South Africans have been arguably living with a sword over their heads since the beginning of 2016: the imminent downgrade of the country’s sovereign credit rating to non-investment grade levels by global ratings agencies.
Andrew Morton, Head of Advice at FNB Financial Advisory says most local investors and prudent advisors have already factored the potential occurrence into their investment planning, by ensuring that diversification is in place, including offshore exposure.
“There are numerous potential consequences of a ratings downgrade including the fact that South African bonds would be deemed ‘riskier’- meaning investors will require higher yields on their investments. Investors with existing exposure to the bond market would see their capital values negatively impacted.”
“Stock Market investors would also take a hit. Looking more broadly, the economy would inevitably take a knock, credit would be harder to come by, the banks would tighten the reins on lending, and investment and business development would be curtailed as a result. The rand would weaken, driving inflation and taxes higher,” he adds.
An important starting point for investors concerned about the knock-on effect to their portfolios and wealth legacy is the fact that those with existing investments actually stand to benefit in terms of higher interest rates. This benefit is likely to attract bolder, yield-seeking international investors, eager to take advantage of attractive interest rates, despite the perception of ‘riskiness’.
“The reality is South Africans will still be living, working and paying taxes in this economy. If you live in South Africa you will always be invested here as long as you have a house, pension fund, savings, investments and school-going children. However, what you can do is insulate yourself somewhat from the in-country impact of a downgrade by ensuring you have adequate exposure to other markets. Whether a rating downgrade happens or not, this approach will inevitably leave a savvy investor better off and more able to weather other global contagions,” says Morton.
Most high-net-worth (HNW) and ultra-high-net-worth (UHNW) individuals already have offshore exposure factored into their diversified portfolio strategy. The market segment needing assistance in this regard is the R350 000 to R1.5 million income bracket.
“While these clients, like their HNW compatriots, are often extremely good at making money and frequently experts in their field, they often have little idea of how markets, risk tolerances and offshore exposure work. The first step is educating them about how risk management plays out in different market conditions and the vagaries of currency movements,” he adds.
Morton says, the years following a downgrade will surely prove challenging for all South Africans, especially those in the lower and middle-income brackets.
“Those with significant wealth legacies will also feel the effects and the biggest lesson will be one of patience and trust. Even without a downgrade South Africa’s economy is likely to remain an environment of low growth and little or no real returns for some time to come. Right now, the role of a financial adviser is of paramount importance.”
A professional advisor needs to remove the emotion from an investment decision, by understanding that one cannot time markets or currency movements, but needs to stay invested for the duration of the pre-determined period.”
Risk management at times like this is all about time periods and managing expectations. Given the current uncertainty in the South African market, it is recommended that clients consider a long-term view. This is for the simple reason that even if you are sitting in a money market, you are introducing another risk. The longer you let the investment play out, the less that risk becomes.
“Rest assured that any impact of a South African credit downgrade has already been factored into the local market and the investment world. By the time any announcement is made by S&amp;P, Fitch or Moody’s, there will be little impact that astute investors haven’t already foreseen and made provision for. Now is the time for executing plans and sticking your guns. You and your financial legacy will be stronger as a result,” concludes Morton.﻿

Impact of a S.A ratings downgrade on investors

South Africa’s current political divisions are the biggest threat to the country being downgraded by the bond credit rating company, Moody’s Investor Service.
This was the word on Tuesday from Moody’s Senior Vice President, Sovereign Risk Group, Kristin Lindow, addressing Moody’s 11th Annual South African Credit Risk Conference, held at Sandton’s Hilton Hotel.
“We’ve highlighted in our latest credit opinion that the increased political divisions that we’re seeing in South Africa threaten to impede structural reforms… We don’t know the ultimate outcome of some of this current noise surrounding the Hawks investigation for example, but regardless of that outcome, if the reform commitments were not to materialise, that would be how it would be reflected in our rating,” says Lindow.
Although the ratings agency stated that the probability of a downgrade were less than 50 per cent, it did warn that a cut was likely if economic growth fell below its estimated growth of 0.2 per cent this year.
On this news, the rand strengthened to 13.86 to the dollar at 2pm.
“The key drivers are whether the growth would recover. So we anticipate that growth will bottom out this year and then start to recover in subsequent years. So if we decide that that is unlikely to materialise, that could be one factor,” says Lindow.
As South Africa’s sovereign rating is set to be released on the 25th November, Lindow said that a possible downgrade wouldn’t be as drastic as being downgraded to junk status.
“Our rating is two notches above non-investment grade at present. So even if there were to be a downgrade of South Africa’s rating, which is not necessarily what is going to happen, we wouldn’t expect it to move to non-investment grade,” says Lindow.

S.A’s political divisions are threat to the country’s sovereign ratings

As braai season approaches, red meat prices are expected to trend higher by at least 9 to 15 percent from now until December due to tight supply and increased demand from consumers during the festive season.
Currently, red meat prices are relatively stable to strong due to tight supplies as livestock farmers hold on to stock and avoid slaughtering in the hope that pasture conditions will improve should seasonal rains materialise sooner.
Paul Makube, Senior Agricultural Economist at FNB says red meat slaughtering has been substantially higher this year compared to the past three years as a result of the drought. For example, the cumulative sheep slaughter number is currently 111% and 69% higher than the 2015 and 2014 levels respectively.
However, despite an increase in slaughtering, we did not experience an oversupply of meat which would have resulted in lower prices due to exports and a strong demand for our meat in the tourism sector.
“In terms of the outlook for beef, we are heading into a seasonal price increase of between R3.4 and R5.7 per kilogram (kg) for Class A beef as braai season returns. Consumers that prefer to braai lamb can expect to pay between R5.6 and R9.4 per kg more for Class A lamb over the festive period,” says Makube.
Pork will also benefit from the price gain of red meat. However, there won’t be much of a price movement in poultry due to increasing imports.
Despite continued pressure on disposable income, consumers would still be able to absorb a slight increase in meat prices during the festive period. While others will opt to purchase red meat in bulk to outweigh price increases.
“Even during tough economic conditions, we have picked up a trend where consumers will usually cut back on luxuries and non-essentials, but generally spend more on food and meat, during the festive season.” 
However, Makube cautions that prices would have to return to normal levels in January post the festive season to avoid resistance from consumers.
He says that with rain expected in the coming months, the situation should start improving for livestock farmers that have suffered financial losses as a result of the drought. Forecasts are now projecting neutral conditions for the 2016/17 season, meaning that we should expect normal, instead of above normal rainfall as had been previously estimated.
According to Makube, this is good news as the sector will not have to worry about possible damage resulting from floods, torrential rains and heavy winds, often associated with a strong La Nina that was predicted earlier during the past few months. The expected rainfall should be sufficient for herd-rebuilding to begin, further helping livestock farmers to reduce costs in the long-term.
“By mid-2017, we should see a moderation in grain prices which will lower animal feed costs, resulting in improved margins and profitability levels for farmers that are currently facing losses from the recent drought,” concludes Makube. ﻿

South Africa: Meat prices expected to increase up to 15% by December

The probability of a credit rating downgrade for South Africa is about a third, Moody&#8217;s said on Tuesday, warning however that a cut was likely if economic growth fell below its estimated growth of 0.2 percent this year.
Moody&#8217;s currently rates Pretoria two notches above sub-investment grade at Baa2 with a negative outlook, and has warned that political infighting, weak economic growth and mounting debt at state-owned companies all pose a downward risk.
Moody&#8217;s analyst Kristin Lindow also told an annual conference in Johannesburg that the agency it did not expect to upgrade the Baa2 rating for Africa&#8217;s most industrialised country in the near future.
&#8220;Fundamentally because the rating has a negative outlook, we don&#8217;t expect that we would upgrade the rating in the near future,&#8221; Lindow said.
&#8220;We would likely downgrade the rating in the absence of a growth recovery that we are anticipating &#8230; that takes growth to around 2 percent gradually over the next several years.&#8221;
Moody&#8217;s expects South Africa&#8217;s growth to tick up to 1.1 in 2017 and 2.0 percent the year after. It&#8217;s next review of South Africa is expected on Nov. 25.
&#8220;We have a negative outlook which means the risks (to the rating) are tilted to the downside,&#8221; Moody&#8217;s analyst Zuzana Brixiova told reporters on the sidelines of the conference.
&#8220;But having said that &#8230; fundamentally we expect that the probability of a downgrade is less than 50 percent, it’s about one-third.&#8221;
South Africa&#8217;s central bank has forecast that growth will be at zero percent this year.
Brixiova said any move to replace Finance Minister Pravin Gordhan, who is at the centre of a police probe, would only be an issue if it threatened the continuation of current economic policy.
Political and financial analysts say that the investigation on Gordhan is part of a plan by allies close to President Jacob Zuma to remove Gordhan from his position.
The analysts say Zuma and Gordhan are locked in a power struggle over spending at state-owned companies and plans for a multi-billion dollar nuclear power programme backed by the president but which the Treasury opposes. Zuma has denied there is a &#8220;war&#8221; between the Presidency and Treasury.
 
(Reporting by Stella Mapenzauswa; Editing by James Macharia)﻿

S.A's rating can be downgraded if growth is below forecasts

Unit 1 of South Africa&#8217;s sole nuclear power plant will be shut down for just over a month from Monday as part of routine refuelling and maintenance, power utility Eskom said on Sunday.
The power plant, known as Koeberg, has two units and provides 1,800 megawatts of power to the national grid.
&#8220;The refuelling outage takes just over a month and the unit is expected back online towards the end of October 2016,&#8221; Eskom said in a statement.
Eskom said it will also perform other maintenance works on the plant during the outage.﻿

South Africa's Eskom to shut down nuclear power plant unit for maintenance

South Africa&#8217;s rand firmed for a fourth consecutive session on Monday, gaining alongside fellow emerging currencies as the dollar stumbled ahead of an interest rate decision by the Federal Reserve later in the week.

South Africa's rand gains as risk currencies rally

The Economic Freedom of the World Index (EFW) is a positive indicator for desirable living conditions. For any country, the higher the EFW score, the more likely that country is to enjoy greater prosperity, a broader and friendlier civil society, and an intrinsic attractiveness to people from other lands. A country with greater economic freedom is better able to support a larger population on any given land area and physical resource base. The migration crisis of recent years is testimony to the government policy failures and resulting conflicts in those countries that tend to export their people rather than their products. It is also a rebuke to those refugee recipient countries that fail to exhibit consistently, or at least to recognise and articulate, the principles of good governance and freedom of exchange.
This year’s EFW index, which draws on data from 2014, shows that South Africa has continued to decline in absolute terms to an overall rating of 6.64 (out of 10), compared to 6.74 the previous year. This absolute drop is significant in what it portends for future standards of living – a loss of economic freedom implies a drag on economic progress. But the extent of lost opportunity is illustrated by South Africa’s decline relative to the rankings of other countries.
Of the 159 countries rated this year, South Africa placed 105th, which ranks it near the bottom of the third quartile. The previous year, its rank was 96th, and the year before that, 89th. This remarkable loss of position in the world implies a loss of economic competitiveness, thereby exacerbating the lost opportunities for productive activity.
In the year 2000, South Africa ranked 42nd in economic freedom but has since been surpassed by 63 other countries. Eleven African countries now rank higher – 14, if we count Mauritius, the Seychelles, and Cape Verde. This means that, not only is South Africa losing its standing in the world, it in the process of falling behind in Africa also.
The Economic Freedom of the World Index is composed of five broad areas: 1) Size of Government; 2) Legal System and Property Rights; 3) Sound Money; 4) Freedom to Trade Internationally; 5) Regulation. A troubling consistency for South Africans in this year’s report is that the separate scores for each of these five areas have all declined. Although there have been improvements in some of the subareas – such as judicial independence and credit market regulations – they were too few and of insufficient weight to prevent the broad declines.
South Africa’s strongest area score is in the category of Sound Money, for which it achieves an index score of 8.04 but a ranking of 99th, which is below the world median. The score would be much higher if South Africans were less restricted in their access to foreign currency and in the right to own foreign-currency bank accounts. But the South African rand has a reasonably predictable inflation rate and people generally have confidence in the management of the South African Reserve Bank. Nevertheless, the consumer price inflation rate remains high and the Reserve Bank predicts the 2016 inflation rate will average 6.6%, which is above the Bank’s own target range of 3% to 6%. Further, it is slightly worse than the actual average of 6.1% for 2014, which is the year from which the current EFW data were compiled.
Given that headline inflation averaged a relatively better 4.6% during 2015, we might expect the Sound Money rating in next year’s report also to be better. But the jump to levels as high as 7% in February this year (2016) suggests an increased volatility of the consumer inflation rate and a subsequent deterioration of the Sound Money rating through 2017.
Although the Reserve Bank and the South African Revenue Service (SARS) are reputed to be among the most efficient agencies in South Africa, neither is impervious to political pressure or influences. Presidential direction of the specialised investigative police unit, the Hawks, to question the current Minister of Finance (formerly head of SARS) as well as four former SARS officials has blown attention back on the president himself, and on the environment of political cronyism that has flourished under ANC rule. That this has shaken confidence in South Africa as a place to do business was reflected in the sharp and immediate depreciation of the rand in foreign exchange markets.
This points our attention to the fact that, of all the EFW subcomponents, the poorest rating by far is in the category of Capital Controls. South Africans have long been subject to highly restrictive regimes of exchange controls, which inhibit all international trade and investment but place domestic residents at a particular disadvantage.
All of this directs us toward the two EFW areas with the weakest scores: 1) Size of Government and 2) Legal System and Property Rights. We see the pervasive presence of government in the lives of its residents, demanding resources and compliance while it grows increasingly ineffective in protecting the lives and property of those residents. Voters have reacted against these consequences – noticeably at the municipal level – but the national government continues to consume more of what its citizens produce and to control some of that production by maintaining government-run commercial enterprises. Few could avoid noticing the drag on business and on people’s daily lives due to government involvement in the electricity generation business. It might be less obvious that the government is not a competent operator of other businesses, such as the national airline, but the destruction of wealth and loss of innovation are no less real in their impact on our lives.
There is no EFW category explicitly named “Corruption.” But there is a strong inverse correlation between a country’s EFW score and perceptions of corruption within that country. As government involvement in the lives of its citizens grows, along with it will grow opportunities to redirect other people’s wealth to one’s own benefit or to gain some other unearned advantage over one’s competitors. As government grows, temptations to partake of the unearned will grow in tandem, applying a steady corrupting pressure on the social fabric.
It is no accident that, as South Africa’s Economic Freedom of the World Index falls, the daily news increasingly offers us reports of corruption, group conflict, currency instability, and economic stagnation.
Richard J Grant is a Professor of Finance &amp; Economics, Lipscomb University, Nashville, Tennessee and a Publications Editor of the Free Market Foundation. This article may be republished without prior consent but with acknowledgement to the author. The views expressed in the article are the author’s and are not necessarily shared by the members of the Free Market Foundation.
 
@FMFSouthAfrica﻿

S.A to expect corruption and economic stagnation – FMF

A massive nuclear tender in South Africa is open to all bidders prepared to manufacture locally and share technology, and Russia is not the frontrunner, the head of the country&#8217;s nuclear agency said.
After meetings between Russian President Vladimir Putin and South African President Jacob Zuma, Rosatom had been considered the leading candidate to build 9.6 gigawatts of nuclear power capacity in South Africa by 2030.
&#8220;Russia is not the frontrunner. It never was,&#8221; Phumzile Tshelane, CEO of South African nuclear state agency Necsa, told Reuters in an interview on the sidelines of the World Nuclear Association conference.
South Africa wants to deepen its nuclear know-how, save costs and create jobs by making sure it picks a company that is happy to share the manufacturing and maintenance.
Stressing that the tender was an &#8220;open race&#8221;, Tshelane, a nuclear physicist said: &#8220;We do not want a Build, Own, Operate model.&#8221;
Russia&#8217;s state nuclear company Rosatom has sold several nuclear reactors to developing countries, including Turkey, under the &#8220;BOO&#8221; model, whereby Russia finances, builds and operates the nuclear plant and sells power to its customer.
In countries with a strong nuclear tradition, Rosatom has also built reactors with a different model that involves more input from local companies.
 
ECONOMIC BOOTSTRAP
Tshelane said he wants between a third and half of the construction to take place locally, which would also help to keep the cost down.
&#8220;If you localise construction, money does not flow out of the country but circulates locally and creates jobs. Nuclear energy must help bootstrap our economy,&#8221; he said.
Tshelane said a &#8220;Build, Own, Transfer&#8221; model could work for South Africa. South Korea&#8217;s Kepco has used a similar model to build nuclear plants in Abu Dhabi.
&#8220;Ours is almost like the Korean model, where you work together and can have a partnership,&#8221; he said.
He said Necsa does not want a &#8220;turnkey model&#8221; under which a company builds a plant and then hands it over to the operator. This is a model French company Areva has used for its Olkiluoto project in Finland.
Neither does it want to replicate a model that has been used in China, under which the customer acquires intellectual property rights and then builds the plant itself. Areva and Toshiba-owned Westinghouse have signed such deals in China.
The South African government has signed memorandums of understanding about nuclear with Russian, Chinese, South Korean, French and American reactor makers.
All are hopeful of winning the business, estimated by some to be worth up to $100 billion, a boon for an industry still floundering after the Fukushima nuclear disaster.
 
CRITICISM
South Africa, which has the continent&#8217;s only nuclear power station, wants to diversify away from mainly coal-based energy production, a move Zuma says is important for economic growth.
But critics say the government should spend more on renewables such as wind and solar rather than on one of the world&#8217;s largest and most expensive nuclear projects. They are watching the tender process &#8211; to be launched at the end of the month &#8211; carefully to make sure it is transparent.
The meetings between Zuma and Putin over the last two years had led to speculation that Rosatom had secured the deal before the launch of the public tender.
It also fueled criticism from the opposition, some analysts and domestic media, who said that Zuma was trying to use the tender process to secure contracts for business associates in his last two years in office. Zuma has denied that charge.
Tshelane, 54, said it was in any case unlikely that one company would get a contract to build all the reactors.
&#8220;Nobody will sign a deal for 9.6 gigawatt,&#8221; he said.
He said the first contract would likely be for between one and three plants out of a possible total of 10.
&#8220;If we are happy together, we can look at ordering more,&#8221; he said.
The existing nuclear power plant &#8211; run by domestic utility Eskom &#8211; generates five percent of the country&#8217;s power and uses two 1980s French-built Pressurised Water Reactors, the most common type of reactor. Tshelane said South Africa wants to stick with the PWR technology with which it familiar.
He said it was also important that the company building the power station had an existing plant of the same nature that can be used as a reference point.
Asked whether that meant South Africa would rule out France&#8217;s Areva &#8211; which has four European Pressurized Reactors (EPR) under construction but no operating ones yet &#8211; he said it would need to be working by the time the South African reactors are built.
 
NUCLEAR FUEL
Tshelane said that South Africa, which has large uranium reserves, also wants to build its own nuclear fuel manufacturing cycle but has no plans to start up the high-tech and politically-sensitive uranium enrichment process.
&#8220;Enrichment is embroiled in geopolitics,&#8221; Tshelane said. He said South Africa does not completely rule out enriching its own uranium eventually but is unlikely to do so in the next decade.
South Africa currently produces uranium as a byproduct of gold mining &#8211; but not enough to supply the new nuclear plants.
&#8220;Necsa wants to own a uranium mine in South Africa. We want to control our uranium resources from cradle to grave,&#8221; he said.
South Africa also wants to convert its own yellowcake milled uranium ore into uranium hexafluoride that is ready for enrichment and make its own nuclear fuel using uranium enriched abroad.
Tshelane said that a contract for a new research reactor would be part of the tender procedure. South Africa&#8217;s 50-year old 20 MW research reactor is used to produce radio isotopes for medical purposes.
He said a new research reactor would be crucial for the development of South Africa&#8217;s nuclear industry, both for producing nuclear fuel and for testing nuclear equipment.﻿

South Africa nuclear tender open to all, Rosatom not frontrunner

South African mobile phone operator MTN Group has pulled the plug on its local mobile money business, saying it was not viable in a country where around three quarters of the population already has a bank account.
Mobile money services that allow customers to transfer funds using their phones have proved hugely popular in some other parts of Africa, particularly where people have less access to traditional bank accounts.
MTN launched its South African service in 2012 after the success of Safaricom&#8217;s M-Pesa in east Africa convinced some executives the service was the industry&#8217;s next growth area.
However MTN, Africa&#8217;s biggest wireless phone group, now joins Vodacom in abandoning the service in South Africa.
&#8220;The operating costs of providing a mobile money platform has become prohibitive,&#8221; MTN said in a statement on Thursday.
Both Safaricom and Vodacom are controlled by Britain&#8217;s Vodafone.
MTN said its decision did not mean a complete exit from financial services.
&#8220;MTN is still committed to remaining a significant player in the financial services space and we are exploring opportunities in financial services space and other adjacent sectors,&#8221; it said.﻿

MTN scraps mobile money business in South Africa

South African retail sales grew by 0.8 percent year-on-year in July, after expanding by a revised 1.4 percent in June, data from the statistics office showed on Wednesday.
Analysts polled by Reuters had forecast a 2 percent year-on-year increase in July.
On a month-on-month basis, sales fell by 0.4 percent, and were up 2 percent in the three months to July compared with the same period last year, Statistics South Africa said.﻿

South Africa's July retail sales growth slows to 0.8 percent y/y

South Africa&#8217;s Aspen Pharmacare Holdings reported a 23 percent drop in full-year profit on Wednesday as heavy losses from its Venezuelan business and a weak performance in its home market weighed on earnings.
The firm has been expanding rapidly outside South Africa, where a heavily regulated pharmaceuticals market has put a cap on growth, and in its latest push announced this week it would buy GlaxoSmithKline&#8217;s portfolio of anaesthetic drugs for $370 million.
Sales in South Africa were down 1 percent to 8.1 billion rand ($564.13 million) and now represents 23 percent of the firm&#8217;s revenue.
Aspen, which earlier this month also concluded a deal to take AstraZeneca&#8217;s anaesthetics brands outside the United States, has positioned itself to ramp up sales outside its home market Chief Executive Stephen Saad said.
&#8220;We are now looking for economies of scale,&#8221; said Saad, adding that the company was adding products, such as the anaesthetics, that fit in with its therapeutic platform.
The latest acquisition has boosted its sales force in China to more than 600 people, which Saad sees as a key market.
Aspen said headline earnings per share (EPS) fell to 889 cents in the year to end-June, compared with 1,149.9 cents a year earlier.
Headline EPS is the main profit measure in South Africa and strips out certain one-off items.
Excluding a 870 million rand ($60.76 million) write down charge in Venezuelan operations, headline EPS would have grown by 10 percent, Saad said.
Shares in Aspen were up 2.5 percent at 344.22 rand by 1320 GMT, recovering from a drop of 1.7 percent before its results.﻿

South Africa's Aspen Pharmacare FY profit drops 23 percent

South Africa&#8217;s President Jacob Zuma said on Tuesday that a process by the government to expand nuclear power generation was continuing despite the Treasury saying funds for the project were not immediately available.
Africa&#8217;s most industrialised country has said it intends to build new nuclear power stations to reduce its heavy dependence on coal but critics have said the costs will be prohibitive and have questioned the transparency around the process.﻿

Zuma says S.Africa's nuclear expansion plan on despite tight funds

Around the world, in every economy, whether emerging or advanced, SMEs are widely accepted as a significant driver of GDP and the primary job creator. In South Africa SMEs account for around 40% of GDP<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn1" title="">[1]</a> and, according to the Finscope (2006) survey, 90% of jobs created between 1998 and 2005 were in small, medium and micro enterprises<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn2" title="">[2]</a>. Interestingly Brazil’s SMEs are estimated to produce 96% of jobs<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn3" title="">[3]</a>. Based off this the South African Institute of Chartered Accountants suggests that according to the National Development Plan, SMEs are expected to provide a staggering 90% of new jobs by 2030<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn4" title="">[4]</a>. Given South Africa’s divided past and our current population demographics, the importance of stimulating black owned SMEs must therefore take centre stage.
To quote Shakespeare (Hamlet Act III, Scene 1) [with some enhancements for South Africa]:
ToBEE, or not toBEE- that is the question:
Whether &#8217;tis nobler in the mind to suffer
The slings and arrows of outrageous fortune
Or to take arms against a sea of troubles,
And by opposing end them.
Given the current unemployment rate in South Africa, and the expectation for SMEs to create significant jobs by 2030, it is important to understand the stumbling blocks for SMEs in South Africa. We as a country need to understand the crucial role that SMEs will play in creating employment and driving growth in our economy. As Shakespeare suggests we cannot passively sit; we must rather actively engage and thereby ensure that every effort is made to encourage and promote SMEs.
A number of South African studies including the National Development Plan<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn5" title="">[5]</a> have identified factors which undermine a strong SME growth vector including:
<ol>
<li>Excessive red tape,</li>
<li>Rigid labour regulations,</li>
<li>Inability to access finance,</li>
<li>Skills development and business support, and</li>
<li>Access to markets (procurement).</li>
</ol>
Contrasting South Africa with other economies which have vibrant SME participation provides us with some potential suggestions as to what participants in the South African economy could do, to stimulate the SME sector. An interesting policy study undertaken in 2004 by the OECD (Organisation for Economic Co-operation and Development)<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftn6" title="">[6]</a> found “SMEs play a key role in transition and developing economies. These firms typically account for more than 90% of all firms outside the agricultural sector, constituting a major source of employment and generate significant domestic and export earnings.As such SME development emerges as a key instrument in poverty reduction efforts.” (my emphasis)
Furthermore the OECD study made the following key recommendations:
<ol>
<li>Embed strategies toward the private sector and SMEs in countries’ broader national development and poverty reduction programmes</li>
<li>Strengthen SME capacity to improve their competitiveness in domestic, regional and global markets,</li>
<li>Promote policy coherence at regional, national and international level, and</li>
<li>Maximise the spill over of management skills and knowledge from multi-national enterprises to local SMEs.</li>
</ol>
Not surprisingly these two pictures (South Africa and OECD), from vastly differing sources, enjoy significant overlap. This confirms the overwhelming finding that South Africa’s SME perspective has similarities to those found around the globe.
How then do we collectively address the stumbling blocks facing South African SMEs? Looking at the list of 5 shortcomings identified in the South African studies which SMEs face, the following high level perspective is worth noting:
<ol>
<li>Excessive red tape and rigid labour regulations are firmly within the regulatory framework. It is important that government takes note of these issues and addresses them. These remain firmly within government policy. Realistically, apart from consistently raising the issue for debate and challenging our elected officials in this regard, private enterprise will have limited ability to change these two issues in the absence of policy change. However, with regards the three remaining issues there is much that the private sector can do.</li>
<li>The inability for SMEs to access finance, the need for skills development and business support and access to markets are all significant stumbling blocks. In addition, due to South Africa’s skewed economic development under apartheid, it is realistic that policy intervention is necessary to remedy the imbalance. Capitalism, in the absence of this policy intervention, would most likely see the strong becoming stronger and the weak becoming weaker. The drafters of the B-BBEE Act and Codes of Good Practice appear to have taken these factors into account in the following way:</li>
</ol>
<ul>
<li>The Amended Codes of Good Practice have made Skills Development a mandatory aspect of the codes which required a sub-minimum of 40% compliance,</li>
<li>Supplier Development, a component of the mandatory element of Enterprise and Supplier Development, has been added to improve the opportunity for black SMEs to secure procurement opportunity from companies (access to markets),</li>
<li>The definition of an empowering supplier includes an element of skills transfer, and</li>
<li>Enterprise and Supplier Development encourage the provision of finance by companies to black SMEs.</li>
</ul>
 Notwithstanding a number of shortcomings within the Amended Codes of Good Practice [most notably around the 51% black owned measure which, by almost any global measure of control, should have been 50% plus 1], the Codes give voice to the reality that SMEs are a vital sector of the market. If we are genuinely to address job creation all stakeholders need to embrace the pivotal role SMEs will play in that regard.
Ultimately chief executives will play the most important role in implementing the BEE Codes within their companies. If implemented well the Codes will bolster the growth of black SMEs in our economy, and in so doing we will start to make inroads into South Africa’s massive unemployment burden.
To chief executives then the challenge offered is to “…take arms against a sea of troubles, and by opposing end them”. The Amended Codes are difficult and imperfect. However they include tangible elements which will support the growth of black SMEs; and by extension job creation. There is no better time for action than now.
 
Evan Jones is CEO of Inyosi Empowerment. Inyosi Empowerment, a black owned company, was created in a partnership between Mineworkers Investment Company and Stellar Credit. Inyosi Empowerment offers Enterprise and Supplier Development investment based solutions to companies who are looking to enhance their scorecard whilst ensuring that the ideals of the Codes are fully met.
 
<div>
<hr />
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref1" title="">[1]</a> Bureau of Economic Research (2016). The small, medium and micro enterprise sector of South Africa.
</div>
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref2" title="">[2]</a> National Development Plan (page 140)
</div>
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref3" title="">[3]</a> Business Environment Specialists (2012). SMEs and Employment in South Africa.
</div>
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref4" title="">[4]</a> SAICA (2015). SME Insights Report
</div>
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref5" title="">[5]</a> National Development Plan (page 141); Business Environment Specialists (2012). SMEs and Employment in South Africa.
</div>
<div>
<a href="file:///C:/Users/JillD/AppData/Local/Microsoft/Windows/Temporary%20Internet%20Files/Content.Outlook/VH4ORJG3/South%20Africa's%20SME%20conundrum%20by%20Evan%20Jones%20CEO%20of%20Inyosi%20Empowerment.docx#_ftnref6" title="">[6]</a> OECD (2004). Promoting SMEs for Development﻿
</div>
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OPINION: SMEs struggle for survival in South Africa

South Africa remains in the grip of a drought that is not expected to ease soon, a government task team said on Thursday, putting pressure on inflation as the cost of staple foods soars.
The long-range forecast showed below normal rainfall expected and &#8220;therefore little relief is anticipated in the coming months,&#8221; local government minister Des van Rooyen, chairman of an inter-ministerial task team on drought, told a media briefing in Cape Town.
Van Rooyen, flanked by Water and Sanitation Minister Nomvula Mokonyane and Agriculture Minister Senzeni Zokwana, said there was no need to declare a national disaster even as the national planting area for maize declined by 30 percent.
The drought has also reduced the national cattle herd by 15 percent with no relief in sight.
&#8220;About 370 large commercial farmers around the country&#8230; were at risk of going under due to them not being able to service their debts as a result of the drought,&#8221; he said.
The cost of staple foods, such as maize, has sky rocketed and had a knock-on effect on inflation, the central bank has said. Inflation is running at 6 percent.
Dam levels have fallen to 53 percent as an El Nino weather pattern, which ended in May, triggered drought conditions across southern Africa and placing millions at risk of food shortages.
Large swathes of scorched land decimated the maize crop, with current forecasts pointing to a 26.6 percent lower harvest this year. Temperatures soared to historic peaks in 2015, the driest year since records started in 1904.
Van Rooyen said water restrictions had been imposed in some provinces. Residents and businesses in the economic hub of Johannesburg are being urged to conserve water usage.
 
(Reporting by Wendell Roelf; Editing by James Macharia)﻿

South Africa remains in grip of drought

The chief executive of South African&#8217;s biggest lender by market value FirstRand Ltd said the chances of a sovereign downgrade for Africa&#8217;s most industrialised country this year had risen due to a stagnant economy and political uncertainty.
Johan Burger said on Thursday after reporting the bank&#8217;s annual results that a downgrade would negatively impact lending and lead to banks tightening credit extension. The central bank has forecast growth at zero percent this year.
FirstRand reported a 5 percent rise in full-year headline earnings per share (EPS), slower than the previous year which it blamed largely on a sluggish economy, sending its shares down nearly 3 percent in early trade.
&#8220;The probability has actually increased for a downgrade,&#8221; he told Reuters. &#8220;That would have a negative impact on lending.&#8221;
Burger said a downgrade could hurt clients&#8217; ability to afford credit as the currency weakens and interest rates rise.
&#8220;Low growth combined with weaker balance sheets of some state-owned enterprises (SOEs) has added fiscal risk which is likely to result in a sovereign downgrade by the end of 2016,&#8221; FirstRand said in a statement.
Moody&#8217;s rates South Africa two notches above junk, while both S&amp;P and Fitch left ratings at BBB- in June, one notch above junk, however both agencies warned about the weakness of growth and heightened political risks.
A police investigation into Finance Minister Pravin Gordhan over a surveillance unit set up years ago at the tax agency when he headed the department has rocked local markets and led to concerns that ratings agencies could downgrade the country in their reviews expected by December.
State-owned enterprises, such as national carrier South African Airlines and power utility Eskom have struggled financially and relied heavily on government guarantees.
FirstRand, which owns First National Bank and vehicle finance unit Wesbank, said headline EPS rose to 399.3 cents in the year to June 30 from 381.4 cents a year earlier.
Earnings were lifted by a 13 percent increase in net interest income and a 7 percent rise in non-interest revenue. Headline EPS is the main profit measure in South Africa; it strips out certain one-off items.
Shares in FirstRand fell 2.4 percent to 46 rand by 0837 GMT, compared to a 0.4 percent decline in the benchmark Top-40 index.﻿

FirstRand bank warns South Africa faces downgrade this year

Online travel agency kiwi.com has ranked countries of the world to determine which offer the most and least expensive flights. South Africa was ranked seventh among the countries with the least expensive flights.﻿
South Africa came in with an average flight cost of 7.33 US dollars per 100 kilometres of travel.
With a low cost airline, Algeria came in at 5.17 dollars per 100 kilometres in international flights and a total average of 7.67 dollars per 100 kilometres, ranking at position eight.
Malaysia took second place as one of the least expensive countries with an average of 3.78 dollars followed by Russia at third place with 5.88 dollars, Portugal at fourth place with an average of 6.71 dollars, then Indonesia with 6.84 dollars and Azerbaijan at sixth place with an average of 6.93 dollars per 100 kilometres.
On the other side of the coin, among the countries with expensive flights, Canada was ranked at seventy with an average of 38.71 dollars, followed by Japan with 41.48 dollars total average, the Netherlands at seventy two with 42.35 dollars average, Qatar with an average of 50.37 dollars and Finland at seventy four at 50.89 dollars per 100 kilometres.
The least expensive country was India with an average flight cost of 3.25 dollars per 100 kilometres while the United Arab Emirates had the most expensive flight with a low cost airline of 11.28 dollars and a total average cost of 105.71 dollars per 100 kilometres. ﻿

Report: How global flights rank

South Africa&#8217;s rand strengthened early on Tuesday, extending gains to a fourth consecutive session in thin trade after a holiday in the United States and ahead of local GDP data expected to show the economy avoided recession.
 
* Rand 0.6 percent firmer at 14.2950 per dollar at 0650 GMT versus overnight close of 14.3800.
* Government bonds also firmer. Yield on benchmark 2026 paper down 4 basis points to 8.81 percent.
* Q2 GDP release at 0930 GMT. Positive numbers would lift sentiment following 1.2 percent contraction in Q1.
* Political unease lingering with police position still unclear on possible arrest of Finance Minster Pravin Gordhan.
* Blue chip futures index up 0.2 percent, indicating bourse opening firmer at 0700 GMT.﻿

South Africa

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OPINION: SMEs struggle for survival in South Africa

South Africa remains in grip of drought

FirstRand bank warns South Africa faces downgrade this year

Report: How global flights rank

South Africa's rand rallies ahead of expected GDP boost

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South Africa

Impact of a S.A ratings downgrade on investors

S.A’s political divisions are threat to the country’s sovereign ratings

South Africa: Meat prices expected to increase up to 15% by December

S.A's rating can be downgraded if growth is below forecasts

South Africa's Eskom to shut down nuclear power plant unit for maintenance

South Africa's rand gains as risk currencies rally

S.A to expect corruption and economic stagnation – FMF

South Africa nuclear tender open to all, Rosatom not frontrunner

MTN scraps mobile money business in South Africa

South Africa's July retail sales growth slows to 0.8 percent y/y

South Africa's Aspen Pharmacare FY profit drops 23 percent

Zuma says S.Africa's nuclear expansion plan on despite tight funds

OPINION: SMEs struggle for survival in South Africa

South Africa remains in grip of drought

FirstRand bank warns South Africa faces downgrade this year

Report: How global flights rank

South Africa's rand rallies ahead of expected GDP boost

News Tips

Advertise With Us

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