These are taxing times.   And it could get worse for those of us who enjoy a glass or ten of something boozy from time to time.  Citing health concerns, the National Treasury has released a discussion paper about booze taxes, launching a process which will inevitably end up in high taxes on wines and spirits, beer, cider, port and all those other delights.    ZA Confidential would be happier about paying more tax if a convincing argument could be made that this would make a real difference to health, and is not just a back-door way of grabbing more of our money for the government to spend.  Oh, and why are booze taxes always referred to as sin taxes?  I know we are all sinners, but to suggest there is something sinful about wine puts a question mark over the actions of a certain well-known prophet, whose party trick (every pun intended) was to turn water into wine!   But what do our experts make of it all?

Chris Gilmour from Barclays Africa:

The first point to note is that alcohol, taken in moderation, is good for you. Red wine has been proven to reduce harmful cholesterol, while beer prevents kidney stone formation. The watchword, of course, is moderation. But I believe that the great majority of alcohol drinkers do, in fact, drink in moderation. It is a relatively small minority who spoil it for the majority. And yes, if the total cost to society of alcohol abuse were factored into the selling price of alcoholic beverages, then the price of beer, wines and spirits would undoubtedly rise. But why stop at alcohol? Why not do the same for junk food, salt, and virtually all carbohydrates….the list is virtually endless.  And yes, there is a duty by government to protect the vulnerable in society from the impact of alcohol abuse. So, for example, education about the impact of alcohol on foetal alcohol syndrome should be more readily available. And the same goes for over-indulgence in anything. But as the old saying goes…you can lead a horse to water but you can’t make it drink (no pun intended).   There is a danger in over-burdening the alcohol industry with regulatory costs that inevitably get passed onto consumers. And that is in the realm of smuggling of poor-quality alcohol products. If excise duties and other costs are reflected in significantly higher selling prices, then the likelihood is that ersatz products, on which no duties or taxes are payable, will find their way into the market. So government needs to balance its priorities very carefully when deciding on whether or not to burden the consumer and the alcohol industry with more regulation and costs.

Miguel Chan.  Chief Sommelier, Tsogo Sun:

Prohibition in the 1930s in America has shown the world the folly of authorities trying to regulate the alcohol industry for the betterment of society, and to prevent and control alcoholic consumption, thinking it will reduce the state’s expenses in dealing with issues related to alcohol abuse.   We all know so well that prohibition backfired against the authorities and no matter how harsh the penalties were, they did not have a single effect in reducing alcohol consumption.  In fact all they did was to increase illegal supplies through various and effective undercover channels, and product disguise.  This is exactly what may happen should the authorities proceed in enforcing and increasing the taxes.   Not only will it not benefit the consumers, it will affect the production side (distillers, brewers and wineries) but also the delivery and service side (hotels, restaurants, bars), which is a huge job creator and will have a drastic effect in the long term, as this will put service providers under huge pressure.   Indirectly it will make South Africa uncompetitive as a tourism destination, and this will result in a reduction in consumption. They have to realise there is no overnight answer and solution to alcohol-related issues in society.  This will take time to adjust, and the only way out of it is through educating young generations about the benefits and dangers of alcohol consumption.  This should rather start as early as possible in schools, so that they can make better decisions and appreciate the product better, and in moderation, when they grow up. 

Duane Newman from Cova Advisory:

The debate around what is the most effective way to tax the alcohol industry has been a long drawn out one. In the past it has been dominated by one large industry player, but now there is more competition, which means more consultation is needed to get agreement on the way forward. It is vital that the taxing of alcohol is part of a broader health strategy, and it needs to be led by the health department.  It is important to decide what role taxes need to play in reducing consumption, taking into account the unrecorded consumption increases if prices increase beyond a certain price point.  Also SA has a large poor population – which also impacts how you tax alcohol. This has manifested itself in the lack of increases in excise tax on traditional African beer. It is hard to determine the price elasticity, but international experience has shown that an increase does result in a reduction in consumption.  In South Africa beer is still the product which is consumed the most – about 45% of total consumption, so whatever changes are made need to take the product mix into account. As the World Health Organisation found in their studies, “pricing policies” is one of the 10 policy instruments that can be used to reduce consumption. The question is: has South African considered the other 9 carefully enough or are we looking at raising more tax? 

Mario Pretorius from Telemasters:

Since Noah, we have grappled with the separation of personal choice and its effect on innocent bystanders.  The proposed amendments offers no solution, only a justification for a tax increase and social tinkering. We will shortly succumb to the legalisation of Marijuana and more, yet the mechanisms of control evade the participants and the authorities.  Make liquor sellers liable for consequences. This may lead to a 2-drink-max rule at pubs. Licence purchasers to drink responsibly. The possibilities of modifying behaviour to couch enjoyment without serious consequences is surely possible, but with maximum intoxication targets driving State revenues, we’re serving two disparate gods. Jacking up prices will separate the illusion of ‘good, natural products’ like beer and wine from ‘cheap intoxication stuff’ that is poised to flood the market. Powdered alcohol, anyone?  

Chris Hart from Investment Solutions:

One hopes that the tax review on the alcohol industry is aimed at helping to underpin the South African economy and to improve employment.  The wine industry, for example, is a critical cornerstone of the local economies in the Orange River Basin and Western Cape, for example.  We need to look at a tax regime that is more about enabling these industries to help underpin employment, but also the value-add of that industry, so that better wages can also be afforded.  This is an industry that is also important for exports and tourism, and we need to find a way that South Africa is a more competitive destination.  The beer manufacturing industry is also of huge interest, especially with the craft beer industry taking off.  This is another way to create more jobs and enhance the tourism appeal of South Africa.  The danger is if the tax review is looking to curb consumption, where the majority are moderate and responsible consumers – which means that you constrict the industry without necessarily resolving the problem of alcohol abuse.   Furthermore, when taxes become too high, they end up creating a space which is lucrative for criminal activity – and South Africa’s crime problem is much bigger than its alcohol abuse problem. 

Conclusion:

Let us by all means have an open, honest and comprehensive discussion of alcohol taxes.  And then let’s throw all the conclusions in the bin and head off to the pub.

Tweets of the day:

Mark Twain (@MarkTwainQuote):  Whenever you find yourself on the side of the majority, it is time to pause and reflect.

Jerm (@mynameisjerm): Zuma said, yesterday, that people who are worried about Nkandla are clever. Put another way, he said most ANC supporters are stupid.

 

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Three horrible batches of economic data have come out just days ahead of the general election on Wednesday. At the end of last week the vehicle manufacturers’ association Naamsa announced a year-on-year slump in vehicle sales for April of 10.7% – slightly shrunken to 10% if you believe the front page headline in today’s Business Report. Today we saw the unemployment rate for the first quarter of this year jumping to 25.2 %, from 24.1 % in the final quarter of 2013. And the final blow came with the latest Kagiso Purchasing Managers’ Index – the PMI – which fell by 2.9 index points to 47.4 in April – the lowest level since July 2011.   One the face of it, this trio of trouble suggests an economy which is floundering. But what do our experts make of it?

Ian Cruickshanks from the SA Institute of Race Relations:

There has been a succession of poor economic data, with today’s PMI and unemployment data, lower car sales numbers last week, and meanwhile there is slower growth in our partner trading countries. All this will have a negative impact on GDP growth, which is unlikely to be more than 2% in 2014. We have a ripple impact from the platinum mining strike, as those companies supplying goods and services to the platinum sector are slowing down, and in some cases closing down.   Surely government should have noticed this, as revenue from the fiscus is also going to be constrained, affecting the ability to boost social grants and other benefits. It is surprising that the JSE All-Share Index is at an all-time high, despite the dismal economic data. This data will mean no growth in jobs of any significant extent this year.

Nedbank Economic Unit on unemployment data:

The unemployment rate is likely to remain high in the short term given weak domestic demand, rising input costs, labour disputes, significant infrastructure constraints and other regulatory issues in some of the key sectors. Today’s figures provide further evidence that local economic performance is still well below potential. However, we anticipate that the Reserve Bank will tighten policy gradually by a cumulative 50 basis points over the next few months as inflation rises above the target range.

Investec on the PMI:

Fundamentally, weak activity in the production side of the economy, coupled with the slowing momentum in household consumption demand will be reflected in equally soft GDP readings. A low interest rate environment remains appropriate against a backdrop of subdued economic climate. We continue to expect that the SARB will maintain its measured pace of monetary policy normalisation and only deliver one more interest rate hike this year of 50 basis points, in July.

Conclusion:

The numbers are awful and reflect an economy which may not be in crisis, but which is limping along. The unemployment numbers were particularly shocking – indicating that more and more South Africans – and particularly young people- are struggling to find a meaningful role in the labour force.   The millions of jobs promised by President Jacob Zuma have not materialised.   However, his ANC supporters are unlikely to defect in sufficient numbers to oust him.    The challenge for the next Zuma regime will be to create a more business-friendly environment, and we will be closely watching to seen what transpires.  

 

 

Tweet of the Day:

Funny Tweets (@iQuoteComedy):  yeah baby i am an ANIMAL in bed. more specifically a koala. i can sleep for 22 hours a day

 

ZA Confidential is currently being relaunched after a period in which editor John Fraser has been working full-time on a book project, assisting Glenn Silverman and Chris Hart of Investment Solutions with their new book on the BRICS, scheduled for launch in August.

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It’s a Cape white in the glasses of our Die Vine Intervention team this time – a crisp and refreshing 2013 Sauvignon Blanc from Landskroon.

As usual, food and wine guru Michael Olivier introduces the wine from the Cape – to a tasting panel in our Johannesburg studio: economist Mike Schussler, Tsogo Sun’s group sommelier Miguel Chan, Chris Gilmour from Barclays Africa and host John Fraser.
As well as discussing this wine, they ponder the merits of selection boxes of wine, one of which has been on sale at Makro with a picture of Michael Olivier and some of his recipes….

It’s a pink bubbly for the latest Die Vine Intervention wine tasting podcast. Food and wine guru Michael Olivier talks the panel through the Perdeberg Pinot Noir Rose, a classy and elegant offering.
John Fraser is joined in the Johannesburg studio by Tsogo Sun’s group sommelier Miguel Chan, by Chris Gilmour from Barclays Capital and by leading economist Mike Schussler.

There was bad news for borrowers today, but probably one should say it was bad news for us all.   Inflation, which is one of the economic indicators which should scare us most, rose to 6% in March – the top of the target range of the Reserve Bank.  This means both that price rises are happening at a disturbing rate, and that the pressure will be on the Reserve Bank to do something about high inflation.  And that something normally involves hikes in interest rates…..

So, what do our experts say?

Nedbank Economic Unit:

The inflation outlook remains poor in the short term as the rand is still vulnerable despite its recent strengthening.

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.

The Reserve Bank governor also raised the possibility of hikes in smaller increments than the usual 50 basis points. Given the need to balance growth prospects with higher inflation we anticipate that rates will rise by 25 basis points at two of the next four meetings.

Investec:

Headline CPI inflation is likely to largely remain contained within the 3 – 6% target band and any breach should prove temporary in nature. This would afford the SARB the room to normalise monetary policy at a gradual pace. We continue to expect only one more interest rate hike this year of 50bp, to be implemented in July.

Conclusion:

So, it looks as if interest rates are about to head North again.  Good for lenders.  Not so for borrowers…..

 

ZA Confidential is being re-launched following a brief  period during which its editor John Fraser has been on a full-time contract to assist with the editing of a new book on the BRICS, which is being written by Investment Solutions’ Glenn Silverman and Chris Hart. It will resume on a more regular schedule from today.

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For the latest Die Vine Intervention wine tasting podcast, award-winning food and wine guru Michael Olivier introduces the 2013 Constantia Glen Sauvignon Blanc, an elegant and refined Cape white.
John Fraser is joined in the Johannesburg studio by Malcolm MacDonald from Tersos.

In our latest Die Vine Intervention podcast, Michael Olivier introduces the 2012 Corder cool climate Sauvignon Blanc to Malcolm MacDonald and to John Fraser.

Hands up every South African who wants to go and live in Nigeria? Didn’t think so. 

Of course it is significant, symbolic and shocking that we are no longer the African lion, king of the jungle, top dog, Numero Uno.

The Nigerians have knocked us off our perch, are now 60% larger than us in terms of some economic measure or other, and there is already talk that they should start shoving us aside in organisations like the BRICS and the G20.

But let us take a step back – even if, arguably, we just have.

This reweighted Nigerian economy is one which is heavily oil-oriented.   Take away the oil, and Nigeria tumbles down the ranking.

Yes, it has lots of people, far more than South Africa, but as Nedbank’s Chief Economist Dennis Dykes explained on the radio the other day, the larger Nigerian economy means that in terms of GDP per head, they are still behind SA.  They may be richer, but if you are about to be born, and are reading this for some reason neither of us will quite understand, head for Jo’burg not Lagos.

And while economic measures are of some use, there are other reasons for liking or not liking a country.   Nigeria is one of the nations which has recently taken a backward step in terms of gay rights, has massive religious tensions which result in frequent massacres, has an unstable power supply (yes, even worse than South Africa’s!) and you really don’t want to get stuck in their traffic jams or airport queues.

I have a friend who was posted there for a while, and spoke of serious security concerns. You may not be 100% safe in Johannesburg, but Lagos is probably worse, particularly if you are a top executive or diplomat who might attract a healthy ransom.

So, while I raise my glass of Moet (which apparently sells better in Nigerian Shoprite Checkers supermarkets than it does in South African ones, where the canny consumer will probably opt for the far better Cap Classic option) to the Nigerians, it is with a tinge of irony.

You may be No 1. But we in South Africa know all too well that No 1 can spend quite a lot of time dodging buckets full of No 2.

 

In our latest wine tasting podcast we sip and savour the 2011 Perdeberg Dry Land Shiraz, a complex and quaffable red from Paarl.

Michael Olivier leads the tasting, with John Fraser and Malcolm MacDonald in the Johannesburg studio.

The RMB/BER Business Confidence Index (BCI) for the first quarter of 2014 came out today, and has fallen by two points, to an index reading of 41. This suggests that six out of 10 respondents are unhappy with prevailing business conditions. RMB’s chief economist Ettienne le Roux says business confidence has been in net negative territory for a year now. The survey was conducted between the 3rd of February and the 3rd of March and so the results do not reflect the impact of last week’s Eskom power cuts, which are likely to have further dented business confidence.  There was some improvement in sentiment in the building and manufacturing sectors, but some negative responses elsewhere.  “What stood out was the 14 index point drop in new vehicle dealer confidence,” said le Roux. “The index fell from 41 to a six-year low of 27, as a big deterioration in sales hit confidence in the first quarter.” There were also falls in confidence in the wider retail and wholesale sectors. “Slackening consumer spending stems mainly from lower income earners (those earning less than R7 000 pm), which have, relative to higher income earners, been affected proportionally more by employment cuts, loss of income due to labour strikes, the faster increase in the price of basic commodities (such as food and petrol), tighter credit standards for unsecured debt and the resultant bigger decline in their confidence,” said le Roux.  

Tweets of the day:  

Bob Kostic (@causticbob):  I lost 5 Kilos last week. Bloody sniffer dogs!

The QI Elves (@qikipedia): In ancient times cats were worshipped as gods; they have not forgotten this. TERRY PRATCHETT