After a bad start to the month when foreign funds poured out of the local market, September ended on a high note. Figures from Citi show non-residents bought a net R11.4 billion of South African securities in the month.
This compares favourably with August, when purchases were worth only R1.8bn. Bonds were the big draw – at R11.9bn – while foreigners sold a net R440 million worth of equities.
The reason for the turnaround was the decision by the US Federal Reserve to delay tapering of its stimulus programme. After pouring money into the markets for five years, the US will soon start turning off the taps before sucking the excess cash back out again. There is no deadline yet for the start of tapering, which is likely to redirect investment flows from emerging markets, including South Africa.
There could then be a re-run of the events of May to August, weakening already weak currencies further and undermining the global recovery. An end to easy money has to come in the US and the best we can hope for is that the plans are communicated clearly to avoid false alarms.
Volatility in currency, bond and equity markets has had a destabilising impact, creating uncertainty for investors, businesses and consumers alike. This is the opposite of what an economy needs to grow.
Growth is being further sabotaged by constant strikes at home.
Trade union leaders, who make little effort to acquaint their members with the realities of business, are pressing on with their own agendas. After years of brainwashing, workers now believe that large companies have endless resources and will continue to survive whether they make profits or losses.
Those executives who award themselves huge pay packets that they haven’t earned are also to blame, because they destroy their credibility when they try to get the facts of life across to the workers.
Despite a relatively rosy picture painted of Alexkor in its annual report – including reporting R29.7 million “comprehensive income” for the 2013 financial year – a closer reading of the figures indicates that it continues to slide and would probably have gone out of business if it were not heavily underpinned by the state.
Two weeks ago, Deputy Public Enterprises Minister Bulelani Magwanishe told its annual general meeting – at which extraordinarily the financial statements were not tabled – that the Northern Cape-based state diamond mining company had achieved 93 percent of its performance targets. He also mentioned, however, that the business was not sustainable in its current form, something which has been alluded to for the past decade.
It was explained that the annual report would be tabled in Parliament the following week. This has now happened. It showed that the state injected R350m “via its MTEF [medium term expenditure framework] allocation on December 31, 2012. This was a recapitalisation from the shareholder and shares were issued,” the board of directors reported. This pushed the entity into the black.
The statement of comprehensive income notes that revenue was R93.9m while the cost of sales was R115m (the previous year revenue was R113m and cost of sales R124m). This translated into a gross loss of R21m in 2012/13 (R10.9m in 2011/12).
The entity has chopped and changed its chief executive and chief financial officer a number of times in recent years. Former acting chief executive (and chief financial officer) Berno Lategan earned R1.6m until March 4, when Percy Khoza took over. In the remainder of March, marking the end of the financial year, Khoza earned R195 699 – indicating that he will earn a healthy R2.34m this year.
Not bad for a company that would under normal circumstances have scaled down or even closed its doors.
As if the macroeconomic environment is not bad enough, the major competition South African firms will have to weather comes from foreign companies that, among other things, possess larger scale, which positions them as threats to local businesses trying to eke out a living.
Robert Gumede, the chairman and founder of JSE-listed technology company Gijima, candidly spelled out the challenges that frustrated the local business environment. In Gijima’s own experience, earlier this year it lost out on an information technology (IT) contract it once held with Absa to a consortium comprising US computer technology giant Dell and Bytes Technology. Bytes Technology is owned by local business Allied Electronics.
Gijima had partnered with another American multinational IT giant, Hewlett-Packard, to bid for the multimillion-rand contract. Gumede’s gripe was that Absa’s parent company, Barclays, had no longer deemed it acceptable for South African companies to be the sole provider of services to the subsidiary and that local companies had to partner with international players whose earnings are derived from activities worldwide.
Much of the government’s outsourced business often also landed in the lap of foreign firms, Gumede said. While this was the nature of competitive business, he said the time had come for the country “to have pride in local companies”.
The same level of state support that companies such as Sasol received during the apartheid era while the country was under foreign sanctions and that would eventually lead to Sasol’s international success, was lacking in this era, Gumede argued. He also intended to catapult Gijima onto the world stage in time.
But his argument neglected to acknowledge that Sasol had brought innovation to the table at the time. Perhaps Gijima could start by reminding the world what makes the company so unique.
Edited by Peter DeIonno. With contributions from Ethel Hazelhurst, Donwald Pressly and Asha Speckman.