As 11 percent of the workforce of Anglo American Platinum (Amplats) started a strike yesterday, the country’s growth prospects and the outlook for exports dived, while the danger of a credit rating downgrade rose.
Supply disruptions reduce export volumes and erode growth in gross domestic product. They slash company profits, which is of importance not just to the company and its shareholders but to the fiscus and taxpayers.
Latest figures from the National Treasury show that corporate tax collections fell 45 percent in the first two months of the 2013/14 fiscal year compared with the same two months last year. This contributed to a widening gap between government revenue and government spending.
In a note in April, Moody’s Investors Service, which downgraded the country’s sovereign rating from A3 to Baa1 last September, said the rating could be downgraded again if, among other things, the government’s debt burden rose further.
The disappointing tax take is increasing the probability the debt burden will rise because the government funds its budget shortfall in the capital markets.
Striking miners are demanding that suspended officials from the Association of Mineworkers and Construction Union (Amcu) be reinstated. They also want job cuts scrapped and a guarantee that the National Union of Mineworkers (NUM) be banished from Amplats mines.
The problems in the mining sector have as much to do with rivalry between the unions as differences between workers and employers on wage demands. NUM, which is affiliated to ANC alliance partner Cosatu, has ruled the roost in the mining sector for decades.
With Amcu on the ascendant, Blade Nzimande, the general secretary of the ANC’s other alliance partner, the SACP, recently described the new union as vigilantes. Lighting a match in a tinderbox?
Medupi
Eskom reported that a further six-month delay in the commissioning of its Medupi power station would result in R13.8 billion in cost overruns, pushing the project costs up to R105bn.
This new cost, however, does not take into consideration the amount that the power utility will claw back from its contractors in the form of penalties.
So Eskom can argue that the cost will possibly be lower because the utility has already cut 10 percent of Alstom’s contract price after calling up its performance bond. And Eskom is likely to do the same with Hitachi Power Africa.
But to get a sense of how much Medupi’s costs have evolved, one needs go back to the station’s initial price tag, which was R78.6bn. When Eskom placed the three main contracts of this project in September 2008, it changed this cost to R87bn, excluding transmission and owners’ development costs.
The owners’ development costs have increased from R6bn to R11bn because of delays.
Yesterday, Eskom said the R91.2bn figure had risen to R105bn. But the utility indicated earlier this year that Medupi’s costs were sitting at R99bn since 2009.
So if one takes the 2008 cost estimates after Eskom had placed its three main contracts, cost overruns of R18bn are observed, excluding interest and certain costs. Now, what could have been done with this R18bn?
It could fund a greater portion of the R20bn that the SA National Roads Agency Limited (Sanral) borrowed to fund improvements to roads under the Gauteng Freeway Improvement Project (GFIP). Sanral’s total debt over the next 24 years, including interest, is R58bn.
Better yet, this amount could fund a project similar to the GFIP without incurring interest that Sanral has to pay.
With that R18bn, Transnet Pipelines could complete its pipeline projects for R15bn and keep the change for further expansion. Housing grants allocated for the poor in the next financial year amount to R17.9bn – and R18bn is a perfect fit.
Tourism
Several of South Africa’s hotel groups have prepared for the revival and the growth of our tourism industry over the past two years by extensive new developments and refurbishments of their existing properties.
But one of the most significant is probably the R220 million redevelopment and enlargement of Tsogo Sun’s Elangeni and Maharani hotels on Durban’s beachfront.
The success of Cape Town as South Africa’s main tourism destination, despite its variable climate and chilly sea, owes a lot to its atmosphere, reputation for fine food and the wide choice of entertainment and activities.
Durban’s warm winter climate and beachfront and its proximity to Johannesburg have been enough to guarantee an influx of South African holidaymakers every summer, without the need for a wide choice of entertainment when there is no big event in progress.
One of the reasons British Airways has not so far reintroduced flights to Durban, despite regularly considering it, is that it still regards Durban as mainly a place for bucket-and-spade family holidays.
It is also expected that Chinese visitors will come into this country in large numbers and a recent survey showed they, in particular, want their hotels to provide free internet.
Tsogo Sun is converting the Maharani and Elangeni into one complex, which will include two gyms, 11 restaurants and bars, 15 meeting and conference rooms, and two business centres. Tsogo Sun has just introduced free wi-fi.
Johannesburg is also aiming to attract foreign tourists or to persuade its large number of business visitors to stay on for leisure activities.
Our tourism industry cannot just relax and rely on sunny beaches, which Mediterranean countries can also provide.
Edited by Peter DeIonno. With contributions from Ethel Hazelhurst, Londiwe Buthelezi and Audrey D’Angelo.