There was some good economic news today with CIP inflation for May coming in at 5.5%, below most forecasts. But does this number change the economic landscape? We asked some of our experts…..

Nedbank Economic Unit:

The latest inflation numbers do not alter our interest rate view. We believe that rates will remain at current levels well into 2014. The MPC will need to strike a balance between high inflation and still poor economic growth outcomes, with the current policy stance likely to remain in place.

Peter Attard Montalto from Nomura:

CPI surprised strongly to the downside at 5.5%. The drop was led by household items like furnishings and service prices – showing that there is still minimal wage push inflation occurring from retail sector. Insurance costs, which have a huge 9.9% weight, also surprised to downside. Uncertain survey items like housing actually surprised us slightly to the upside. This number will probably still be seen as a one-off by the SARB, which will still see the same risks around the outlook – but this will reinforce the fact there can be no change in rates this year. The data today does not change our medium-run view of inflation outside target next year on structural issues, and so hikes next year.

Azar Jammine from Econometrix:

There were indeed several price declines that are quite surprising, bearing in mind the fairly steep depreciation of the Rand in May. However, the principal reason for the headline number coming in lower than expected was a steep decline in the inflation rate of public transport, which is difficult to understand given the increases in fuel costs. In addition, what appears to have been a -0.1% decline in inflation when rounded off to the nearest decimal point, actually amounted to merely a -0.017% decline in inflation.Without doubt, the lower-than-expected inflation outcome will tend to reduce inflation forecasts of econometric models marginally and in so doing shift down the probability of any interest rate hikes in the foreseeable future. However, purely on account of the petrol price increases of July and August, the inflation rate is still set to rise strongly in the 3rd qtr, to well in excess of the 6% upper end of the inflation target. Together with the fact that other emerging market central banks have been raising interest rates, it would therefore be wrong to assume that on the basis of these figures, the Reserve Bank will be inclined to reduce interest rates in a hurry.

Conclusion:

It may seem good that we have lower than expected inflation, but this might be a way of telling us how slowly the economy is growing. And, as some of our experts suggest, there are rises in sight…..

Tweets of the Day:

EricWest™ (@EricJWest): CONDOM HISTORY: In 1272, the Arabic Muslims invented the condom, using a goat’s lower intestine. (continued)

EricWest™ (@EricJWest): (continued) In 1873, ,the British somewhat refined the idea by taking the intestine out of the goat first. 😉

I for one welcome the news that there could soon be a new free satellite TV service for SA consumers, which might help to break the monopoly of DSTV. Of course the devil is in the schedule. We already know that you can have 100+ channels but there just ain’t much you want to watch…. What do our experts say?

Massmart CEO Grant Pattison:

I think there is plenty of room for more competition in this market, with such a large market share held by a single player. Prices should come down.

Duncan McLeod of Tech Central::

South Africa desperately needs more competition in the television broadcasting space. There is limited choice in free-to-air broadcasting (no new national broadcaster has been licensed since e.tv), and in pay television the market is thoroughly dominated by one player in MultiChoice. Introducing a free-to-air satellite player should add an interesting dynamic to the market ahead of the licensing of new terrestrial broadcasters on the upcoming digital platform. For consumers, all these developments mean more choice and should help keep the incumbent broadcasters on their toes..

Telemasters’ CEO Mario Pretorius:

Like bread and circus of the yore, the modern populace is soothed by cellular loquacity and televised mindlessness. As long as the bootless and unhorsed can be calmed by 20 more free TV channels, everyone should be happy – living vicariously is second best to the life of Riley and infinitely preferable than crouching on a koppie in Marikana with a grudge. Bring on the channels, broadcast the waves, the people need their opiates. Down with SABC state propaganda, down with the DSTV Capitalists – eFree shall reign.

Malcolm MacDonald from Tersos:

An additional Satellite TV service in South Africa now, even one that addresses a different set of needs, could be beneficial. But a large part of their investment in satellite broadcast technology will have a limited lifespan in my opinion due to IP TV, which must replace satellite TV at some point. IP is the great leveller, which has over-promised until now, but with the advent of Telkom’s VDSL, it will now start to change broadcasting in South Africa. A new satellite service may have longevity if they target the population who do not have good internet service, but then that part of the population do not have a lot of disposable income to spend on entertainment anyway.

Conclusion:

It is always nice to get something for free, and, putting aside the cost of the decoder, I am sure many South Africans will be curious to see what is offered. Put a few porn channels on the satellite and you can be assured many will be clutching their remotes into the early hours of each morning….

Tweet of the Day:

Royal baby, royal baby and more bloody royal baby…… twitter is to be avoided.

The Advertising Standards Authority (ASA) ruled recently that it was “misleading” for Jo’burg to claim it is a World Class African City. Harsh, or true? ZA Confidential sought the views of some of our experts….

Writer, speaker, diner, drinker and cigar buff David Bullard:

I have previously referred to it as a "Third World Class City" which is nearer the mark. The ASA were reacting to a complaint from a member of the public and I think they have ruled correctly. If you watched the prize presentation of the Tour de France from Paris last night, and then compare Jo’burg to a city like Paris…well it’s laughable. Our infrastructure in Jo’burg is in such poor repair that we look more like one of those recently bombed places in Syria. To pretend that Jo’burg is world class is delusional and, as the ASA ruled, deliberately misleading. A bit like saying that Zurich is flat and full of poor people.

Economist Chris Hart:

The payoff byline of the City of Johannesburg is clearly more aspirational than a reflection of reality. The ASA ruling emphasizes this in that the City of Johannesburg cannot claim that it IS a "world class African city". If the payoff line said "aspiring to be a world class African city" there would be less contention. The biggest problem with the existing payoff line is it fails to acknowledge certain obvious shortcomings as to current service delivery reality and what constitutes "world class". To become "world class" the City of Johannesburg needs to benchmark their service delivery effort against credible benchmarks and then meet those benchmarks. This would also constitute the cost effectiveness of that service delivery and the relative harshness of the tax burden.

Lawyer Emile Myburgh:

They probably meant that there are no criteria to determine when a city is world class and when it is not. Alternatively, they may mean that Johannesburg is not a world class city at all and that claiming that it is, is deceiving people. Either way, with the frequent water pipe bursts, electricity shortages, difficulty in getting rates clearances for transfers, it may still have a long way to go before it will be world class in the minds of the residents.

Branding guru Jeremy Sampson:

I guess one has to ask by what metrics was Jo’burg measured to deserve the
epithet ‘A World Class African City’? Sadly when cities are rated by such magazines as Monocle, African cities don¹t rate a mention. And then we have Cape Town, World Design Capital 2014. Now that’s something to be proud of!.

Conclusion:

We all want Jo’burg to be world class, and delight in its African vibe. But there are genuine concerns about administration and service delivery, and it would be better to see solid achievements before the boasting begins.

Tweets of the Day:

Political Humor (@PoliticalLaughs): The Congress has just ordered a new missile for the armed forces. It’s called the civil servant – it doesn’t work and it can’t be fired.

Keith McLachlan (@keithmclachlan): Chuck Norris once had a fight with Superman. The loser had to wear their underwear outside of their pants.

ZA Confidential will soon become a paid subscription newsletter. Subscribe here

Victory!

I have just been told that the media WILL now be invited to the Anglo American Briefing on Friday next week.

A victory for common sense!

Anglo American will hold a results presentation for analysts next week, but when ZA Confidential requested the details, we were told these events are no longer open to the media. There will be an opportunity to dial in to a briefing, but that is hardly the same. I find analyst briefings useful not just for the content, but for the opportunity to interact with various players. It also helps if there is a glass of the red stuff to sustain me though the afternoon. So what should we make of Anglo American’s media ban? ZA Confidential sought the views of some of our experts….

Caxton Professor of Journalism at Wits Anton Harber:

It seems inappropriate for a public company to limit media access to an event of such importance, particularly since much of the company’s communication with its shareholders and other stakeholders will come through journalists. Companies will be quick to complain if journalists don’t understand or get something wrong, but slow to accommodate their need to be present to learn more. Access at such events is not just about hearing the words; it is also about feeling the mood, hearing the tone, watching the body language and interchanges, and getting a chance to pick up nuances and subtleties on the sidelines. Preventing this is a disservice to all the parties involved and very concerning.

Founding editor of Engineering News and Mining weekly Martin Creamer:

I have always attended the presentations and have always found them useful. It will be a great pity not to have the networking opportunity.

Chris Gilmour from Absa Investments (a former Financial Mail journalist):

You have touched on a pet subject of mine. When I was an honest journalist at the FM, I often found myself excluded from briefings that were attended by analysts. But in recent years, most companies have softened their approach and let journalists and analysts alike attend at will. Some have separate briefings for each category. I have never quite understood why companies do this. I have tended to interpret it as follows; corporate top management tends to feel that they have a better rapport with analysts than with journos, from the perspective that analysts can be "controlled" while journos can’t. Analysts often enfeeble their comments about companies if their corporate finance divisions have links with those companies. Journalists, on the other hand, tend to tell it like it is. Excluding journos is, in my opinion, a counter-productive idea. Journos are sensitive people (no laughing please) and often feel aggrieved when excluded or demoted to a webcast. This in turn can sometimes colour a journo’s view of a company, transforming it from objective into something less so. A better approach, in my opinion, is to embrace journalists as fully as possible and never hold back on non-price-sensitive information. Companies perceived as transparent tend to be treated professionally by journalists.

Simon Brown from justonelap.com, and TV Business Presenter:

Restricting media from results presentations only makes one wonder what is being hidden? Sure a webcast is available but that is poor second cousin to a face to face presentation- as one is unable to read body language, gauge conviction nor ask unhindered questions.

Journalist of the year Jan de Lange:

It is extremely useful to hear the questions from analysts and fund managers and the responses from management. These issues are often much more technical and complex than our own. The opportunity to discuss the issues with the person who asks the questions after the Q&A session is very valuable.

Head of News at Power fm Benedicta Dube:

At face value it looks like an ill-advised and ill-conceived decision. Not only does it handicap the journalists who are reporting on the results, but it also limits the company’s ability to network personally with the journalists covering their industry. One would want to understand the logic applied and the reasoning behind the decision.

AECI’s Investor and Media Relations Executive Fulvia Putero:

Information on matters such as the Company’s results is in the public domain once released.
The media has a role to play in terms of disseminating this information to, and interpreting it for, stakeholders. The relationship between the Company and any representative or section of the media must be built on mutual respect and responsibility. The media are invited to AECI presentations on the basis that such a relationship is acknowledged and accepted by both parties.
On the whole, this has always worked well to mutual benefit.

Conclusion:

Anglo American is often perceived as remote and arrogant, wishing to remain distant from its ZA roots. I wonder why?

Update: Have received an invitation to a “wire/media” phone-in on Monday morning.

Tweet of the Day:

Piet le Roux(@pietleroux): "Government begins in the home, grows into the community, expands towards the city, flares toward the province, & engulfs the entire land." #NDP

As expected the Monetary Policy Committee of the Reserve Bank has made no change to interest rates. But what did the remarks of Governor Gill Marcus tell us about the state of the economy? Certainly, the downgrading of the Bank’s ZA GDP growth forecast for this year to just 2% was a sober development. ZA Confidential sought the views of some of our experts….

Chris Hart from Investment Solutions:

The outcome was as expected. It is clear, and they said it in black and white, that they are caught between low growth and high inflation. And tensions are building between slowing growth and rising inflation. My suspicion is that they will continue to favour growth over inflation at this stage. The reduction in the Reserve Bank’s forecast for GDP growth this year to 2% is sensible and reflects reality. At this stage it will be good if we make that result….

Russell Lamberti from ETM:
The SARB continues to adopt a tactical/cyclical lens rather than a strategic/structural lens. This is manifestly clear in the Governor’s comment that policy action going forward will become “highly data-dependent.” In other words, the SARB doesn’t really know where things are headed and so is becoming a reactive rather than a proactive central bank. At least they’re being more honest with us. This in many ways is the logical outcome for a central planning committee trying to calculate its impact on a deeply complex system with the use of one blunt policy tool. This too brings into relief its downwardly-revised 2013 growth forecasts from 2.4% to 2.0%, which is really a lagging or coincident indicator rather than a leading one per se. With only 5 months left of 2013, one must ask how relevant this projection is. The SARB sees this weaker growth trajectory moving into 2014, a sensible but not particularly prescient prediction. Of note was that the SARB Governor belaboured the point that upside inflation risks are lurking, and I think it is significant that she snuck in the term ‘core inflation’ as a surreptitious synonym for CPI in parts. That could be a red flag that the SARB is going to try ignore or try explain away rising CPI by reverting to a (hopefully for the SARB) more subdued core inflation rate. This harks back to the old CPI-X regime but looks more like pretzel-twisting in a tight spot than a firm technical policy change. It’s also very Fed-like. Bottom line: get ready for an even less predictable interest rate policy outlook. This incarnation of the SARB will keep fixed income investors jumping like cats on a Sandton hot tin roof.

Hein Kruger from Kruger International:

By maintaining the interest rate at the same level the MPC once again postponed and increased the pain that a potential unavoidable increase in short term interest rates will bring to the heavily indebted South African consumer. The lowering of the growth forecast confirms that South Africans will have to tighten their belts and roll up their sleeves in order for the economy to improve.

Andrew Golding from Pam Golding Properties:

Today’s decision by the Monetary Policy Committee meeting to keep the repo rate stable was generally anticipated by market commentators, and, taking into account the heightened inflationary risks viewed against the backdrop of a still sluggish economy, the MPC’s stance appears to be a considered and moderate approach. While such decisions depend on current economic data which is subject to influence by a variety of macroeconomic factors, including global impacts, we are of the view that interest rates will remain stable for the remainder of 2013. Despite ongoing challenges for consumers in respect of rising costs of fuel, electricity, food and property rates, coupled with a stricter mortgage finance regime, we note a certain uptick in the residential property market in South Africa in general. There is an increasing sense of ‘normality’ in the market as properties change hands on a regular basis and for the usual reasons of relocation for business or personal preference, upgrading or downscaling as individual situations change in life, first time buyers entering the market, among others.

Dawie Roodt from the Efficient Group:

The repo decision was the right one. A weak economy does need some support but inflationary pressures prevents a cut. Furthermore, SA is part of the global village now and the SARB is unlikely to hike before the majors do.

Conclusion:

No relief for borrowers, but lenders at least have some comfort. The low growth in the economy is a worry. With a growth rate of just 2%, we are more likely to destroy jobs than to create them.

Tweet of the Day:

✪ Tom O’Halloran ✪(@TPO_Hisself): A truck carrying copies of Roget’s Thesaurus over-turned. Reports say that onlookers were "stunned, overwhelmed, astonished & dumbfounded."

ZA Confidential will soon become a paid subscription newsletter. Subscribe here

Stats SA has released a better than expected figure for retail sales in May, showing year-on year growth of 6.2%. What can we read into this? ZA Confidential sought the views of some of our experts….

Chris Gilmour from Absa Investments:

Nobody out there got this one right! What is fascinating is that the updates from most of the JSE-listed retailers have, until very recently, been well ahead of retail sales growth, even allowing for the fact that the retail sales growth figure from Stats SA is a real figure i.e. after deducting inflation. But all of a sudden we are now seeing significantly more muted growth coming out of the listed retailers, as evidenced by the Massmart and Shoprite updates to end June that appeared recently. I suspect the best way to treat this May figure is as an aberration; a spike. June is likely to be significantly weaker and July should be weaker still, as the combined impact of the weaker rand, higher fuel and food prices as well as electricity and other administered tariff increases kick in. Stubbornly high unemployment will remain a factor, as will the gradual reduction in availability of unsecured credit.

Dennis Dykes from Nedbank:

The annual figure was much higher than even the most optimistic economist surveyed, and therefore will help to boost second quarter growth over the previous quarter’s very modest figure. The numbers have become very erratic. This figure comes after two very weak ones and should not be viewed as an underlying improvement in household spending but rather a ‘correction’ on earlier data. It will be interesting to see what next month’s release will hold. As far as sectors are concerned, there has been strong growth in the broader clothing category.

Christo Luüs from Third Circle Asset Management:

Real retail sales growth at 6.2% in May, was a welcome surprise. It was much higher than the consensus forecast, and the highest growth number in about nine months. However, higher fuel prices, and second round effects of these on inflation, will most likely make a repeat of such increases unlikely in the foreseeable future.

Conclusion:

A good figure. Maybe too good to be taken too seriously? Let’s see what happens in the coming months…..

Tweet of the Day:

Fake Dispatch (@Fake_Dispatch): The bottle of wine at home has no idea that it only has about one hour left to live.

ZA Confidential will soon become a paid subscription newsletter. Subscribe here

Trade and Industry Minister Rob Davies briefed the media today on the economic background to this week’s summit between SA and the EU, with a stark warning of a large – and growing – trade deficit this country faces with our largest trading partner.

The culprit is agriculture – with surges in exports from Europe of products which include frozen potato chips and frozen chicken.

The EU is trying to conclude a new trade deal, known as an Economic Partnership Agreement, or EPA, with the SADC region, and in this context SA is seeking better access for our own exports of agricultural products, including processed foods.

Davies said that while trade has grown in recent years, our exports have not yet recovered to the levels of before the global recession.

The negative trade balance with the EU grew to R95bn in 2012.

“Much of the trade deficit is in surges of processed agricultural products from the EU – that gives the background for SADC EPA negotiation with the EU,” said Davies.

As well as submitting a detailed list of areas where ZA wants the EU to open up its markets, Davies noted that ZA has agreed to European demands that traditional high-quality foods from designated regions should be given protection, under a patent-like regime known as Geographic Indication.

In return, ZA is seeking similar protection for rooibos and honeybush teas and for Karoo lamb.

Of more immediate concern is stepped-up EU surveillance on ZA exports of lemons to combat a disease known as citrus black spot.

Davies expressed hopes that president Zuma will be able to make progress on this issue at the Summit, stressing that jobs in South Africa would be threatened if our export market in Europe for citrus is choked off.

Chief Trade negotiator Xavier Carim warned that the EU has set a deadline for implementation of the EPA of October next year, which would effectively mean the discussions would need to be concluded at least 6 months before that.

If not, there will be no major impact on ZA, which has its own free trade accord with the EU.

However, some of our neighbours would lose their privileged access to the EU market, in a way Davies described as “brutal.”

Davies said that the agricultural issue doesn’t involve a level playing field, as some products exported from the EU have been subsidised. This enables them to win market share from unsubsidised local produce.

Tweets of the Day:

Rob Fee (@robfee): Being a DJ is tough because sometimes it’s hard to see through your sunglasses to press play.

Alan Garner (@WolfpackAlan): Growing old is mandatory. Growing up is optional.

ZA Confidential will soon become a paid subscription newsletter. Subscribe here

Yesterday was Sunday, and if I had wanted to do some shopping, it would have been before 1pm, when my local Pick n Pay closed. With Woolworths it was 3pm. There is a nearby Spar which stays open until 8pm, and there are service stations with 24 hour shops. Why this wide range of opening times, and why can’t ZA consumers shop around the clock, as is the case in many other countries? ZA Confidential sought the views of some of our experts….

Massmart CEO Grant Pattison:

I think that this will become a reality sometime in the future, but only when the economics support it. The reality is there is are very high overhead costs to run a store in South Africa in respect of security and shrinkage control costs. The incremental turnover would need to be high to justify it. There are also issues of security and travel arrangements to be made for our employees, as the normal travel services don’t operate all night.

Nedbank CEO Mike Brown:

There is more than one reason why banks have the current opening hours. The whole banking system is designed so that every day all of the transactions are cleared and money lands in the right accounts. Historically, banks closed at a particular time to allow work to start on settling transactions. While it may appear that branches are closed, our IT centres work through the night, and this is not a trivial task. We have also experimented with longer hours and weekend banking in some branches – all moderately successful. I am not sure the economics make enormous sense – not massively compelling. There is a cultural thing – how people are used to doing things. In South Africa, for security and transport reasons, most of the hubs aren’t buzzing at night with foot traffic. Most transactions can be done via ATMs or via the internet or via apps, so most people’s need to go into a physical branch is diminishing. Security is in people’s minds- and costs after-hours go up.

Chris Gilmour from Absa Investments:

I think it highly unlikely that more than a handful of stores will go this route for a variety of reasons. There is not a culture in SA of EXTREMELY late night shopping. A laager mentality pervades Gauteng in particular, where the bulk of the South African population resides. This of course is not the situation in the Western Cape, however, where shops tend to close significantly later than the 5:30pm witching hour in Gauteng. Then there is crime. In the US and UK, where crime levels are substantially lower than in SA, it is viable to have 24-hour shopping. Here, where cash would be changing hands in the early hours of the morning, it is just too risky. This is ironic, as supermarkets typically have deliveries taking places all through the night, so the premises are often staffed and able to sell to customers. Also, shopping malls, in which the bulk of supermarkets are located, tend to close fairly early in Gauteng, in particular. The number of people wishing to shop at all hours of the night is too small to justify late night opening – other than as an adjunct to mobile customers doing impulse buys when buying fuel. Planet Fitness used to offer 24-hour gym facilities across the group but from what I can gather, this has been severely attenuated. The main reason being that there just wasn’t the demand at, say, 3am or 4am. SA doesn’t really have a very late night shift working culture that would mean people frequenting gyms or retail outlets in the small hours of the morning. Public transport hardly exists in SA beyond about 10pm, so 24-hour supermarkets would have to rely almost exclusively on people with their own vehicles or the odd itinerant shopper on foot.

Duane Newman from Cova Advisory:

24/7 Supermarkets linked to garages are a well established concept in South Africa. I am not convinced that more retail outlets will be taking up the opportunity due to the numerous risks involved including security for workers and customers and transport logistics for staff. I have personally found with my wife’s coffee shop that after a certain time in the day, the nature of the clientele changes, which increases the risk. We actually went the other way and closed earlier on a Friday due to the increased risk.

Conclusion:

It seems that unless there is a big demand among consumers for longer shopping hours, not much change is likely. However, I continue to wonder why some malls choose to close so early at weekends, and whether there would be enough flow of customers if they were to change their hours. Maybe we should just welcome the fact that internet technology allows us to shop and bank around the clock, without leaving the safety of our living rooms?

Tweet of the Day:

Bruce Cooper (@BruceRelates): Bob Hope on turning 90 – ‘You know you’re getting old when the candles cost more than the cake.’

ZA Confidential will soon become a paid subscription newsletter. Subscribe here