There seems to have been a cheery chat between business and government this week, resulting in today’s headlines that business is backing the National Development Plan (NDP). Yet some critics of the NDP are worried that it is deeply flawed and will not achieve the desired goals of substantially boosting growth and job creation.

Expert comment on today’s ZA Confidential from Peter Attard Montalto, Dawie Roodt and Frans Cronje.

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BMW says it is to ship vehicles from its Rosslyn, Pretoria assembly plant through Maputo in Mozambique for the first time. Grindrod is a catalyst for this, due to its investment in Maputo. BMW will also expand shipments through Durban. Is the decision to start using Maputo something we should welcome? Or are we seeing signs that the inefficiencies and delays at Durban, and the hazards of moving vehicles by rail to Durban, or more expensively by road, are beginning to trigger a change in strategy?

Today’s ZA Confidential features expert comment from Mike Schussler, Francois Dubbelman and Neren Rau.

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ZA Confidential: The Business News you can’t afford to miss.

Some would argue that the big TV event of the week is the launch of the new SABC 24-hour news channel, but I am afraid the jury is still out on that one. I haven’t taken the time to watch it, but will probably give it a chance at the weekend. However, this couch potato is more interested in the new DSTV HD decoder, the Explora, which will be able to store more movies, record more shows, operate faster and to give a more sophisticated menu display. The announcement there is a new toy on the way also explains why the CURRENT HD TV decoder has been on special promotion recently. “Buy the soon-to-be outdated decoder before we tell you about the new one,” appears to have been the approach of the vendors. What really struck me is the fact that the new decoder is still looking to satellite to deliver content, because we have such crappy broadband in ZA. As one tech-savvy executive I bumped into this morning put it: “This decoder is a first world product for a third world market.” But what do our experts make of it…..?

Mario Pretorius from Telemasters:

There’s an overabundance of fibre and bandwidth in ZA, as all the players target the same areas and users. We are backboned to death, and the last mile is crumbling before our eyes. The 150 tons of irreplaceable Telkom copper stolen per month, the logjam over spectrum and local loop access, mean that airwaves are becoming the medium of choice. As satellite coverage, bandwidth cost and quality improves, more offerings will be made from up high, outside the reach of labour unrest, theft and competitive interference and monopolistic strangleholds. We look forward to the next great Techno Leap. It might be Telstar redux. It cannot be soon enough.

James Lennox, former Sacob and Safact CEO:

I can understand why the service provider would go the satellite route as it will be in control of the delivery of its content and able to serve unconnected areas of the country without massive investment in hard ground-based and linked assets all over the country. It would be interesting to hear the views of the distributors of DVD product, as the technology and easy uptake could further erode their business model, particularly if the take-up of the offer follows the trend in mobile uptake.

Conclusion:

I want this decoder. But I might wait a while before I buy one. Hopefully FNB will soon offer it with interactive banking at half price. Why is there never a Michael Jordaan around when you need one?

Tweet of the Day:

Political Humor (@PoliticalLaughs):Have you heard about McDonald’s new Obama Value Meal? Order anything you like and the guy behind you has to pay for it.

There has been an array of economic data this week, with a growth in employment – but also a growth in unemployment (due to more job seekers entering the market). We also saw a small increase in the Purchasing Managers’ Index (PMI) and in Consumer Confidence. So what does it all mean?

Comments from our experts……

Sizwe Nxedlana of FNB:

Having slumped to a 9-year low of -7 in 1Q2013, the FNB/BER CCI rebounded to +1 in 2Q2013. Consumer confidence levels improved across all income and population groups. The 1Q2013 CCI outcome of -7 was at an even more depressed level than the low of -4 registered during the 2008 global financial crisis (in 4Q2008), and at a similar level compared to the reading of -6 recorded in 1Q2008 during the load shedding period. There were legitimate concerns about further labour disruptions and possible load shedding in the 1Q 2013 but the worst case scenario has not come to pass. Accordingly, we interpret the improvement in 2Q2013 as partly reflecting a correction from an overly negative 1Q2013 result. Further, the improvement in consumer confidence does correlate with better growth in retail sales and new vehicles and resilience in the labour market in recent months. According to the Department of Trade and Industry, the growth in new passenger car sales rebounded from 3.2% y-o-y during 1Q2013 to 8.6% y-o-y in 2Q2013. Similarly, retail sales volumes also surprised on the upside, with data from Statistics South Africa showing that the growth in retail sales volumes jumped to 6.2% y-o-y in May, up from 3.0% y-o-y in 1Q2013 and 2.0% in April 2013. Further, employment increased by 100,000 in 2Q 2013 following an increase of 44000 in 1Q 2013.

At current levels consumer confidence is still well below the post apartheid average of +6 index points – and is in our view a more accurate reflection of what we are witnessing, which is a significant moderation – but not a collapse – in household spending and economic growth.

Luke Doig of Credit Guarantee:

I would tend to agree with the FNB/BER’s comment that the improvement in the Consumer Confidence Index to +1 in Q2’13 was partly a correction to the overly-negative reading of -7 in Q1’13. But this does not indicate that consumers are out of the woods – although it has to be added that retail sales and Final Consumption Expenditure by Households is still growing in real terms.

Given that the average level of the Kagiso PMI for the first 6 months of 2013 was 50.8, it is reassuring to see the 4th-consecutive monthly rise to 52.2 in July. This does not imply that the manufacturing sector is experiencing rapid expansion and the sub-50 reading for employment remains concerning. As noted, input costs are increasingly becoming a larger worry for manufacturers
The tick up in unemployment to 25.6% in Q2’13 encapsulates the challenges facing the economy. Unfortunately it is unlikely to fall substantially in the years ahead until the authorities admit to the dysfunctional state of affairs that exists in many areas of primary and secondary education.

Coenraad Bezuidenhout from the Manufacturing Circle:

Although there is no marked trend in a particular direction at present, the Kagiso Purchasing Managing Index being above 50 for the fourth month in a row is certainly confirmation of the Manufacturing Circle’s contention that manufacturing in South Africa is currently consolidating. This consolidation is being supported by a more competitive rand, which helps to alleviate margin squeeze, promotes investment in efficiency and the maintenance of employment (for which the PMI even indicates a slight improvement in outlook). It is also being bolstered by supportive industrial policy, which particularly through the Automotive Production and Development Programme (APDP), the Manufacturing Competitiveness Enhancement Programme (MCEP) and the government’s local procurement programme is gaining some marked, if uneven traction. For this, Minister Rob Davies and his department deserves some credit. On the downside, administered price increases and security of supply for particularly energy and water have had a cumulative impact for manufacturing price inflation, which explains both recent PPI figures, as well as the increase in the price component of the index (from 82.2 to 88). These price increases had to be fed through at some point. Manufacturers facing competition from unfairly incentivised imports would have held off for as long as they could. While it differs for manufacturing categories, there are no warning signs at present that drawbacks of the weaker rand are outweighing the benefits. Analysis to this effect is at odds with what is at present being relayed by broader manufacturing. Further downside risks remain in the teetering global recovery, the weakening momentum of domestic spending and the negative impact that protracted and violent strikes in upstream sectors such as agriculture and mining could have. In addition, there are also significant concerns in respect of our trade relationships with established markets such as the EU and the United States, where there is still untapped potential. Addressing these challenges will require grasping the nettle at a political level. In relation to this the Manufacturing Circle can only again echo the important warning levelled by Reserve Bank Governor Gill Marcus yesterday for decisive leadership, for political certainty and a more conducive labour environment.

Conclusion:

While the numbers have some upbeat elements, unemployment remains a big worry, as does the reminder from Gill Marcus that with the expected GDP growth rate of 2%, we are not going to see any meaningful job creation.

Tweet of the Day:

Chris Rock (@chrisrockoz): Two guaranteed ways to make money in America:

1) Sell something that makes people fat

2) Sell something that makes people lose weight fast

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The recently rebranded Business Day TV satellite link bombed this morning, and was initially unable to transmit CEO Maria Ramos’ presentation of the latest Absa interim results, leading to a delay in the event, to which many had battled through rush-hour traffic. Maybe this was a service to the viewers, as the heavily-scripted and wooden presentation lacked lustre. The numbers were not awful, with headline earnings up 8%, and there was a special dividend of 708 cents a share. Bad debts seem more under control, but are still a concern. The outlook is cautious. The market, however, was not impressed with the results, and the share price slumped. Parent Barclays will no doubt welcome the dividend flow. There was some talk of how Absa is combining forces with Barclays to become what it calls Africa’s Go-To bank. They seem to think this is a great catch phrase, but it doesn’t rattle my cage. And the much anticipated re-branding is now to happen. Bye bye Absa: hello Barclays Africa Group on the JSE. But the high street Absa brand remains in SA Finally, it was a bit absurd for Ramos to thank Barclays for help in launching the Absa app – as they are well behind the pack in an innovation which could and should have been developed in SA under more tech savvy management?…..What did our experts make of the results?

Ron Klipin of Cratos Wealth

The results were very disappointing and below expectations. The presentation and outlook was very subdued. Operating conditions are very challenging going ahead. Barclays Africa will prove to be a major growth area, but this will take a lot of time and a lot of investment. Their lending book growth has been subdued because of concern about the economy.

Independent analyst Ian Cruickshanks

This was disappointing. There could have been more warning to the market. I think they must retain the strong brand in South Africa. They are doing the right things, but have woken up late. Is this because Barclays took too long to put their mark on Absa’s African strategy? Will Barclays be milking SA performance to feed the Barclays group, which needs the money?

Lavan Gopaul. 28E Capital

Ten years after the Barclays Absa ’merger’ I have yet to see the value add – of the Africa connection and the promised synergies of corporate banking that we were led to expect. The payment of the special dividend is an admission of not being able to place capital during a period post the National Credit Act which made lending in SA very difficult…

Conclusion:

Bankers are not required to be interesting, but with strict parent Barclays pulling the strings from London, there is a much room for improvement in presentation and performance.

Tweet of the day:

Denis Leary (@denisleary): Pope to gays: I accept you. Gays to Pope: bring back the red Prada shoes.

Office romances are in the news at the moment, with a certain trade union leader indulging in the wrong sort of congress.  But this is a serious issue, can ruin careers, and we must never forget that if there is harassment or worse, there will be a victim.  ZA Confidential asked some of our experts about how to handle things if there is attraction in the office, and this is what they had to say….

Jeff Osborne – Former CEO of the RMI, now heading up Gumtree Auto ZA:

It is common cause that many relationships have started in the work place.  Perhaps this is not surprising,  given the circumstances,  which are indeed highly conducive to getting to know someone. You see them at their best and on occasion at their worst.  There is of course a level of intimacy and more time together than is likely to occur during social circumstances. However,  there is much sensitivity surrounding work place relationships. Firstly,  it behoves the more senior person to ensure that the junior does not enjoy any special favour or preference. Then I believe that once the relationship becomes permanent,  then it is probably better if the one or the other seeks  employment elsewhere.

Mario Prerorius – CEO Telemasters:

Power attracts and subservience entices. This is and has been a potent cocktail through the ages. Many men fail to grasp the limits of authority that power brings. Worse, if the enticement flows upwards, it could be horribly tough to resist and terribly calamitous to succumb. One could see such attraction as a stern test, like an envelope full of cash, needing a new home. Resist it and get rid of the source – you. Whipping out a picture of the loving wife will get the message across if you’re spoken for, and introducing the Lolita to your hottest bud will send the signals. Its a no-no; it will get complicated. If after 6 months of abstinence the vibes still roast rocks, reconsider and then bet the house. It’s been known to work, but not as a casual heave-ho. Good luck

Debbie Goodman-Bhyat, CEO of Jack Hammer recruitment:

Don’t go there! It can only end miserably, for both parties.

Conclusion:

It is natural that people will be attracted to workplace colleagues, and this can lead to romance.  However, the dynamics of an office environment may lead to the abuse of power and seniority.  If there is mutual attraction, and a desire to develop the relationship, it would be best for one of the parties to move out of the office.  And any boss who is not aware of the potential of blackmail and repercussions of getting intimate with an employee…..may not be the best person to lead the organisation.

Tweet of the Day:

Nein.  (NeinQuarterly): Quiet despair walks into a bar.  Impotent rage walks out.

 

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With the words: “you can’t sit there” I was welcomed to Anglo American’s Johannesburg HQ for the presentation of their latest financial results for the half-year to June. Recently-installed CEO Mark Cutifani made a few jokes about himself being an Australian and his CFO a Frenchman. “You have the smooth and sophisticated – and you have the Frenchman," he quipped. Cutifani suggested he wants more cash flow growth from the business, an almost doubling of the return on capital employed to 15%, and he came over as relaxed, confident, with a clear vision and strategy for the company. “For us it’s about making sure the engine is working and delivering to its potential…..The opportunities for improvement are significant. In terms of our project pipeline, we are constipated,” he said. This is just one of the areas where he is shaking up Anglo, and one wonders whether there had been too much complacency until his arrival? Certainty there has been a shake-up of management which should already make the company leaner and meaner. On South Africa: “the uncertainty conversation is still a legitimate concern … There need to be conversations about regulatory certainty and social cohesion. The relationship has to change. There is a lot of work we have to do.”His best quip was: “I know what a mine looks like, so I have an advantage over many leaders in the industry.” Which woman could he have been thinking of?

NB. ZA Confidential was annoyed last week when we were told the media would be barred from Cutifani’s presentation. And even though it was being beamed from the company’s London HQ, I am glad the company’s spin doctors changed their mind and let me in. He is an impressive presenter, and I walked away impressed.

Expert Opinion:

Craig Pheiffer from Absa Investments:

Anglo American’s interim results were slightly ahead of expectations. Higher costs and weaker commodity prices run across the global mining industry and so it was no surprise that earnings for the period were lower. The market was indeed expecting lower earnings but underlying operating profit and bottom line earnings did beat the consensus earnings outlook. Key to the positive surprise were the better than expected results from thermal coal, diamonds and copper divisions (some driven by lower than expected costs). The net debt position of $9,8bn was better than expected as net operating cash flow surprised and capex for the year was less than forecast. With Anglo American adopting a progressive dividend policy, an unchanged dividend of US32c for the period was probably the best we should have expected given the lower earnings result (underlying operating profit -15% and underlying earnings -28%). New CEO Mark Cutifani has implemented a new organisational structure in a bid to improve organisational effectiveness and eke out more efficiencies in the business (only 11% of Anglo’s operations are consistently meeting their targets). A key driver going forward will be the allocation of capital. Cutifani has taken to heart the market’s concerns around value-destroying M&A and there will be a sharp focus on capital allocation and value going forward. In a pedestrian global growth environment where commodity prices are under pressure, fine-tuning the business model is essentially what will drive the bottom line in the short-term (and pave the way for longer-term returns when the commodity markets do turn). That may still be some time away.

Ron Klipin from SA Stockbrokers:

Mark Cutifani is a man of steel with around 38 years experience in the industry. He is a hands-on operator. He is CEO of Anglo SA as well, which means he is engaging directly with the unions and the government. He is conducting an asset review, with results out in November, and there are no sacred cows. It looks like major changes are still to come at Anglo in terms of cost cutting, delivery and asset optimization

Conclusion:

The jury is still out but Anglo now has a leader with balls.

Tweets of the Day:

Leonardo Arellano (@lifeofleonardo): @Debhopey @NeinQuarterly Q. How do you get a philosophy grad off your porch? A. Pay him for the pizza.

Estiaan Keuler (@ThatAwesumShowi): *During sex, I suddenly stop moving* She: "What are you doing?" Me: "Shhh its oky, I’ve seen this on Pornhub, its called Buffering."

Government has its NDP strategy for boosting the economy, but this week the ANC appeared to be offering a rival approach. Are there too many players with too many ideas knocking about, as the economy limps along at 2% GDP growth a year? We asked some of our experts whether there are too many voices…..

Frans Cronje from the SAIRR:

There are too few. Many of them have the same ideas. More transformation, more employment equity, more black empowerment, and more land reform. There is actually no battle of ideas. From the DA to the ANC there is one overall dominant idea and that is how to use the State to redistribute resources in the society. We call this the DANC consensus. It is very dangerous and explains to a T why we are not growing. A particularly stupid thing was reportedly said (by business representatives) at a conference on the NDP yesterday that "while the plan is far from perfect it needs to be implemented as it is better than no plan". None of them would run their businesses according to a half-baked set of contradictory ideas devoid of serious budget forecasts – so why do they believe a country can be run along such lines? This anecdote sums up very well the defeatist attitude that has become so prevalent within the private sector. What is necessary is fundamental reform to free the economy to draw in entrepreneurs and investors to boost growth which will in turn boost jobs growth. This requires deregulating labour markets and scrapping racial policy. That neither the government, nor business, nor the opposition are prepared to consider this means that we must expect a few more low growth years. Whoever breaks from the DANC consensus and seeks to drive reform has a shot at successfully governing a future South Africa.

Christo Luus from Ecoquant:

Yes, probably. And a major problem is that some government ministries and departments are headed up and staffed by people with some serious ideological baggage slanted towards a socialist /communist state-controlled model – a model which has never and nowhere returned the hoped-for results. On the one hand the basics are neglected: The education system is not delivering; infrastructure maintenance and expansion are neglected; national savings are not treasured or well promoted; crime is not kept in check sufficiently; corruption is not rooted out aggressively enough; our natural resources are not well protected; food self-sufficiency is not a priority; and border control is virtually non-existent owing to crumbling police and defence forces. Persons responsible for these issues (specifically the ministers) are well rewarded for their lack of success. On the other hand, too much is being done and too many resources directed to achieve perverse targets. Neo-apartheid thrives with draconic BEE codes; enormously elaborate documents need to be filled out regularly by businesses if they simply want to buy/sell/contract with clients or suppliers, and they are burdened with numerous regulations, taxes, fees, levies, payments, licences, certificates, fines and prescriptions. Persons coming up with these flamboyant red tape measures are also well-rewarded. Ordinary citizens succumb also on a daily basis to maltreatment by unhelpful and often ill-informed public servants at all levels of government. They and their bosses are also well rewarded and probably never evaluated for service delivery. Finally, every now and then a very clever political leader of some sort tells us that private property need to be re-distributed (read confiscated?). This is enough to depress the national mood and entrepreneurial spirit – just look at what has transpired in Mugabe’s Zimbabwe (yes – it is HIS country) as a result of such policies.

Conclusion:

We have had lots and lots of debate. It would be nice to see some delivery. The continued grass-roots support for Julius Malema points to the way in which expectations remain high. If we cannot meet those expectations and deliver some hope, it is difficult to see how social unrest can be held in check…..

Tweet of the Day:

FreeMarketFoundation (@FMFSouthAfrica): “Bureaucracy defends the status quo long past the time when the quo has lost its status.” Lawrence J Peter