Forfeit of Eskom chiefs’ bonuses welcomed

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The news that Eskom executives will not get bonuses this year will be seen by many as long overdue. Every time its annual report comes out and the directors’ pay is splashed in the press, people who themselves receive bonuses, regardless of performance, voice disbelief that after holding the economy to ransom, hindering investments in smelters and other energy-intensive industries since 2008, the management is still getting bonuses.

But the argument is not as easy as most make it out to be. For instance, South Africa only experienced its first blackouts since 2008 in March this year. And as Eskom and some economists argued, the rains that soaked its coal, causing that load shedding, were beyond its control.

As Lynn McGregor, a senior research fellow at the Stellenbosh Business School’s unit for corporate governance, put it, looking at the situation that Eskom’s current management inherited – with a fleet of 30-year-old power stations and a massive maintenance backlog – it has done reasonably well to deal with that situation.

But was Eskom’s announcement that 30 executives forgo their bonuses just a public relations exercise? Some might wonder.

If the company wanted to arrest all cost increases, could it not postpone the R500 million upgrade at its head office, at least until it has found a way to close this revenue shortfall it projects until 2018?

And there is also that R10.08m in long-term bonus payments made to the company’s directors and group executives in the previous financial year. It would be interesting to see how much this would be for the 2013/14 financial year. And considering that this R10.08m was paid out to only 10 individuals, one can expect it to be a sizable amount if all 30 of the executives who forfeited their 2013 bonuses could also sacrifice, or defer, these until such time that Eskom is in a better financial position.

Another point is whether Eskom has factored in the other 8 percent that the National Energy Regulator of SA denied the company in its tariff increase application when it submitted its regulatory clearing account application this year.

Beer

Africa’s economic performance has improved greatly since the turn of the century, leading to large increases in gross domestic product (GDP) per capita and lower levels of poverty. From 2001 to 2011, sub-Saharan African economy grew at an average rate of 5.7 percent. This meant that GDP per capita rose from $461 (R4 933) in 2001 to $1 219 in 2011, according to Africa’s consumer story report by KPMG Africa.

The improvement coincided with an improvement in business environments and a reduction in political risk. However, the improvement has also been measured by the level of alcohol consumption. African beer consumption was estimated at 108 million hectolitres in 2011, with three countries – South Africa, Nigeria and Angola – accounting for 51 percent of this.

The report suggests that as people move up the income ladder, per capita spending on beer rises significantly. Informal trading dominates the market, but a gradual shift from traditional beers such as sorghum-based beers to clear beer starts occurring.

SABMiller has a presence in most African countries and has managed to unlock the potential presented by these markets. The group’s strategy has been to provide beer at lower costs to target lower-income consumers. To lower production costs, the company uses locally produced sorghum and cassava in the production process rather than the more expensive imported barley.

Many African countries are producers of crops that can be used as raw ingredients for beer, such as sorghum, barley, cassava and maize. With the highest population in the continent, Nigeria is Africa’s largest alcohol drinkers, according to Deutsche Bank Market Research.

Based on sales of the world’s largest distiller – Diageo – on the continent, the country accounts for about 36 percent of Africa’s formal alcohol market, according to a sector report on fast-moving consumer goods in Africa by KPMG.

Edited by Peter DeIonno. With contributions from Londiwe Buthelezi and Nompumelelo Magwaza.


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