On December the Third, the cost of motoring in Gauteng will shoot up with the activation of new eTolls. The authorities want us all to buy and use new eTags, which will enable them to rake in the cash in real time. But will we oblige? ZA Confidential asked some of our experts what they plan to do….

OUTA chairman Wayne Duvenage:
I will not get an eTag and I will not pay for eTolls. I will defy this unjust policy, along with thousands, if not hundred of thousands, to render this unjust policy unworkable.

Mario Pretorius from Telemasters:

Two phrases spring to mind here. ‘You are not my master but my servant’ defines the principle of democracy. Clearly the tin ears in blue light brigades have lost all sense of reason and responsibility, and eTolls are their latest do-what-I-want stunt. The second phrase is ‘any fool can make a rule and most fools keep to it’. Tolling passageways are ancient sources of friction and war. This one has every odious element possible and I will not support it and hope that every citizen will join in making a stand against wrongheadedness. And I lay a R10 wager that it will not operate on 3 Dec.

Company Director Brand Pretorius:
Although I am still very firmly of the view that an increase in the fuel levy would have been a much more effective way of financing the toll roads, I intend getting an eTag – as I am a law abiding citizen. I also accept the reality that if we want a world class roads infrastructure, we need to be willing to contribute financially.

Jeff Osborne from Gumtree:
I shall not be acquiring an eTag as a matter of principle, and support continued passive resistance. The scheme was ill-considered, is devoid of rationale, and was not transparent. Other obvious collection methods would have fully recovered the cost of the freeway upgrade by now. Never since the apartheid era has there been such unanimous and overwhelming public outrage over an issue. We should not just capitulate because the government has bullied its way forward. This might be a lost battle, but the cause certainly is not. We must continue our united opposition to this undemocratic imposition.

George Glynos from ETM:
I am fortunate enough not to have to use the highway to Pretoria very often so I am not affected much. That said, I will not be buying an e-tag in what will be my small protest at the way in which this has been handled, the inefficient money collection method, the fact that there were alternatives that could have been used to reduce the overall cost, and the arrogant stance of government to push ahead with it despite the public outcry. If the public consultation had been conducted effectively as the government would suggest, then why is the public discontent as acute as it is? This will be a huge test on the government’s ability to manage the process on a very reluctant and potentially uncooperative public.

Duane Newman from Cova Advisory:
While I am not keen to pay eTolls, Government needs to be commended for taking an unpopular decision before the elections. I believe that it is a signal that the government can govern and will stop trying to keep everyone happy through the many consultation processes. I want to thank Wayne Duvenage and Outa for all their efforts in making sure that the eTolls are more affordable. Ultimately we need to pay for our great highways in Gauteng. I suppose I have to go and buy my eTag.

Mario Pretorius from Telemasters:
Two phrases spring to mind here. ‘You are not my master but my servant’ defines the principle of democracy. Clearly the tin ears in blue light brigades have lost all sense of reason and responsibility and etolls is their latest do-what-I-want stunt. The second phrase is ‘any fool can make a rule and most fools keep to it’. Tolling passageways are ancient sources of friction and war. This one has every odious element possible and I will not support it and hope that every citizen will join in making a stand against wrongheadedness. And I lay a R10 wager that it will not operate on 3
Dec.

Ian Cruickshanks fromSAIRR:
I will be buying an eTag. I agree with the user-pays principle, and despite the system’s extortionate cost, the likelihood of fines for non-payment is really not worth considering. I feel I have been bludgeoned into submission. This is typical of our government’s modus operandi.

Mike Schussler from economists.co.za:
I will get an eTag as it will make life easier having one than not having one. I do not agree with a system that finances just one road and is expensive, but I am not going to want to pay more than I have to. Also, I think that the system is easy to evade for people who have no address – while those of us with one are going to get caught in the law’s sights. It will end up making honest tax payers into criminals, while they will struggle to charge those who already do not pay much.

Dawie Roodt from the Efficient Group:
As an economist, I understand the benefits of “the user pay” principle. However, in SA there are a few other variables that must be considered – apart from questions about collections, who has benefitted from the toll-road contracts and the like. Our tax burden has increased quite dramatically in recent years. In the past my taxes were used to pay for infrastructure. But for the past few years politicians “forgot” to spend sufficiently on infrastructure – but increased spending on social/current expenditure. Today we realise that we have neglected infrastructure and need to spend vast amounts of money to maintain our crumbling infrastructure and to provide much needed new infrastructure – unfortunately the money needed for this has already been committed to vote-friendly social/current expenditure. The tolls, therefore, are nothing but a “privatisation” of new taxes. And the opposition to the tolls is nothing but a tax revolt! I will be part of the problem…

Conclusion: It will cost more to use the highways for those without an eTag, and that may be the reason many will sign up. However, there is talk of mass defiance, and one wonders whether there is the capacity to administer the system – if very few use the tags, and payments are slow and reluctant. It will be an interesting launch period!

Tweets of the Day:
Moose Allain (@MooseAllain): I must be ill – I thought I saw a sausage fly past my window, but it was actually a seabird. I think I’ve taken a tern for the wurst.
Puns (@omgthatspunny): I didn’t like my beard at first. Then it grew on me.

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Given the importance of telecommunications, it would be nice to think that our largest fixed-line provider Telkom would be in good shape, but the news flow has not been all positive, and yesterday’s results announcement was a worry for a few reasons.

1) It may well be that ZA Confidential’s invitation to the Telkom interim results presentation went astray, and I did receive a news release when the results were published. However, a query to the Telkom media office requesting details of the presentation went unanswered, so it is difficult to know what to make of it all. Certainly, I have always believed that it is wise to engage with the media and to be open and available to all. My absence from the presentation is an irritant, but will not stop ZA Confidential from commenting on Telkom.

2) The CFO of a large listed company is a key player in ensuring that the finances are prudently handled and that all the rules of good governance are respected. So what do we make of the latest revelation that Telkom lent R6m to buy shares to its CFO Jacques Schindehütte – while he was being investigated for (as-yet unexplained) misconduct. A former CEO of former Absa, Schindehütte had been seen as a safe pair of hands at Telkom, where management and Boards have been at one another’s throats, the dominate shareholder has been perceived to interfere unnecessarily, and the turnover of CEOs has been precipitous. The sooner this issue is resolved, hopefully with the CFO being exonerated, the better. The current suspicions and speculation are doing Telkom no good, even though it is a healthy sign that this issue has come to light at all.

3) Finally, I worry about Telkom Mobile, which at its launch was called 8ta, and then was bizarrely re-branded. Telkom owned a stake in an established cell phone operator Vodacom, which it sold, before launching 8ta into a fiercely competitive market, with a lot of talented and experienced rivals. A puzzling strategy. Now we see that Telkom is looking at “de-risking” its mobile division, whatever that means. Not the behaviour of a loving and happy parent.

Conclusion:
With Vodacom planning to link up with Neotel, Telkom will be facing a far nimbler and even more dangerous rival – with an offering that would include fixed-line services. As the world moves towards the Netflix model of receiving TV and other data services on the ground and not from satellites, a communications revolution is underway in SA, and a lot will change if we can ever get affordable and speedy broadband to more people. Telkom has such massive assets, and does some things very well, so it will not disappear overnight, and we must all hope that the current cost-cutting and strategising of a very impressive CEO, and sound guidance from an experienced and business-savvy Chairman, will help it to define its true direction, and to learn from many recent mistakes. We will be watching.

Tweets of the Day:
Marl le bean (@Marlebean): I may not be the brightest crayon in the tool shed but at least I’m great at analogies.
Puns (@omgthatspunny): How does Moses make his tea ? Hebrews it.
comedybot (@comedybot): Women like silent men, they think they’re listening. -George Carlin ☺

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Annual growth in retail sales slumped to 0.2 % in September from 3.2 % in October, well below the consensus forecast of 2.5 %. On the face of it, this is very worrying, but what do our experts make of it?

Nedbank Economic Unit:
Households are likely to remain cautious of spending on non-essential items in the months ahead, given the current unfavourable economic conditions. Today’s numbers provide further evidence that economic growth slowed in the third quarter. We anticipate that the Reserve Bank will maintain its accommodative monetary policy stance well into 2014.

Azar Jammine from Ecometrix:
The strength of the retail sales growth in August had surprised on the upside. At the time, one had suggested that there were factors which had been providing support for retail sales in past months. Firstly, interest rates have remained at current 40-year lows for a prolonged period. Secondly, the continuing growth of the so-called black middle-class has also prevented the growth in consumer spending from declining more sharply. Although this is still small as a percentage of the total population, its growth has been continuing to make a major contribution to overall consumer spending. Finally, the downturn in consumer spending, particularly in respect of durable goods, during the recession of 2009 was so severe, that in certain instances there is still a catch-up replacement demand. Disappointingly, however, the release of the September retail sales data show that y-o-y growth declined sharply to 0.2% in September, from an upwardly revised 3.2% in August (previously reported as 3.0%). This was much lower than consensus forecasts of 2.5% as well as our own forecast, of 2.3%. The September growth in retail sales was also lower than the average growth rate recorded for the first nine months of the year, of 2.7%. M-o-m seasonally growth in retail sales was severely depressed, at -0.7%. Contributing towards the decline in retail sales in September was the fact that rising inflation more generally on the back of the depreciation of the rand exchange rate over the past year has been eroding growth in disposable income. Secondly, interest rates have not declined for a long while. Thirdly, growth in unsecured lending to households has slowed sharply in recent months. Fourthly, signs are beginning to emerge suggesting households are coming under increased financial pressure as consumers are perceived to be carrying high levels of debt and are seeing big increases in their impairments. Finally, growth in public sector employment, which had been a driver of consumer spending, is coming under pressure. It is also conceivable that the effects of widespread strike activity and the resultant loss of pay for striking workers in September had a negative effect on the growth in consumer spending in the month.

The Efficient Group’s Dawie Roodt:
This is a bit of a bummer! It probably means that GDP growth will be closer to 1.5% than to 2%. And, all ratios to GDP (like the fiscal deficit, debt etc.) are all going to go south. This is not good.

Comment:
With very un-festive Christmas trees adorning the malls in the African sun, and mince pies being added to Woolworths’ year-round offering of hot cross buns, one feels for the retailers who must be hoping for a bit of a catch up over the Holy season. However, instinct tells me that Scrooge may win over Santa in Xmas 2013, as retail remains in a rut.

Tweets of the Day:
Puns (@omgthatspunny): Police were called to a day care where a three-year-old was resisting a rest.
Puns (@omgthatspunny): If towels could tell jokes they would probably have a dry sense of humor.
Sea Tea (@Tierno158): When I accused my girlfriend of using too much Botox she just sat there with a frozen expression on her face.
Funny Tweets (@iQuoteComedy): To do list- (1). Go to pet store. (2). Buy bird seeds. (3). Ask how long it will take for the birds to grow. (4). Watch the reaction

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A bottle of wine can do many things. I can bring you great pleasure, lose you your driving licence, but rarely will it cost you R22 000. However, when two mining Marks decided to have a wager about the opening date of a new mine in the DRC, a staggering R22 000 ended up as the cost of a special bottle of wine – produced on order from a lesser-known outfit called Windfall. The Business Day story said that the bottle was the prize in a wager between Anglo’s Mark Cutifani and Randgold Resources’ Mark Bristow. Both gentlemen are fabulously wealthy and on one level, good luck to them. However, as business leaders, in an industry with obscene inequality and troubled labour relations, the news of the wager can only have been damaging. But what do our experts think?

Mario Pretorius from Telemasters:
Let’s celebrate business success in every way possible. A bottle of special wine, a happy winemaker and a troupe of investors and DRC employees who should join the celebrations- all good portents of a plan that came together. Well done Mark.

Wine Writer Neil Pendock:
I hope the wine is a Windfall Cabernet 2009, as when I tasted a few hundred SA cabs blind last year (unlike the Platter wine guide, I assess wines without seeing the label) it was in my top 10.

Branding expert Jeremy Sampson:
Nothing is private anymore. Things said in jest, on the spur of the moment, off the record, in assumed privacy, all have the potential to be publicised. And we have all said things we would rephrase, given the chance. Over the years wagers have been made, bets placed, that’s life – specially among the wealthy. Since making the bet, Mr Cuttifani has moved onto Anglo American, which just happens to own the wine estate and national showpiece Verglegen. I’m sure they could stump up something for R22k. So rather than pay cash, perhaps a little barter with Windfall?

Award-Winning Food And Wine Guru and Chef Michael Olivier:
There is no bottle of wine produced in South Africa which is worth R22,000, especially if it is made by a relatively unknown winery. I think Mr Bristow is showing off – he could have bought wine from Le Riche, Meerlust, Jordan and any other top-notch South African Winery by the case-load for that price. Mr Cutifani should send the wine back!

Frans Cronje from the SAIRR:
In practice, nothing wrong with this. It is a bet between two private parties. In reality it is a political liability for the industry – that is under siege by its critics.

Tsogo Sun Sommelier Miguel Chan:
It does not cost R22K to make a bottle of wine!!! And not from Robertson fruit anyway!!! It’s outrageously overpriced. Well, I guess the mining sector does not mind paying these prices – they could have got a first growth Bordeaux for that price!!

Conclusion:
Conspicuous consumption at this level is not wise. If you are going to make a bet of this kind, keep it under wraps – or lower the stake. Marie Antoinette showed similar insensitivity and lost her head for it….

Tweets of the Day:
Rodney Trotter (@RodneyTIT): My Mrs has run off with the milkman. Seeing them drive away on his milk float was the worst two hours of my life.
C’est la vie (@Robert_Beau): I just released a new fragrance, and the people on this elevator are not happy about it.
Solo Walking Man (@SoloWalkingMan): Marriage is a relationship where one person is always right and the other one is the husband.
Ellen DeGeneres (@TheEllenShow): What did the bartender say to Charles Dickens? Olive or twist? #ClassicJokeWednesday

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SACCI’s Business Confidence Index (BCI) declined slightly by 0.3 from 91.4 in September to 91.1 in October 2013. It is only the second time in the last six months that the BCI was above the level of 91 index points. The October 2013 BCI was 0.9 index points below the level of October 2012 and 8.9 index points below the 100 for the 2010 base year. Not much deterioration but not much sign of excitement either. What do our experts think?

Mike Schussler from economists.co.za:
I think the flatness of the BCI is a good sign, as the economy does seem to be a bit more resilient in October than September – and the fact that things did not get worse (some BCI parts are actually still September data) indicates that once the major strike action is over we will see more economic growth again. But it is still at low levels and the real recovery has yet to gain any form of possibility. Three negative and four positive components, with others seen as neutral, is at least slightly more positive than in the September BCI. SA however has a long way to go before we can really call this bad period which has been going since Marikana and Implats (in Feb 2012) truly over. I believe we will see the light – but that may only be a few months after the elections. Everyone seems in a holding pattern at present. The real hard decisions are unlikely to be made before 2nd half 2014.

Independent Economist Ian Cruickshanks:
The index remains at a low level. Not much has changed in the last few months. With such a tentative outlook, with concern about labour disputes, this says the level of activity in business leads little to believe there will be an acceleration in the business climate in the short term, with little prospect of much new fixed capital investment. There is a big contrast between this index and the stock market.

SACCI:
SACCI is concerned that the ongoing labour disputes and disruptions of business, as well as the risks to South Africa’s sovereign ratings, are a continual weight on an already tentative business climate. Lingering economic challenges in some of the larger economies of the world also contributed to the tentative business climate resulting in low business and investor confidence.

Conclusion:
Business is lacking in confidence and one knows what could be done to improve this, with government creating a more welcoming climate for business. That, though, does not appear very likely.

Tweets of the Day:
Alan Garner (@AlanHungover): That awkward moment between birth and death.
Political Humor (@PoliticalLaughs): Why did the chicken cross the road? Because it’s Bush’s fault and you’re a racist!

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It is all too easy to criticise. The true patriot is able to say what is wrong, and what should be done to improve things. That is why it is so refreshing to hear the views of the South African Institute for Race Relations’ outgoing CEO John Kane-Berman, who has outlined his 12 point plan for reform. He is giving a number of presentations around the country, and ZA Confidential caught up with him in Johannesburg. No irony in the fact this was delivered on bonfire night.

John noted that the 20th anniversary of democracy is approaching, and while the Institute recently got into trouble with the DA when it pointed out where the country has improved, there is apparently still no end in sight to corruption, poor schooling and healthcare, and rising unemployment. “We are heading in the wrong direction with more policies of the kind that have done damage to investment and growth,” he warned. And he outlined a 12-point plan for reform:

1). Top of list of 12 is: going for growth, as the overriding priority. Only faster economic growth offers hope to our 8m unemployed. China and India have achieved the most in bringing people out of poverty – with growth at an annual average of 8%.

2). Liberalize the labour market – it is about the least efficient on this planet. The denial to any man of the opportunity to learn a living is one of the very worst violations of human rights in the world. What ZA needs as part of labour law liberalisation is a constitutional amendment which protects the right to work.

3). Education. Black parents have almost given up on hope the government can fix the majority of township schools. The solution is privatisation of government schools or as many as possible. They should be auctioned off to the private sector. Township schools could also be sold to the NGO sector. Each child would be given a voucher to buy education. About R10 000 per pupil/year. India has hundreds of thousands of private schools.

4). Health. Same principle would apply – the state pays for health care but the private sector will provide. John noted that a private ambulance had to save Nelson Mandela when his army ambulance broke down when he was being rushed to Pretoria for treatment.

5). Privatisation of all of ZA’s state-owned companies, starting with SAA, which is nothing more than a government vanity project. Government has no business being in business – they are able to offload their losses on to the taxpayer. All of Eskom’s power stations could be sold to private investors.

6). Wholesale deregulation – unshackle the private sector. Economic restrictions should be kept to the absolute minimum. Markets are more objective, freer of bias, possessed of more info than a bureaucrat and able to reverse wrong decisions. Markets can’t be bribed.

7). Trade liberalisation. Free trade means greater prosperity.

8). Re-design land reform. Transfer all communally-owned land to its occupants, as the national party government transferred thousands of houses in the townships. Put a stop to the restitution process. The few outstanding claims could be settled by financial compensation, which is the choice of 92% of claimants.

9). Re-design of policies to assist the disadvantaged. Policies should not focus on previous race-based disadvantage but on current disadvantage. There is no need for race to play any role. Social grants are already colour blind. If you get rid of employment equity you would rapidly be able to revitalise the public service.

10). The professionalisation of the civil service, not least the police. No longer cadre deployment. You need accountability.

11). Cut the numbers in the national assembly.

12). Decentralisation. Devolve power from the centre to most appropriate level of government. Cities and provinces would compete for business.

John said that all of this necessitates an about-turn from our current policy thrust. However, he noted that we sit with growth around 3%. We still have low rankings in many international surveys. He said business in SA has for too long been on the defensive. It should be much more aggressive in putting the case for growth and in demanding the space to pursue that growth.

Comment:

Impressive stuff. But I have a sinking feeling that the iceberg is looming and there may not be much appetite for these measures to save the ship.

Tweets of the Day:

Ellen DeGeneres (@TheEllenShow (https://twitter.com/TheEllenShow) ): It’s a special time of year in L.A., when people start raking up their fake leaves and putting down their fake snow.

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Trade and Industry Minister Rob Davies has revealed that a planned new R3billion investment in East London by German auto giant Mercedes Benz may cost ZA R900 million in investment incentives. The minister was addressing the media today on government’s new Promotion and Protection of Investment Bill, which was published for comment on Friday. He defended the government against criticism of the unilateral manner in which South Africa is scrapping a series of bilateral investment accords, which the new legislation is intended to replace. Davies denied that the announcements of the termination of the treaties had been made without the relevant partners having been properly informed – as had been claimed. He said the new legislation will be more universal, as it will cover investors from countries which do not currently have bilateral treaties with ZA, such as the USA and Japan. And he denied that investor protection would be watered down, saying that the bill will be introduced in the context of the ZA Constitution. "For all practical purposes, the Constitution provides robust protection for investors. I can confirm that South Africa remains open to foreign investment," he said. And he suggested that the current investment treaties belong to an earlier era, soon after democracy and before the Constitution came into force. Moreover he said that there has been no correlation between the existence of a bilateral investment protection treaty and the flow of investment from any country to ZA.
Minister Davies cited the recent announcement of the R3billion Mercedes Benz investment as an example of the confidence investors should have in ZA, noting that it comes as his government has announced the scrapping of the bilateral investment treaty with Germany, something the auto giant is "well aware about." When asked about the scale of investment incentives available, he said they amount to 20% of the value of the investment, with a possible extra 10% if the investment involves significant local content. Trade and Industry Department Director General Lionel October said that the company had applied for the full 30%, as it plans to bring 10 new suppliers to set up in South Africa. This would amount to an incentive of R900m.

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ZA Confidential today looks at an issue which has reared up again following reports about the eventual retirement of Bidvest CEO Brian Joffe. Although he says he is not moving on just yet, he has given assurances that a succession plan is there for when the time does come. This has once again prompted discussion on whether or not CEOs have a shelf life. What do our experts think?

Bidvest CEO Brian Joffe:
I think that generally, yes, executives do have a limited shelf life in their job. But much of this depends on the circumstances. In some in instances, circumstances dictate that CEOs have a longer shelf life.

Company Director Brand Pretorius:
My view is that one should not generalize regarding a CEO’s so-called shelf-life. Many CEOs succeed in adapting very successfully to new circumstances and challenges. The prerequisites are to be strategically alert, adaptable and agile. Two critical success factors are whether they continue to enjoy the trust and confidence of all their stakeholders, and whether they deliver the required results. Should the CEO not deliver the expected results both in terms of the numbers and the principles and values, the erosion of stakeholder confidence will start. It is obviously then time to move on.

Outgoing FNB CEO Michael Jordaan:
The golden rule for CEOs: quit after ten years!

Chris Gilmour from Absa Investments:
Much depends on the type of company, how successful it is and what the shareholders and market think of the CEO. Provided the CEO is doing an excellent job, is in good health, has a company full of willing followers, then no time limit should apply. This is especially true of founder CEOs such as Brian Joffe of Bidvest and Stephen Kosseff of Investec. Of course, these are special, entrepreneurial people and replacing them with professional managers would be difficult. It can be done, however, notably in the cases of Sean Summers at Pick n Pay and Kevin Hedderwick at Famous Brands. Only when a CEO has demonstrated that he or she has reached the end of the line of terms of their ability to add meaningful value to an organisation should they be deemed to have reached their sell-by date. That determination can come in a variety of ways; if the share price reflects lack of confidence in a CEO or overall a lack of credibility in management or if the shareholders decide they have had enough. A decent CEO should be able to detect the warning signs and move on before value in the company is destroyed.

Nedbank CEO Mike Brown:
I think a CEO’s shelf-life is really determined by his/her ability to add value to the organisation – clearly different timelines for different people and circumstances. I think a good CEO will know when it is better for the organisation that they move on.

Nick Booth, CEO of Ceramic Industries:
My simple answer is yes. The leadership of CEOs demand an input of energy into the organisation on an ongoing basis. Once the energy levels start to flag over a sustained period of time it is time to go. The shelf-life will vary from individual to individual and also depend on the lifecycle stage in which the company finds itself. The shelf-life is therefore linked to the environment in which we operate, together with the management style of the individual CEO.

Liberty CEO Bruce Hemphill:
To put it bluntly, CEOs should move on when they start to believe their own BS! This probably starts to happen after about seven or eight years. One easy way to tell if it is happening is to check the honesty of the conversations that he or she has with their management team. If the management team can’t tell the CEO to go to hell when he’s talking rubbish, it’s time for him to go!

Comment:
It seems that opinion is pretty divided. Certainly, there seems to be an agreement that the signs will be there when a CEO is no longer adding value to the organisation, and the brightest of them should be able to read these and pack their bags.

Tweets of the Day:
Puns (@omgthatspunny): The short fortune-teller who escaped from prison was a small medium at large.
Julz Millar (@DONTJIMMYMEJULZ): I drink because it’s difficult to eat alcohol.

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The seasonally adjusted Kagiso Purchasing Managers’ Index (PMI) is a useful indicator of the state of health in manufacturing. It did recover slightly in October, increasing to 50.7 points from a revised 50 points in September. Despite the improvement, the index remains below the average reading of 52.7 recorded during the third quarter of 2013. What do our experts make of it?

Odette Smith, Industry Analyst: Manufacturing and Mining, RMB:

The manufacturing sector is still struggling. While it is beginning to show signs of improvement, it is too soon to say it has turned the corner as there are still many factors putting the sector under pressure. On the positive side exports in terms of value have improved, partly helped by the weaker rand and the Eurozone, which has just come out of recession. But, on the negative side, the weaker rand has also increased the cost of imports. Since imports have become integral to the manufacturing sector this will exert cost pressure. Manufacturers who have high local content in their products will derive greater benefit from the weaker rand and their competitiveness against imports is expected to improve. The sector is also facing local costs pressures as wage settlements have generally been above inflation, and electricity prices continue to rise at a level also above inflation.Capacity utilisation remains below its long-term average but has ticked up slightly. If the rand remains weak, capacity utilisation is likely to rise further. While manufacturing business confidence is showing signs of improving, it is still low.

Craig Pheiffer from Absa Investments:

The PMI is useful from a number of fronts because it talks to the underlying demand for goods in the economy from both domestic and international consumers. The improvement in the headline PMI is to be welcomed from a neutral (revised) reading last month but although it is in positive territory, it is only modestly so and highlights the ongoing fragility of the sector. The expectation that a weaker rand will save the domestic manufacturing sector as it makes our goods more competitive on the global stage is a little misguided, and to date the benefits of the weaker currency haven’t given the sector a dramatic boost. The increases in the sub-PMI’s for Business Activity and New Sales Orders are encouraging but the most encouraging element is the improved sub-PMI for Expected Business Conditions – that leapt from 51.8 points to 62.2 points and is probably predicated on an improved outlook for global growth in 2014 over 2013 and by extension, a greater demand from offshore for our locally produced goods.

Coenraad Bezuidenhodut of the Manufacturing Circle:

The recovery in the Kagiso Purchasing Management Index’s overall rating from its lowest point in five months in September (50.0, seasonally adjusted) to a fragile but stronger 50.7 shows that while the prolonged strikes in the automotive sector had severe impacts on manufacturing, the sector is on the rebound. In the wake of the recent Quarterly Labour Force Statistics release (showing manufacturing to have shed in excess of 60 000 jobs), a further drop in the Employment Index (from 49.5 to 49.4) is a worrying sign. It is, however, consistent with concerns raised earlier in the year that weak demand, increasing input costs (particularly as a result of rising administered prices), productivity that does not keep abreast of remuneration increases and the affordability of capital make mechanisation a necessary consideration where manufacturers are forced to act to protect their competitiveness. The Manufacturing Circle’s survey for the third quarter (to be released on 14 November) may provide a clearer picture in this regard. The decline in the price component (from 82.7 to 80.8) may not only be indicative of reduced input price pressure, but may also indicate that the opportunity afforded by the weaker rand for manufacturers to feed through these costs to the consumer and export buyers may have run its course. This may exacerbate margin squeeze again and undermine the sustainable performance of manufacturers. There are also still lagging effects of the recent auto sector strike, as suggested by the decline in the index component for supplier performance which dropped from 53.6 to 47.9, which rhymes with the sequence of the strikes.

Comment:

Manufacturing is still wobbling along, and once again the employment situation is negative. This is just one indicator to watch, but there is no cause for champagne corks to start popping just yet.

Tweets of the Day:

Puns (@omgthatspunny): It’s raining cats and dogs. Well, as long as it doesn’t reindeer.

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The Presidents of South Africa and of the DRC have this week given a push forward to one of the largest projects the African continent will ever see – the next stage of the Inga hydroelectric scheme on the Congo river. The attractions are numerous – in terms of clean electricity generation, pan-African cooperation and meeting the growing future demand for electricity. Of course, there are challenges as well, given the continuing instability in the DRC, a country at war with itself, and the challenges of securing the very long transmission lines from the project to customers elsewhere in Africa. What do our experts make of it?

Independent Economist Ian Cruickshanks::

SA has offered to take 50% of the power from the first stage of this project. Over decades this will be twice the size of the current biggest hydroelectric project in the world This could transform the continent and provide 50% of the continent’s power. Of course there are risks in finding the capital, and around the security of the transmission lines. If we get this extra power it could be very, very useful.

Duane Newman from Cova Advisory:

The Grand Inga has been on the cards for many years. It is a fantastic vision to have the largest hydro power project in the world, which can be used to drive economic growth on the continent. One of the biggest challenges to economic growth in Africa has been access to electricity. It is also positive that South Africa has signed a co-operation agreement with the DRC government which I do expect to create large business opportunities for SA construction and engineering companies. For the SA economy to benefit from this green power we need to ensure that we start working on a strong electricity distribution network from the hydro power station to SA.

Trade analyst and strategist John Mare:

The news that SA and DRC have signed an agreement to cooperate in making the Grand Inga a reality must be one of the most exciting bits of news from Africa in recent months. It will be a major accomplishment and one of the “greenest” hydro-power projects in the world to date as it uses the head of water in a natural gorge to give the power generation. SA engineering/mining skills are crucially needed to tap this head of water at the base of the gorge and in parallel to build tunnels to bring the waters of the Congo River into what can become a vast network of irrigation projects in the vicinity of Inga, which is close to the Atlantic Ocean where Angola (Cabinda)/Republic of Congo and DRC converge, as well as into northern Angola. It will become the platform for a major new hub of development on the Atlantic coast of Africa facing Brazil and the Gulf of Mexico as well as Atlantic shipping routes. The fact that it is close to such major metropolitan centres as Kinshasa, Brazzaville and even Luanda helps add to its impact on a variety of sectors. This bodes well for growing stability in Central Africa along with improved regional integration in the Central African region, which is vital for African stability as a whole. The potential for SA to play a major role in almost all of these sectors that will be supported by Inga’s energy supplies and the knock-on effect of both Inga and its logistical development is enormous. Apart from engineering, mining and energy matters there would be a variety of logistics, urban development and especially agriculture in the region along with beneficiation of mineral and agri-resources. Improved air-linkages with a new air hub for Africa and tourism are other probable spin-offs. The enormous funds needed have been a major problem, along with diplomatically managing all stakeholders in such a mammoth scale project, but possibly the time has come for these to be overcome

Comment:

It would be encouraging to see some practical cooperation within Africa on such a grand scale, and while the risks are there, the rewards make this project one to watch.

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Alan Garner (@AlanHungover (https://twitter.com/AlanHungover) ): My friend Phillip had his lip removed today. We call him Phil now.

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