The US has produced some positive economic data in recent months. Now for the bad news. Matthew Sharratt, the Bank of America Merrill Lynch’s South Africa economist, sees the US economy experiencing a triple dip, with growth in gross domestic product (GDP) at 1 percent by year-end after starting the period at 3 percent. This is a reversal of last year’s experience when US economic growth picked up from below 1 percent at the start of the year and increased to an estimated 3 percent in the fourth quarter.
A major concern is that “dysfunctional policymaking could lead to large spending cuts, big tax increases and another debt ceiling debacle”.
The US plunged global financial markets into disarray in August when it lost its triple A credit rating from Standard & Poor’s. Concerns about its debt mountain, equal to about 100 percent of GDP, were subsumed in political point-scoring. And the problems remain unresolved, ahead of elections at the end of this year.
Sharratt remains bearish on the euro zone, with a baseline projection that its economy will shrink by 0.6 percent. This is based on “a muddle-through with intermittent bouts of risk aversion”. And he warns that there is “a significant risk of a more adverse outcome”.
Government indecisiveness plays an important negative role in this region too.
He forecasts China’s economic growth will slow further to 8.6 percent this year from around 9.2 percent last year. “Part of the slowdown reflects reduced potential, driven mainly by a labour shortage, and part of the slowdown is cyclical, as China will be faced with a possible euro zone recession this year.”
All this has consequences for South Africa. “We expect GDP to grow only 2.5 percent this year, well below trend and the Reuters consensus of 2.8 percent.”
BEE
The annual survey on broad-based black economic empowerment (BEE) by KPMG shows that companies are taking the subject seriously and this augurs well for the country and its people.
It shows firms now realise that BEE is not a luxury but a without-which-nothing or a sine qua non, as they say in Latin.
KPMG says the survey highlights a positive trend regarding BEE compliance since the survey began in 2006.
The auditing firm notes: “This increasing investment in broad-based BEE compliance is encouraging, particularly given the tough economic climate in South Africa.”
Most respondents indicated they were aware of the pending target changes to the employment equity and preferential procurement scorecard elements, as well as the measurement changes to the enterprise development and socio-economic development elements.
KPMG says: “The current focus, however, remains on improving the lower-scoring ‘people’ elements such as employment equity, skills development and management control, which was cited as a priority in this year’s survey. With this, there (are) also further warnings to organisations that are unprepared for the broad-based BEE scorecard changes, as they are likely to be caught on the back foot this year.”
The survey says despite organisational awareness of the pending scorecard changes for employment equity and preferential procurement, organisations’ preparedness to mitigate the impact of these changes is less evident with respect to employment equity than for preferential procurement.
This may be because organisations are more easily able to effect control over their preferential procurement score by putting suppliers on notice to attain improved BEE scorecard ratings or they will switch to more compliant suppliers. page 22
Esorfranki
The disclosure by listed Esorfranki this week that it would be an aggrieved party and seek damages if eThekwini’s controversial R864 million tender for the Western Aqueduct project was cancelled is deeply disturbing.
The tender process for this contract and its award to a consortium led by Esorfranki has been shrouded in controversy. This was highlighted in the KwaZulu-Natal High Court judgment by Judge Daya Pillay, who said the actions of eThekwini officials in awarding the tender to the joint venture amounted to “gross negligence, sheer incompetence or lack of capacity”.
Dave Gibbons, the managing director of Esorfranki Pipelines, stressed this week that it would seek damages if the contract was cancelled because the cancellation related to the tender process and the firm had done nothing wrong.
On this basis, it would appear that Esorfranki has grounds to seek damages. This will mean eThekwini ratepayers will have to foot the bill for any successful damages claim, which is the direct result of the cavalier approach adopted by municipal officials to this contract award.
In his judgment, Pillay ordered the city to endeavour to recover the costs of this bungled tender “from officials who acted unlawfully or committed misconduct so that taxpayers are not penalised”.
The contract awarding the tender to the Esorfranki joint venture was signed in June last year.
However, the eThekwini municipality was given notice prior to the contract signing that listed construction company Sanyati would be seeking a high court interdict to prevent the contract being signed, but the city went ahead anyway.
If these officials had acted more prudently, they would have saved eThekwini ratepayers the costs of any successful damages claim from Esorfranki.
At the time of the judgment, there was not any suggestion of any damages claim, but in line with the judgment, heads should roll at the municipality because of this and attempts should be made to recover the costs of any successful damages claim from the responsible officials.
Edited by Peter de Ionno. With contributions from Ethel Hazelhurst, Wiseman Khuzwayo and Roy Cokayne.