest year-on-year fall since October 2009.  We also had numbers on mining today, showing a 7.7% year-on-year fall in July, compared to a revised 5.4% drop in June.  While there have been some signs of an improvement in business confidence, these official figures present a worrying picture, as mining and manufacturing are two crucial sectors of the economy.   What do our experts make of it?

Mike Schussler from economists.co.za:

Manufacturing is now at 11% of GDP down from 17% of GDP six years ago. The strike has knocked the industrial base of South Africa very hard and the Neasa lockout will still play a role in August, and possibly this month – so manufacturing is not going to see the recovery we are hoping for. For all the incentives from the dti, the weak Rand, and low interest rates, the sector is still below the level of early 2008! This is hard life for those involved – and it shows – as the employment levels in manufacturing are down to levels seen in 1971/2. After 42 years of industrial policy and growth programs the sector continues to shrink.  Perhaps we have a lesson to learn, and that is that firms cannot take endless abuse and punishment from those they employ, and endure rules that make life difficult for big firms who need a host of lawyers to get through B-BBEE and other legislation. Never mind the small and medium sized firms. Add poor service deliver and infrastructure challenges – read electricity, roads, and water supply shortages.  We may in fact be at the start of a big reality check!

Professor Raymond Parsons, North West University Business School:

The larger-than-expected fall in manufacturing output confirms, if confirmation is needed, the significant cost to the economy of the recent steel and engineering industries strike. Manufacturing output will undoubtedly recover in the months ahead but SA will now be lucky to reach 1.5% economic growth in 2014 as a whole. Other forecasts of 1.7%, 1.8% and even 2% growth this year are looking decidedly optimistic, unless there is a strong economic surge in the next few months. The current poor performance of the manufacturing sector also reinforces other two things: firstly, the message of the recent WEF Global Competitiveness Index in ranking labour relations in SA at the bottom-of-the-class, and secondly, that the MPC meeting next week would be wise to leave interest rates unchanged for the time being.

Nedbank Economic Unit:

While the decline in manufacturing came off a high base in the same month in 2013 and was also partly due to the metal worker’s strike, the figure was still poor.  The performance of the manufacturing sector will remain lacklustre in the months ahead. While output growth could be boosted by base effects, improving global demand and a weaker rand, this will be offset by weak domestic demand.   Today’s data, both mining and manufacturing, show that the production side of the economy remains very weak. The Reserve Bank still faces the dilemma of striking a balance between weak growth and heightened inflationary pressures. We believe that the SARB will raise interest rates by another 0.25 percentage points in November, but this will depend on the inflation trajectory and the movements of the rand at the time.

 

Investec:

The metals and engineering strike, in place from 1 – 29 July, will have accounted for much of the contraction in manufacturing. The plastics and metals industries and the electrical machinery and equipment industries were directly impacted.   The short-term, negative effects of the strike will dissipate in subsequent months as production returns to normal. However, based on the advance indications provided by the PMI, activity remained suppressed in August.   Production is being constrained by high operating costs, weakening domestic demand and sluggish export growth. An additional constraint on production pertains to the slow implementation of the government’s infrastructure programme and non-compliance with public procurement policy and regulations.  Subdued activity in both the production and consumption sides of the economy, and relatively weak economic growth prospects going forward, favour an unchanged interest rate decision next week.

Conclusion:

The twin slumps in manufacturing and mining are disturbing.   These sectors are not growing, and future growth may be accompanied by more mechanisation.   These M&M numbers are not sweet at all.

Tweets of the Day:

Will Rodgers (@WilliamRodgers):  *Reads about a Salmonella outbreak on lettuce -NEVER eats Salad again! *Reads about the dangers of Alcohol poisoning -NEVER reads again!

carl reiner (@carlreiner):  A memorable event at The Chinese Theatre, made so by creative Mel Brooks placing his hands in cement- one hand had 5 fingers, the other, 6.

Funny Tweets (@Funny_TweetsQ):  Knock knock. Who’s there? Chooch. Chooch who? No need to be such a train about it.

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

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Die Vine Intervention – KWV 15 Year Old Potstill Brandy

It’s another winner on Die Vine Intervention. The award winning KWV 15 year old Potstill Brandy, introduced by food and wine guru Michael Olivier.

John Fraser is joined in the Jo’burg studio by Ian Cruickshanks of the SAIRR, Stuart Thompson from Loxton Lager and Tersos’ Malcolm MacDonald.

Check out our podcast here:


ZA Slips Down the Global Competitiveness Rankings. How do we Reverse the Trend?

Some pretty worrying numbers from the World Economic Forum’s latest global competitiveness report, which saw ZA slipping a few places down to 56th position.  While we shine in various indicators linked to our financial services, we score terribly in terms of labour relations –where we are 144th out of 144 – and in terms of maths and science teaching, again 144th.

An alarm bell or just another bunch of meaningless stats?  What do our experts have to say?

 

Glenn Silverman, Chief Investment Officer at Investment Solutions and author:

As our book ‘Half Way There’ details, SA has been losing ground steadily over time in the WEF Global Competitiveness surveys. The latest release confirms that worrying trend. The world is an increasingly competitive place & SA competes not only with, inter-alia, the Asian tigers, but indeed increasingly with our African neighbours, too.  Our book, due for release in SA in October, highlights the areas in which each of the BRICS, SA included, score well and badly – looking at the Top 10 areas of strength & weakness for each.   SA ranks number 1 in a number of areas/aspects, primarily around our Financial Services sector, but also ranks amongst the worst globally in other areas, typically relating to education & labour relations.  Our book suggests that SA needs, in the simplest terms, to do the following to improve our global competitiveness rankings: 

  •  Protect our areas of strength, namely the Financial Services sector to maintain our current rating, and simultaneously  
  •  Work on our areas of weakness. Where we are ranked worst in the world it would arguably not take much to improve such scores materially, with some concerted/coordinated policy support/initiative  

We thus propose setting targets to improve our rankings by say 20 positions every 5 years to ensure/ indicate/monitor our progress.

 

Mario Pretorius from Telemasters:

Schooling is what got the Prussians ahead in the arms race – the 3R’s made obedient and functional soldiers. The British introduced some compulsory schooling for Industrial Revolution workers.  Since then, the last on which kids are formed has not changed much – those who did not fit the obedient, timely and repetitive worker mold are ejected into the economically inconvenient pool.  Is ZA schooling still relevant?  Yes – to those wanting traditional employment.  Yet the structure of no inculcation of Western liberal economic thought with a painful dose of responsibility, accountability and self-reliance that typifies the rural school system will lead to tears, disappointment and a revolution of the wrong kind. The real world is so far removed from the 12 year stint as a youth and a student that the schooling becomes irrelevant, and measurable so.  ZA will race to the bottom with no prospect of recovery – money wasted, lives spoilt and opportunities lost for another generation.  Unless the schooling ethos of entitlement, solidarity with causes and an expectation of something-for-nothing is stamped out. The race is on – in the wrong direction – for the country’s peace and prosperity.

 

Prof Raymond Parsons, North West University Business School

The fact that the latest WEF survey of SA’s declining global competitiveness reaffirms what we already know about our economy is not a reason to minimise its message – SA needs to get its act together!  The good news is that, as part of the Cabinet’s NDP implementation plan, Minister Jeff Radebe in the Presidency is charged with assessing whether existing and new legislation is compliant with the NDP.  It is up to the private sector to use this opportunity to now leverage the latest WEF findings, together with other inputs, to address the specifics of the serious unintended consequences for business confidence of proposals like the ‘protection of investment’ bill and the new visa regulations.  On labour relations, where SA scores 144 of 144, we need to see constructive leadership from both employers and trade unions.  Finance Minister Nene must be encouraged to craft his mini-budget next month to address what the WEF is saying about the deteriorating macro-economic environment.  It is not enough to just throw up one’s hands in despair but to vigorously use every platform to drive home the message that, if we want to enlarge our share of world trade and investment, we have to remain globally competitive. ‘Smart governments encourage smart investment’ rightly comments one leading analyst.

 

Economist of the Year Ulrich Joubert:

My view is that if we do not get the quality of our training and education system at an improved level, it puts a ceiling on our competitiveness and growth potential in the longer term. We have already lost twenty years and it will take a long period of time before we can expect to see the results of an improved education system. If we do not succeed in providing quality training and education we are going to lose also the advantages in those spheres where we are currently still competitive – like the financial sector.  Furthermore it is of utmost importance to adjust our labour dispensation  – otherwise we are going to lose more and more jobs in coming years. The trends that I notice indicate to me that we will see a rising trend of unemployment in coming years. First of all due to the lack of training and skills and secondly given the salary and wage increases in excess of inflation but especially in excess of productivity improvements.  Thirdly, it is important to limit the state intervention that we have currently in all layers of the economy. 

 

Ian Cruickshanks from the SAIRR:

This is a tragic reminder of the state of inefficiency in parts of the ZA economy, confirming circumstances which emphasise the burden on business – particularly where it interacts with the public sector.  ZA will not attract foreign capital until these inefficiencies are removed, and if they are not, the economy will remain in sub-optimal growth, with government unable to deliver the necessary infrastructure for development.   In this scenario, and with a distressed world economy, SA will be lucky to grow GDP by more than 1% this year.  Meanwhile, job creation on the scale envisaged by President Zuma will remain a pipe dream, with increasing demands for social benefits ratcheting up a higher government budget deficit, which will be increasingly difficult to fund.  

 

Loane Sharp, Economist at the Free Market Foundation:

The latest WEF rankings indicate that South Africa has a vibrant and competitive private sector characterised by excellent governance mechanisms, deep capital markets, and high levels of efficiency and sophistication.  On the other hand, South Africa’s public sector is in a state of chaos and its institutional structure is crumbling.  Government-provided services such as education and healthcare are exceptionally weak, the labour market is uncompetitive, and the public sector is generally characterized by corruption, wastefulness, and mistrust and uncertainty surrounding laws and regulations.  The WEF rankings provide a strong case for introducing private sector management and discipline in the public sector through such vehicles as public/private partnerships (PPPs), targeted deregulation and liberalisation, and selective privatisation.

 

Mike Schussler from economists.co.za:

I think the fall of SA in the rankings will continue until we address the real problems in the economy – as low interest rates and big deficits are keeping growth afloat. There is no way we will not fall further as our growth rate will again disappoint this year and the financial sector will get another knock after ABIL etc. Education may find improvement, and a few other aspects too, but overall my sense is that SA infrastructure is getting used up, as is the goodwill the country has.  It is a problem for us it that things that helped – such as cheap and reliable power and good roads and plentiful water – are slowly coming apart.  Companies are seriously looking at other countries for their African head offices – and that may be in Kenya, Nigeria, Ghana etc.   The extra rules and regulations, such as the new visa requirements, will pull us down, too.  The new BBBEE codes are again hindering – and so too are the new labour laws, which outlaw labour broking for more than three months.  SA’s economic performance numbers in growth, inflation, employment etc are also slowly in decline.

 

Conclusion:

The future of this country depends on good education, and we are failing dramatically.   And current investor confidence depends on a stable workforce, which is just a dream at the moment.  If we fail to compete globally, we fail.   Full stop.  

 

Tweets of the Day:

The QI Elves (@qikipedia):  Geologists are never at a loss for paperweights. – BILL BRYSON

Ellen DeGeneres (@TheEllenShow)_:  What do you call 4 dolls waiting in line? A barbiecue #ClassicJokeWednesday

Dr Chester Missing (@chestermissing):  Guptas become diplomats in Lesotho. A few weeks later Lesotho has a coup. Can we send the Guptas to Swaziland next?

 

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Follow us on twitter:  @zaconfidential


A Voyage of Discovery

Discovery CEO Adrian Gore today gave an impressive overview of a business which he has grown from a small South African insurer into a world-leading insurance model and a multi-billion dollar business.   Discovery, of course, has developed a way of rewarding people who make an effort to reduce their risks – through healthier habits, better driving and so on.  

Gore explained that people now have an expectation that companies should be a force for social good. He suggested that health care is now the biggest industry in the world, and is both massive and relevant to the wider society.

Nature of risk is changing due to behaviour. Smoking, poor nutrition and poor physical activity, plus alcohol are risks, and people need to grasp this.   However, his research shows that even people with many chronic conditions think they are in good health. On the roads, 81 percent of people say they are good drivers, but only 33 percent actually are.

Gore gave some fascinating insights into how Discovery’s data gathering has come up with some interesting information:

Safer drivers manage their health better.

Smokers are worse drivers.

People that manage their health manage their credit better too.

Data from PnP and Woolworths shopping baskets help to match information on diet to health – a powerful data set.

Discovery Insure has developed a smartphone application to monitor your driving – developed with MIT in the states.

Data shows women drive better than men.

Certain car types attract certain (good and bad) types of driver.

 

Conclusion:

The numbers were impressive But investors are likely to have been reassured that here is a company which does so much more than just sell products.   It is spreading through Europe and the US to China and now wider in Asia through partnership models. This is world beating South African know how.

 

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


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