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

Tweets of the day:  

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

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

Food and wine guru Michael Olivier has discovered another smashing South African brandy – the Upland pure potstill brandy from Wellington.

John Fraser anchors the discussion and tasting in the Johannesburg Studio with journalist and broadcaster Benedicta Dube and Corlien Morris from Wine Concepts in the Blu Bird Centre.

There is also a chat about the best way to discover new wines and spirits, even for those on a budget….

Food and wine guru Michael Olivier brews a change to the theme of our wine tasting podcasts with our first beer tasting – the Brewers & Union Sunday, a refreshing but well-constructed pale ale.

John Fraser is once again joined in the Johannesburg Studio by journalist and broadcaster Benedicta Dube and by Corlien Morris from Wine Concepts in the Blu Bird Centre.

There is also a chat about the improving range of gourmet products available in ZA stores…..

Driving across Sandton this morning, with hardly a traffic light working, there was plenty of time for reflection on Eskom’s announcement today of an emergency and the resumption of power cuts for the first time since 2007/08.  Here are a few thoughts:

• Eskom’s current management team has done an excellent job to date in keeping the lights on.  They inherited a utility in which there had been underinvestment by previous governments, and previous managements had failed to get the message through to the stakeholder (government)
• Not so good has been the programme to bring in new generating capacity.  The new coal power stations are behind schedule, and government dithering over fresh commissioning – particularly of nuclear – is a disgrace. 
• It rains a lot in South Africa.  The excuse for the current crisis – that the coal is too damp – seems, frankly, a bit wet.
• Industrial and mining customers have absorbed many shocks in recent years, and many people do not understand the full scale of this.  The economy would be growing faster if there were more capacity.  A point with which Finance Minister Pravin Gordhan agreed both on Budget Day and on Monday this week, when he attended a discussion at Alexander Forbes.
• The state’s dominance of Eskom is daft, and there should be a far greater role for the private sector in bringing in future generation, as argued this week by the Free Market Foundation, which seems to be prepared to take the issue before the courts.
• The current crisis may pass, but the background constraints remain.  And Eskom has shed too many senior people recently. 
• As winter arrives, we should all be stocking up on candles, torches, gas heaters, generators.  And prayer books.

ZA Confidential was at today’s annual results presentation by Standard Bank for the year to December.  Headline Earnings were up 15%;  Return on Equity has improved slightly.

Now Standard Bank has pulled out of many offshore markets to concentrate on Africa.  But today’s numbers showed that it is still making a loss in the Rest of Africa.  Headline loss rose from R209m in 2012 to a R361 million loss.  The main reason, we were told, was tax…

CEO Sim Tshabalala, suggested that despite losses in Africa, revenues are “stellar” and over time the business will become more profitable.  Standard Bank is still investing in this region, and is “well positioned for organic growth.”

He also said that Standard Bank’s key Chinese shareholder and partner ICBC is going to be transformative.  It will give access to more revenues, and will help the South Africans to play in Sino-Africa business.

Standard Bank says the digital revolution is changing the way in which consumers and businesses interact.  A truly digital bank requires a new engine and IT capabilities.  There will be new digital channels and products to support the demands of its customers and clients. Therefore it is investing in IT to renew its core banking systems. Smart mobile devices will become the medium for most crucial customer interaction. 

The presentation was well-attended and did not seem to drag.  Far livelier than the one earlier this week by FirstRand.   However, FirstRand won the hospitality race, by handing out much nicer pens, and arranging some red wine for your thirsty correspondent.  It is also doing the best of the Big 4 in the view of most of the analysts we canvassed at both presentations, with Nedbank in second place, Standard Bank in third, and Absa/Barclays Africa a sad fourth among the major banks.

Tweet of the day:  Ellen DeGeneres (@TheEllenShow): What do you call a fake noodle? An impasta #ClassicJokeWednesday

ZA Confidential attended the ‘Alexander Forbes Leading Conversations’ event in Sandton this morning with Finance Minister Pravin Gordhan.   Not much of what he said took us much further from last week’s budget presentation, but we were interested to see that he was repeating one theme from the budget – the need to make it easier and cheaper to save for retirement. 
Gordhan joked to the smartly dressed business audience that they were the type of people who would most interested in the taxes on booze and cigars, and he suggested that it is time for the financial sector to make a more positive contribution to society.  He echoed his budget suggestions that over next 5-10 years we need to move to a regime for mandatory retirement savings in ZA. Gordhan suggested that the charges extracted by the financial sector from retirement savings are inordinate, and said he expects some boldness in making changes.   He warned that it is only fair that the financial sector relates to the citizens of this country in a way that will optimize retirement finds and retirement benefits, although he did caution that this could have an impact on the earnings of financial institutions.
Gordhan’s host, Alexander Forbes’ CEO Edward Kieswetter, responded that the industry is aware of the challenge and is looking at ways of offering more affordable products for the lower end of the market.
 
Conclusion:
 
Visitors looking around the corporate HQs of financial services companies will be aware that they are wealthy, and may be forgiven for thinking that some of this could come from healthy profits on the products they offer.  Gordhan is clearly keen to see more South Africans being better able to look after themselves in retirement, and this will bring both opportunity and cost to the financial sector.   
 
Tweet of the day:  
Easy Cooking Guide (@EasyCookGuide):  Strength is the ability to break a chocolate bar into four pieces with your bare hands and then eat just one of those pieces. – Judith Viors

ZA Confidential attended the budget speech by finance minister Pravin Gordhan.  Here are a few highlights….

 

–          He won’t comment on whether he will serve another term.  This is “at the pleasure of the President”

–          We must create the rough climate for investment.  “Perceptions are stronger than facts.”

–          The NDP is happening, and can be seen in projects being funded through the Budget

–          The Carbon Tax was delayed by a year to give time for it to be properly tied in with other green measures

–          The White Paper on the New National Health Insurance scheme, together with funding details, should be with Cabinet before the election

–          There will be a crackdown on money being taken from pay packets, as this can often leave people with a fraction of their salary

–          Electricity supply challenges are a constraint on the economy. 

–          It is irresponsible and unwarranted for developed countries to be lectured by the developed world about the need to get their house in order.  When the G20 nations were in trouble, there was solidarity

–          Appropriate action must be taken against everyone who is guilty of corruption, including those who have abused state contracts

–          The decision to cancel government credit cards was a cabinet decision and no one has complained.

–          Since limits were placed on accommodation for public servants, hotels and guest houses appear to have come up with offers to meet the new spending ceiling

–          Reserve Bank Governor Gill Marcus accompanied Gordhan and spoke of the weak rand as a shock absorber.  She suggested ZA business should benefit from increased competitiveness, and look at the possibility of import substitution for more expensive imported goods.

Finance Minister Pravin Gordhan today unveiled his latest – and possibly his last – budget.  ZA Confidential was in Cape Town for the budget, and here is our summary of the key points…..

 

–       Gordhan noted that the global economy is still struggling, with an “unsteady” global economic outlook and he said the ZA economy needs to go in a “new, bold direction for higher growth, decent work and greater equality”

–       He stressed the importance of the National Development Plan (NDP) to prepare the ground “for the next phase of our economic and social transformation.”   He said job creation and poverty reduction will require annual economic growth of 5% or more.

–       He predicted a growth rate of just 2.7% this year for the ZA economy, with a budget deficit of 4% of GDP this year. Growth will rise to 3.5% in 2016.  The current account deficit will average 5.8% of GDP over the medium term

–       “Potential domestic risks” include further delays in new infrastructure, particularly additional electricity capacity, higher inflation due to rand weakness, and protracted labour disputes

–       He said ZA needs annual growth of 5% or more to make progress and create jobs, and he said initiatives underway include infrastructure investment, support for special economic zones, a tax incentive to support youth employment, the phasing in of National Health Insurance and further investment in renewable energy

–       There will be real government expenditure growth of 2%/annum over the medium term

–       Infrastructure spending has been R1 trillion over the past 5 years and will be R847 over the next three years

–       Unemployment benefits are to be extended from 238 days to 365 days if the claimants are actively seeking work

–       The number of people eligible for social grants will rise to 16.5 million by 2016/17 – but one million “invalid beneficiaries” have been removed from the system.

–       Old age and disability grants will rise in April from R1270 a month to R1350

–       A Financing Paper on the National Health Insurance scheme will be tabled in Cabinet “shortly”.  Gordhan says earlier that he hopes this will be before the election.

–       Government supports the NDPO’s target of creating 1 million jobs in agriculture and land reform by 2030, with R7 billion in grants to provinces to support farmers

–       Support for small business of R6.5 billion over three years

–       Red tape is to be cut for environmental impact assessments, water licences and mining licences – with 300 days from application for a mining licence to final approval.

–       Gordhan announced personal income tax relief for individuals of R9.25 billion, with 40% of this relief going to people earning below R250 000 a year.

–       There will be a boost to the tax-free lump sum paid out of retirement funds from R315 000 to R500 000

–       Excise duties rise, with 9c on a can of beer, 68 cents on a pack of cigarettes and R4.80 on a bottle of whisky.

–       The fuel levy goes up by 12c a litre from 2^nd April, with the road accident fund levy rising by 8c a litre.

–       Discussions will be initiated with the mining industry to find an “appropriate funding mechanism” to deal with acid mine drainage

–       The Carbon Tax is postponed to 2016 “to allow for further consultations”, and Eskom is to be given special treatment, to reduce the impact on electricity prices

–       Government is continuing to cut waste by cutting back on budgets for consultants, travel, accommodation and venue hire. Leases on government buildings are also being looked at.  As is procurement.

 –      No major changes to personal or business taxes

Food and wine guru Michael Olivier launches our latest wine tasting podcast with a classy and elegant white wine – the 2013 Constantia Glen Sauvignon Blanc.

John Fraser is joined in the Johannesburg Studio by journalist and broadcaster Benedicta Dube and by Corlien Morris from Wine Concepts in the Blu Bird Centre.

A Valentine’s Treat. Michael Olivier introduces a classy Cape bubbly to journalist and broadcaster Benedicta Dube, Corlien Morris from Wine Concepts in the Blu Bird Centre in Johannesburg, and ZA Confidential’s John Fraser. Very nice.

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