Why can you buy a bottle of wine in a South African supermarket, but not a bottle of whisky, or port, or sherry – or a beer, for that matter? ZA Confidential sought the views of some of our experts….

Expert Comment:

Dawie Roodt from the Efficient Group:

I am a child. At least that is what my government thinks. Unlike other governments that allow me to buy my salami and vodka at the same place, my government has decided that I am not allowed to do so. I have to get my food and booze at different outlets. In fact, I am not even allowed to grab a beer at an informal stall next to the road – well not officially. Unofficially I can get just about anything anywhere but should I get caught my property will be confiscated and the poor entrepreneur could end up getting a criminal record, because he needs a licence. Those kleptocrats that decided that I am not allowed to buy all my groceries at the same place will probably say that they are protecting me. Protecting me from what is not entirely clear, but the answer is probably that they want to protect me from myself. And I also have to pay for all this protection; salaries of kleptocrats, cost of red tape and the extra petrol to go from food shop to booze shop. All this protection is bankrupting me.

Mike Ratcliffe from Warwick and Vilafonte Wine Estates:

Did you also know that it is impossible to buy a bottle of wine with more than 14% alcohol in a ZA supermarket? You can purchase these wines in any other wine store, but not in a supermarket. Some of the top wines in the country have been legally de-listed from supermarkets as a result of this ludicrous legislation. I would suggest that a lot of wines are (possibly?) re-labelled to reflect a lower alcohol to bypass this bureaucratic nonsense – leaving even more questions unanswered. So, the broader thesis is that restrictive (read: Neo-Prohibitionist) liquor legislation is somehow designed to appease an electorate that are apparently anti-alcohol as a result of the broad alcohol abuse in our ZA society. The real issue that should be resolved is enforcement of the existing alcohol laws by a toothless SAP. The South African public is not well served by the current South African liquor legislation.

Leon Louw from the Free Market Foundation:

Having travelled to around 100 countries (half of all countries) and having a special interest in the role of government, I’ve been struck by the immense diversity of regulations. It is commonly observed that there is no pure free market, socialism, fascism, communism or any other “ism”, but there is also no pure mix, no “mixed economy” or “middle road” for instance. The world is a chaotic admixture of regulations. Theoretically, differences are readily identifiable by desk research, but in-situ experience and travel reveal stuff that is simply not apparent from remote observation. The problem is twofold: there is enormous inconsistency of enforcement. One of the most conspicuous examples (by virtue of its visibility) is prostitution. In some places where it is theoretically banned, it plainly visible either everywhere (Senegal) or curiously localised (SA). In others where it is lawful (such as some Swiss cantons) it is discrete and scarcely visible. What this global diversity suggests is that there is no coherent or logical regulatory order or paradigm; no two people for a wholly or partially regulated society agree on the mix. Not only does the mix vary, but enforcement varies even more. Extreme variations in liquor policy and policing are an example. In some central European countries, there is no regulation and/or no enforcement; liquor is sold everywhere freely, even from suburban gardens over fences to passer-by. Saudi Arabia is an example of a country with total and effective prohibition. What characterizes countries where liquor has some or other dedicated/discriminatory regulation -i.e. most countries? The degree to which liquor is regulated is the degree to which there is (at least in that context) a nanny state – that is a government arrogant enough to think it knows better than its citizens what is good for them. The anomaly or contradiction of nanny state regulation is that people considered clever enough to vote for the government are considered too stupid to run their own lives. Liquor regulation (where it is found to a significant degree) takes various forms – such as trading hours, a distinction between “on” and “off” (site) consumption, age restrictions, drunk driving, the licensing of premises or places or events. Discrimination between types of liquor of the kind we have here is not commonplace, and in this SA is abnormal. We have a particularly puritanical, draconian and arrogant Minister Against Health, Aaron Motsoaledi. He repeatedly makes such self-evidently absurd statements as “smoking has no benefits”, and should therefore be banned. He proposes and is considering far-reaching bans and controls, none of which are based on any empirical evidence published by his department as to efficacy. What he has proposed and his department is known to be considering ranges from tobacco prohibition, through banning liquor ads/marketing, to regulating salt, “junk” food, sugar and dairy products. He seems to be motivated by a kind of blind belief in his virtue and paternal mission on earth, the kind which philosophers have observed is the most dangerous because it is unconstrained by conscience and energized by unstoppable messianic passion. How this applies to the question of what is and is not sold in supermarkets is that we have discriminatory laws regarding liquor. The origin of allowing wine to be more readily available is that the wine industry was a major Apartheid regime constituency and funder. Some of the original sophistry was that wine was more “sophisticated” and less commonly associated with “abuse”. But by that argument, whisky and port, for instance, should also have been allowed in supermarkets. That liquor sales are still banned (in some places) on Sundays is anomalous under our new secular constitution. Instead of repealing this anachronism, he wants to ban all consumption on Sundays. Why Sundays? Heaven help us! It could not possibly be, as asserted without evidence, to get people to work on Mondays. Sunday is, after all, a day on which there is less partying. Maybe the minister is a devout Christian and wants to force people into church, or at least ensure they’re sober and attentive when they get there for morning service, not having gone to drink liquor in some place that serves breakfast. Of course people should be free to buy and sell whatever liquor they wish, whenever and wherever they wish. The way to stop abuse is to ….well, stop abuse (drunk driving, occupation disruption, family violence etc). Abuse of other people, as opposed to “liquor abuse”, should be stopped regardless of whether it is liquor-related. “Liquor abuse” is, of course, a misnomer. Have you ever seen someone punching beer, or whipping wine, or stomping on cowering vodka? People and only people are abused …… by some people who happen sometimes to be drunk, but more commonly and ubiquitously by liquor laws made by people some of whom sometimes happen to be drunk. Incidentally, if someone is going to abuse you, you have a better chance of defending yourself if they are drunk. There is little or no evidence to suggest that people who abuse do so because of liquor; liquor is in some cases a substitute. It is a “downer” thus having a sedative effect. It is also an un-inhibiter, thus leading to abuse that might have been restrained by a sober person. In short, it has countervailing effects, and no simplistic assumptions are justified.

Dino Fagas from Pretoria’s Prosopa Restaurant:

You can probably blame it on Verwoerd, like Zuma blames everything. Only this time it would probably be true. I agree, why should you not be able to?

Mario Pretorius from Telemasters:

Had the world been run on principles, we would never be able to purchase that insidious poison, the family destroying monster, alcohol. Us being the irrational and irresponsible inmates that we are, we’re happy to kill others and ourselves for profit and for pleasure. Since good Queen Bess stopped the church ale sales as a Popish exuberance, we’ve been fighting our better and worse instincts from Prohibition to binge drinking. The Scandinavian state supply monopoly hasn’t cured their Viking thirst, but that and SAB’s lessons in rural distributions made the point: a handy cold beer will find a willing throat. As illogical as a wine/beer display and a hard tack ban in a supermarket may seem, the amateur alcoholic and the professional one do not sup on the lighter stuff. Logically then, to please everyone, all alcohol types should be available at all supermarkets and petrol stations – only on the first Monday of every month. If you can’t plan ahead, you’re not mature enough to be imbibing luscious golden ambrosia – it’s too dangerous for you.

Chris Gilmour from Absa Investments:

This is an apartheid relic. Under the old regime, wine growers were favoured and as a result one could (and still can) buy wine in supermarkets. But one cannot under any circumstances buy beer or spirits in a supermarket. This is utterly incongruous and has no logical underpin at all. What would happen if wines and spirits were allowed to be sold in supermarkets? Apart from the convenience that would be enjoyed by shoppers, absolutely nothing. Would minors be able to buy these items in supermarkets? No. Would people drink more just because of convenience? No. Already one can buy wines and spirits under a separate roof by walking literally a few metres to the liquor store operated by the supermarket. So for example, Spar has “Tops” as its liquor chain and Shoprite/Checkers and Pick n Pay also have stand-alone liquor outlets. Not Woolies, though. So why not amend the law to allow the full range of beers, wines and spirits to be sold in supermarkets? One reason not to do so lies in the fact that about 30% of all South Africans are absolutely teetotal. These people have a vote. Allowing a “free for all” when it comes to selling all types of alcohol in supermarkets would infuriate these people and could, conceivably, result in them not voting for the incumbent government. The bottom line is that what is logical is not always politically acceptable.

Business leader Jeff Osborne:

I think that opening up the licensing to others would create a more competitive market. However, perhaps there should then be limited hours for the sale of hard liquor. Which begs the question: do controls really work? The American system, which rigidly requires ID for sales to youngsters and is draconian in the event of non compliance, might be the answer.

Russell Lamberti from ETM:

You can’t buy a bottle of whisky or gin or port or sherry in a South African supermarket because the government enjoys imposing arbitrary nannying regulations that play to some remote and capricious sense of ‘morality’. Being a lingering hangover from the meddling white supremist Nationalist government, booze regulations only underscore the fact that black nationalists are not altogether too different from white nationalists when it comes to wanting to control their citizens’ behaviour. That you can buy wine in a supermarket (but not on Sundays in some places of course), only proves further how ridiculously arbitrary these regulations are. Of course, the more arbitrary regulations decreed by government fiat, the more chance of the citizenry falling foul of them, which forces the citizen into the utterly coerced position of paying fines or bribes to state officials with an insatiable appetite for lucre. Silly, arbitrary, unnecessary regulations are nothing more than an architecture of state extraction from the private, productive citizens, and the bureaus that administer these regulations are merely extraction nodes; more ways for the parasitic unproductive sector to leach off the dynamic, productive sectors. Should we be able to buy the broad range of liquor in supermarkets? Well, of course we should, but the better question is: why are South Africa’s citizens still allowing themselves to be governed under such arduous nanny statism?

Conclusion:

There seems to be some rigid belief that the way in which liquor was sold during the no-TV, no porn, no-fun, no-integration Apartheid days made some sense. It does not, and it is a shame that the current debate over booze sales focuses on the times and days of sale and not on widening the range of products we can conveniently buy from our local supermarket.

Tweets of the Day:

made-up stats (@madeupstats): Between 5% and 65% of stats aren’t very precise

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Hudaco, which imports and distributes industrial products – mainly for the engineering, security and mining sectors – has produced results for the 6 months to May, announcing a 14% rise in turnover, but just a 2% increase in headline earnings a share.

Analysts were told at a presentation that the company is deeply concerned about the volatile rand. It is impacted by the woes of the mining industry, as half of its business is directly or indirectly affected by mining.

The company is in a long-running battle with the taxman, which will prove costly if SARS wins – to the tune of as much as 1.6 billion rand. It currently makes provisional payments of R20 million a quarter. It is also changing its BEE financing arrangements.

Expert comment:

Ian Cruickshanks, Independent analyst:

One can’t expect a fiery performance as this company is GDP-dependent. It is dependent on the global mining and resources cycle. Current ratios and potential tax liability render this a doubtful participant in current portfolios.

Mark Ingham, from Ingham Analytics:

A solid interim result in demanding circumstances, and in line with my forecast. The business model continues to prove its worth and resilience through business cycles. Hudaco is cautious about acquiring, but without exception acquisitions have been well integrated and have proved to be earnings accretive. I expect continued selective corporate action. The management team is motivated and focussed. Management succession is well planned and also assists investor confidence in continuity. Hudaco group financials are sound. The stock offers good value and the outstanding tax issue with respect to the BEE financing arrangements do not detract from that.

Tweets of the Day:

Bruce @BruceB555 : Dear SARS, please don’t just take 40% of my salary this month. Go and start a business and earn your own f….ing money. Thank you.

Beemerang (@ThisBikerBoy): My grade school teacher said I’d go far. My parole officer says I went too far.

ZA Confidential called in this evening on an event hosted by John Kane-Berman, the CE of the South African Institute of Race Relations (SAIRR) – in which the National Development Plan (NDP) was discussed and dissected. And savaged.

Here are a few highlights…….

The NDP is, of course, the government’s current blueprint for saving us all, growing the economy and giving hope to all poor and jobless South Africans. It is the basis of government policy until 2030. But should it be?

Kane-Berman told a sold-out function in Johannesburg that the SAIRR has conducted a thorough analysis of the NDP.

So what is it seeking to achieve? Key targets are combatting poverty, inequality and unemployment. Households below poverty line should fall to zero and unemployment should fall from 25 percent to 6 percent, and inequality should also fall.

Youth unemployment poses greatest single risk to social stability.

Jobs must increase from 13m to 24m. This means that in each year to 2030, 550 000 jobs must be created each year. “We are in very ambitious territory.”

The SAIRR believes that much of this growth means reliance on lower-paid jobs, mostly from the private sector.

It warns the NDP suggests land reform will boost agriculture, with little evidence for this.

Mining: the NDP predicts high commodity prices in next few years – a rather unwise assumption.

Infrastructure will require 827bn rand over next 5 years… But spending is dependent on the state, which hasn’t always been effective in spending.

Labour market: the NDP backs regulation in the labour-broking sector, which is an important source of employment for young people?

Kane-Berman is adamant….

THIS DOCUMENT DOES NOT UNDERSTAND HOW A MARKET ECONOMY WORKS.

On healthcare ….there is mention of traditional healers but not of private hospitals. “An extraordinary omission.”

On housing, the SAIRR welcomes a suggestion of housing vouchers, which it thinks should be extended to schooling and healthcare.

On BEE, the NDP not only endorses the ANC’s policies of racial engineering, but seeks more robust enforcement, which can mean fines of 10% of turnover, or imprisonment.

Carbon taxes are likely to push up energy costs, and the NDP favours carbon taxes.

“This document is a development plan, it’s not a job creation plan.

If job creation is so important, one would have expected a more simple-minded approach to this problem.”

Conspicuous by its absence is a chapter on how all this is going to be paid for, Kane-Berman warns.

Really, to endorse the NDP, amounts to giving the government a blank cheque.

What is proposed is the nationalisation of the land under the guise of land reform.

There is no command centre to implement the NDP.

Infrastructure crumbling, or abysmal or in crisis – the NDP fails to follow through by shifting more and more of the burden on the private sector.

In the end the NDP is neither fish nor fowl. It seems to be trying to appease all sorts of constituencies.

What we need is economic liberalization… “Who was it who said the economy only grows at night when the government goes to sleep?”

We need comprehensive deregulation…wholesale privatisation.

The solution is obvious…hand over as much as possible to the private sector.

There are very slim chances government will adopt these policies.

But in the longer term, government will have no choice.

The National Party liberalised because it had no choice. The ANC will also find it has no choice….

This plan has no price tag and is bound to fail.

The overriding issue is jobs for poor people.

Our unemployment problem requires radical, not half-baked solutions.

The answers may lie in economic policy, but the issue is actually a moral one.

In answer to questions….

If job creation means more sweat shops, that is where we must go.

We should sell SAA to the highest bidder, and sell all the power stations.

You can bet all the members of the National Planning Commission are members of private medical aid schemes. Why can’t they consider extending it further?

ZA Confidential listened in to Reserve Bank governor Gill Marcus at the Financial Mail Top Companies Awards in Jo’burg today.

She said that much of the economic news is gloomy, our economy faces many challenges, and the world is in its 6th year of economic crisis.

There is an employment crisis of immense proportions, especially for the young.

Meanwhile, the recent deterioration in the exchange rates of many emerging market economies could mark a new mutation of the crisis.

Marcus said that ZA’s weak Q1 growth rate has contributed towards a weak domestic exchange rate.

She also targeted instability in the mining sector and other constraints, especially electricity.

She suggested there is room for fiscal and monetary support.

But financial markets are confused by monetary policy …. low growth should signal need for more accommodation, but there is a policy dilemma, as on the other hand, there are upward pressures on inflation.

Her core mandate is to keep inflation within the target range.

She noted five strengths and opportunities in the ZA economy:

– The emerging middle class

– Proximity to high-growth African countries

– Natural resources – in the minerals sector and our natural beauty

– The financial services sector is a recognized strength

– Then there is a strong legal framework and strong accounting framework.

But she warned again of constraints which are holding us back, and noted that because of electricity constraints the economy currently can’t grow by much more than 3 percent, until there is new generating capacity.

Certain new projects do not get off the ground because of electricity constraints.

Marcus spoke of the world class road infrastructure in Gauteng with improvements to certain sectors of the NH1 highway having cut travel times by 50% – while petrol consumption has also declined as less time is spent idling on highways.

Marcus expressed the hope for more private, public partnerships, saying the role of the private sector is essential, and long-term growth requires a partnership between the public and private sectors.

And she warned of woes in mining due to short term-ism in all sectors of the industry.

And she stated a major problem in the economy, that a lack of education or poor education is the biggest form of exclusion there can be.

Oh, and Coronation was given the top award.

Media group Naspers released strong results today – for the year to March. Revenue was up by 27%, and core headline earnings a share grew 23%. Internet and pay TV are performing well, while the print media section of the business is fairly stagnant. What do our experts make of it all?

Expert Comment:

Jacques Theron from Absa Investments:

All the divisions or associates performed well, with revenue from the internet business outperforming pay TV revenue, for the first time in the company’s history. The weaker rand also contributed kindly to this outperformance of the internet business. Pay TV revenue increased by 20% to R30.3bn while Internet revenues increased by 80% to R34.6bn. Future focus will be to expand the pay TV subscriber base and growing the e-commerce offering across emerging markets. We rate the management team very highly as their track record remains impeccable, where Naspers remains a core holding in our portfolios.

Independent analyst Ian Cruickshanks:

Naspers continued lead in media/technology sector in the year to 31 March 2013 with revenue gain of 27%, core heps up 20% and 15% dividend raise. Impressive 80% rise in internet revenue on strong advances in China’s Ten Cent and Russia’s Mail.ru. Development expenditure up 80% as company seeks to continue acquisitive strategy in emerging markets. Stake in Facebook sold, realising significant capital profit – demonstrating decision not to hold onto overvalued assets. Despite permanent high stock price Naspers remains an essential core holding in long term balanced portfolios.

Duncan McLeod from Tech Central :

I think these numbers show that Naspers has really outgrown its origins as a print media business. Its Internet businesses — especially Tencent — are delivering incredible revenue growth and, with the exception of the e-commerce segment, which is still in development, in earnings growth, too. The pay-TV business continues to do well, too, thanks to its entrenched position in the South African market and its efforts to expand pay TV elsewhere in Africa, both through the DStv satellite service and through its GOtv digital terrestrial television offering.

Conclusion:

Naspers continues to be run by a dynamic, thoughtful and impressive CEO and continues to shift its focus from its traditional business into high tech products which have a more secure and lucrative future, and continue to offer exceptional growth prospects.

Tweets of the Day:

Terrible Certainty (@lord_witchking): The word politics is derived from the words "poly" meaning many and "ticks" meaning blood sucking parasites.

A new political force has been unleashed, with the launch at the weekend of a new political party, Agang, under the leadership of Mamphela Ramphele.Are we convinced this is a new and worthwhile addition to the political landscape, or might it just be another damp squib like Cope? Many politicians have been giving their views, but what of the wider business and economic community? ZA Confidential canvassed the views of a few of our Experts.

Expert Comment:

Author and speaker David Bullard:

The name is unfortunate – with an election we could have a-hung parliament! It is an un-catchy name, but means something to a lot of people. What Ramphele is saying appeals to the small percentage of South Africans who understand what has gone wrong under the ANC. Whether it also appeals to a large section of the traditional previously disadvantaged will be seen. The reality is that here is a 65 year old woman with enormous energy – but who else are we voting for? Is there a team in waiting?

Dawie Roodt of the Efficient Group:

Agang is a exciting development on the South African political front, especially since a reputable leader like Dr Ramphele is in charge. Real damage could be caused to the ANC’s support base.

Coenraad Bezuidenhout of the Manufacturing Circle:

As an industry lobby group, the Manufacturing Circle is apolitical, supporting policy positions that are pro-manufacturing growth, rather than specific political parties. There are vast opportunities for the relationship between business and policy makers to be enhanced, as well as for our economic, trade and industrial policies and the execution of those policies to be improved. As much as new players are welcomed, their addition will be inconsequential to us, as long as these opportunities are not seized.

Neren Rau of Sacci:

The launch of Agang is Illustrative of the strength of the South African Democracy in that new political parties are able to launch and position themselves.

Conclusion:

ZA Confidential believes that there is always room for a new voice in the political arena, and will watch with interest to see whether Agang can attract more high profile leaders, and a worthwhile support base.

Tweets of the Day:

Funny One Liners (@funnyoneliners): Of all the possible utensils that could have been invented to eat rice with… How did 2 sticks win out!? RT @newfylover1

Fake Dispatch (@Fake_Dispatch): Here’s my take on wine tasting: if it tastes good, drink it. If it tastes bad, drink it faster.

Hayden Wright (@HaydoAtHome):I think the least believable thing about Superman as a character is his steady job in print media

Business organisation Sacci has hit out against plans for a ban on alcohol advertising. This would certainly hit the booze industry, but we suspect would not have much of an impact on consumption. Sacci warns that such a ban would lead to the loss “of about 12 000 jobs and a reduction in GDP of US$740 million (approximately R7.4 billion), impacts that South Africa can ill afford in the present economic circumstances.” But what do our experts make of it all?

Expert Comment:

Banker and wine estate owner Michael Jordaan:

Of course the ills associated with alcohol abuse should be fought. This can best be done by enforcing existing licensing laws which are often blatantly disregarded by informal alcohol distributors. More enforcement of drink-driving could also significantly reduce the death toll on our roads. The proposed ban on alcohol advertising unfortunately punishes the responsible producers by limiting their right to market their product, and punishes consumers by limiting their awareness of new choices. Furthermore, all alcohol is not equal. Responsible red wine drinking has been proven to enhance longevity and reduce heart disease. As a small wine producer, we at Bartinney (Wine Estate) do not have the resources to advertise, though. It is conceivable that the ban will affect larger and – in some cases – international brands more than the many small SA wineries. It would also strengthen the role of wine competitions and wine ratings as a form of promotion.

Leon Louw from the Free Market Foundation:

We should start by recognizing that alcohol consumption is a perfectly legitimate and ubiquitous thing for people to do. Overwhelmingly it accompanies congenial enjoyable and harmless socialization and relaxation. The assault – for that is what it is – on people who have a drink with friends and food is obscene. The proposed ad ban is, of course, a shameless violation of freedom of commercial expression, but even more seriously it is a violation of multiple consumer rights. As the nanny state tsunami engulfs South Africa there is never a mention of consumer rights. Even consumer activists are deafeningly silent. Every regulation of business is in fact regulation of consumers; it reduces consumer choices and sovereignty, the right of consumers to control their own lives and spending. The proposed liquor ad ban is no exception. It is effectively a ban on competition. Were the Department of Health subject to competition commission control it would be fined, like others accused of lesser violations, a billion rand, or more. Consumers have a right to competition amongst suppliers. The primary means of competition and marketing is advertising. Banning ads effectively entrenches the status quo. It also saves existing players billions in ad spending. Competitors will be muzzled from telling consumers what products, services, prices and outlets consumers are being offered. The ban will curtail the consumer’s right to new and innovative products, services and suppliers. The entrenchment of existing suppliers discriminates against emerging enterprises and innovators, especially blacks. Consumers have, or should have, a right to be offered and to get attractively and appealingly marketed products, including alcohol. Consumers have, or should have, a right to information about products and prices. Advertising bans violate that right. Consumers benefit from all media: magazines, broadcasts, newspapers, internet etc. Ad bans drive all marginal media under, and reduce resources for those that survive. Consumers as sport participants and spectators benefit from sport and recreation sponsorship. Ad bans drive marginal activities under, and diminish what survives. Ad bans not only ban essential consumer communication and vital information, but also, paradoxically, health warnings and ads that encourage responsible behaviour, including responsible driving, family life and employment. Anyone who supports this ban must realise that they condone by necessary implication and inference all other violations of rights of communication, consumer choice and lifestyle. Anything a puritanical, despotic, draconian or meddlesome politician does not like you doing, publishing or reading will be banned, which will be legitimised by precisely the same sophistry, that it is for your own good. The premise of the nanny state is that you, that’s right YOU, are too idiotic to have choices or to behave responsibly.

Mike Ratcliffe from Warwick and Vilafonte Estates:

A ban on alcohol advertising is an ill considered knee-jerk reaction. A pessimist might label it pandering to an electorate, but a well-advised observer would be very clear that this is an inefficient vote-gathering exercise. Suffice to say, the world has changed, the internet and social media are the new mediums for the communication of opinion – and governments are no longer truly able to influence these channels. Alcohol advertising will immediately go underground and social media will become the new frontier. Companies like Wine of the Month Club, www.realtimewine.com and other online sales and marketing initiatives will gain a significant boost. Online brand positioning is the future – irrespective of an alcohol advertising ban.

Michael Olivier, Wine Guru on Die Vine Intervention:

I think we are even more prohibitionist and Calvinist in our approach to alcohol now than we were pre-1994.With social media and all its aspects, I think it is too late for these bans. The producers will find a way.

Conclusion:

ZA Confidential is against the ban. And will continue to host the weekly wine tasting podcasts of Michael Olivier and John Fraser. Cheers!

Tweets of the Day:

Jay (@jaymeisterrr): Masterchef South Africa Spoiler Alert: Everything is scripted. An aspiring chef wins. They can cook. They like crying.

Financial services group PwC this week published a review of oil and gas in Africa, entitled ‘From promise to performance’. ZA Confidential caught up with PwC’s Africa Oil and Gas Advisory Leader Chris Bredenhann to discover the latest trends:

ZAC: You suggest oil and gas in Africa is moving from promise to performance. What does this mean?

CB: I believe that the promise lies in the resource riches that the African continent has been endowed with. The performance part refers to the need for the African continent to grab the opportunity presented, and ensure that the resources are developed and produced for the benefit of Africa. We should avoid exporting all of the raw resources and importing back the refined products.

ZAC: There seems to be more appetite for risk. How is this transforming the industry?

CB: The oil and gas industry has always been risky, not only from a health and safety point of view, but also from a success point of view. Generally a success rate of 1 in 10 wells is considered good. If you take that a well could cost anything from $100,000 to $100 million, the risk to the industry is enormous. The fact that the easy oil has been found, means that companies are willing to take more risk, be it in the form of moving to more difficult deepwater offshore areas, or politically unstable environments. The developments in Mozambique are an example of this – the basins where the current gas finds are being made are in very deep water, making the development technically difficult and expensive. However, oil companies are willing to take these risks because they are confident that they will pay off. PetroSA’s drilling campaign is another example of taking on risk, this time in the interest of survival. They need to replace their gas feedstock, and their current drilling program is a result of this.

ZAC: Which countries will benefit from the new risk appetite?

CB: I would suggest that the emerging countries listed in our report stand to benefit – Namibia, Mozambique, Uganda, Kenya, South Africa, Tanzania, Ghana, Cote d’Ivoire, Nigeria and Morocco. Having said this, I believe any country where there is appetite to invest may benefit.

ZAC: How important is certainty over tax rules, the regulatory environment and so on?

CB: Investments are made based on risk, and most of the large oil and gas companies take a portfolio view of their investments. If they can get a better return for less risk from another location, they will allocate their funds accordingly. There are many examples of resource nationalisation, and I would think that companies would think twice about investments in these countries (Venezuela, Bolivia, Algeria, etc.). The estimated lost investment in Nigeria is an example of how investors are voting with their money. It should also be said that investments are normally made in the context of some form of legal framework, and the option of arbitration is always available to investors. In the short term I would, however, argue that frontier states need to attract investors to get access to the funding and technical expertise to develop their industries. They will therefore carefully consider their policies to ensure that (their country) is attractive.

ZAC: Flaring of gas is wasteful, but I believe Angola has turned the corner on this?

CB: Yes, the new LNG (liquefied natural gas) export terminal at Soyo exports liquefied gas that would otherwise have been flared or re-injected into oil field for enhanced oil recovery.

ZAC: You spoke of environmental opposition to LNG terminals. Why and where?

CB: PetroSA is planning a floating LNG terminal in Vleesbaai at Mossel Bay. The residents have raised concerns as part of the EIA process.

ZAC: The Asians are playing a new investment role. How significant are they now in African oil and gas?

CB: I do not have comprehensive data to support a full response to this question. However, it has been stated that two thirds of China’s oil imports originate from Africa. Through CNOOC, CNPC and Sinopec they have significant investments in Sudan, Nigeria, Uganda, Gabon, Equatorial Guinea, Republic of Congo, Algeria, Mauritania, Tunisia, Libya, Niger, Cameroon, Angola etc. We are also seeing investments from India and Thailand in the high-profile Mozambique play.

ZAC: Describe how the piracy problem is shifting from the East Coast of Africa to the West.

CB: It seems to me that there is a lot of effort going into addressing the piracy problem in Somalia (e.g. military interventions from various foreign nations like the US, China, Europe, etc.) while there is less visibility of this in the Gulf Of Guinea. Combine this with an increase in exploration and production activity, and the stage is set for a shift.

Tweet of the Day:

matthew du plessis (@mattduplessis): When someone else’s kid asks you why zebras have stripes, it’s okay to say it’s to make them go faster. Right?