The highs and lows of BUSI­NESS

It has been an event­ful and dif­fi­cult year in SA eco­nom­ics and pol­i­tics. Justin Brown pro­vides an over­view of the more sig­nif­i­cant events

CityPress - - Business -

The year 2016 will go down as a tough one for the lo­cal econ­omy as the coun­try just missed a re­ces­sion and un­em­ploy­ment reached a 13-year high. The lo­cal econ­omy was ex­pected to grow by be­tween 0% and 0.5% this year, the low­est growth since 2009, while the lat­est fig­ures put un­em­ploy­ment at 27%, the high­est since 2003.

Amid this news, the National Trea­sury has been a fo­cal point for in­vestors, given the risk that pre­vailed through­out the year that South Africa could lose its in­vest­ment grade credit rat­ing from all three ma­jor agen­cies for the first time in 15 years.

How­ever, at the end of this year, Moody’s In­vestors Ser­vice, S&P Global and Fitch Rat­ings kept South Africa’s rat­ings at in­vest­ment grade, but it was a close call.

Dur­ing the year, the South African econ­omy dropped to third place in Africa, be­hind Nige­ria and Egypt.

GORD­HAN UN­DER FIRE

Fi­nance Min­is­ter Pravin Gord­han has been un­der fire from a num­ber of quar­ters, in­clud­ing SA Rev­enue Ser­vice com­mis­sioner Tom Moy­ane and the National Pros­e­cut­ing Au­thor­ity.

Through­out the year, it ap­peared as though the cold war be­tween Gord­han and Pres­i­dent Ja­cob Zuma and his prox­ies would never end but, by De­cem­ber, Gord­han was still in his post a year af­ter Nh­lanhla Nene was un­cer­e­mo­ni­ously fired from the same po­si­tion. A big fo­cus in 2016 was on Eskom and en­ergy sup­ply. The re­new­able en­ergy pro­gramme that has been run out of the de­part­ment of en­ergy has been hailed as a suc­cess and at­tracted al­most R200 bil­lion in in­vest­ment.

How­ever, this year, Brian Molefe, as Eskom CEO at the time, put a halt to sign­ing up new re­new­able en­ergy pro­duc­ers as he ob­jected to the prices they charged and he said they could not pro­vide con­tin­u­ous power sup­ply the way coal and nu­clear power sta­tions could.

Molefe, be­fore he ten­dered his res­ig­na­tion in Novem­ber, was a staunch sup­porter of plans to add ex­tra nu­clear power.

Af­ter the re­lease of out­go­ing pub­lic pro­tec­tor Thuli Madon­sela’s State of Cap­ture re­port, Molefe showed his up­set in pub­lic and ul­ti­mately re­signed, af­ter which Min­is­ter of Pub­lic En­ter­prises Lynne Brown ap­pointed Mat­shela Koko, head of Eskom gen­er­a­tion, as Eskom’s act­ing CEO.

IPPs AND THE NATIONAL AIR­LINE

The de­part­ment of en­ergy an­nounced the gas and coal in­de­pen­dent power pro­duc­ers (IPPs) dur­ing the year. The gas IPPs will be lo­cated in Coega and Richards Bay while the coal IPPs are Khany­isa, based in Mpumalanga, and the Lim­popo-based Thabametsi.

It was a rough year for SAA, with the national air­line bat­tling to get fur­ther guar­an­tees out of the National Trea­sury, while sus­tain­ing bil­lions in losses.

In the end, af­ter a new board was put in place, SAA re­ceived an ex­tra R5 bil­lion in state guar­an­tees to boost its to­tal guar­an­tees of al­most R20 bil­lion.

In Au­gust, SAA was hit with a R105 mil­lion fine, re­lated to the de­funct Na­tion­wide Air­lines, by the Com­pe­ti­tion Tri­bunal for con­tra­ven­tions of the Com­pe­ti­tion Act.

SAA is also be­ing sued by Co­mair for dam­ages for abus­ing its mar­ket dom­i­nance, in a claim that could reach R2 bil­lion once in­ter­est is fac­tored in.

The state air­line com­pany also ended up in court af­ter it sus­pended its treasurer, Cyn­thia Stim­pel, for blow­ing the whis­tle on a dodgy fi­nance deal in­volv­ing lit­tle-known com­pany BnP Cap­i­tal.

FUTUREGROWTH

Dur­ing the year, Futuregrowth As­set Man­age­ment, which man­ages R170 bil­lion in funds, de­cided to cut fund­ing to six paras­tatals be­fore re­duc­ing the cap­i­tal strike to just three of them – Eskom, Transnet and the South African National Roads Agency Lim­ited (San­ral).

Futuregrowth’s de­ci­sion caused Moody’s to put the credit rat­ings of five state-owned com­pa­nies on re­view but the agency later af­firmed the rat­ings of all of them.

San­ral is still bat­tling to get road users to pay for e-tolls, with bil­lions of rands in fees out­stand­ing.

EM­POW­ER­MENT AND TRANS­FOR­MA­TION

On the em­pow­er­ment and trans­for­ma­tion front in 2016, or­gan­i­sa­tions like the Black Man­age­ment Fo­rum and the Black Busi­ness Coun­cil lamented the fact that progress with em­pow­er­ment had re­gressed from the ad­vances of the past.

With the idea of boost­ing em­pow­er­ment, Zuma an­nounced this year that the Pref­er­en­tial Pro­cure­ment Pol­icy Frame­work Act would be re­pealed and re­placed with the Pub­lic Pro­cure­ment Act.

An­other pro­gramme to de­velop black cap­i­tal­ists is the de­part­ment of trade and in­dus­try’s Black In­dus­tri­al­ist Pro­gramme. At last count, the govern­ment had in­vested R1.4 bil­lion into the pro­gramme, for 22 projects.

On the pos­i­tive side, it emerged this year that South Africa’s black mid­dle class has tre­bled over the past 12 years to close to 6 mil­lion peo­ple.

The Broad-Based Black Eco­nomic Em­pow­er­ment Com­mis­sion is re­ceiv­ing ever more complaints, with 134 ob­jec­tions re­ceived so far by the com­mis­sion, the ma­jor­ity of them about fronting.

DROUGHT

The ef­fects of the dev­as­tat­ing drought con­tin­ued to plague the coun­try, push­ing up food prices.

How­ever, the prospects for im­proved food sup­ply in the com­ing months are good as there has been a switch from an El Niño to a La Niña weather episode in the Pa­cific Ocean, which means South Africa could see above-nor­mal rain­fall.

Else­where in the food sec­tor, the poul­try in­dus­try has been slash­ing jobs amid sharp drops in prof­itabil­ity due to higher feed costs and im­ports from the EU.

TELECOM­MU­NI­CA­TIONS

In the telecom­mu­ni­ca­tions in­dus­try, the big­gest news of the year con­tin­ued to be MTN’s bat­tle to lower the $3.9 bil­lion fine it re­ceived from the Nige­rian Com­mu­ni­ca­tions Com­mis­sion for un­reg­is­tered SIM cards. The tele­coms gi­ant man­aged to re­duce the fine to $1 bil­lion. As the year is clos­ing, it faces fur­ther trou­ble there due to al­le­ga­tions that it il­le­gally moved $14 bil­lion out of the coun­try.

Else­where in the tele­coms space, a high­light was the news that, six years af­ter launch­ing its mo­bile busi­ness, Telkom’s cel­lu­lar unit had turned an op­er­at­ing profit for the first time.

This fol­lows al­most R10 bil­lion in in­vest­ment in the mo­bile di­vi­sion up un­til the end of the Septem­ber and more than R7 bil­lion in op­er­at­ing losses from its launch in Oc­to­ber 2010 to March this year.

An­other note­wor­thy event in tele­coms was the Con­sti­tu­tional Court rul­ing that Vo­da­com was bound by an agree­ment with Please Call Me founder Nkosana Makate to com­pen­sate him for his idea. Vo­da­com and Makate re­main in talks about the size of the set­tle­ment.

SABMILLER IS NO MORE

The largest ac­qui­si­tion of the year was the $109 bil­lion takeover of SABMiller, which first listed on the JSE in 1897, by An­heuser-Busch InBev (AB InBev).

On the lo­cal mar­ket, AB InBev has not made any big moves yet, but watch this space.

Also on the al­co­hol front, the Liquor Amend­ment Bill was re­leased by the govern­ment and sug­gests that the le­gal drink­ing age be hiked from 18 to 21 years.

One of the big­gest storms of the year cen­tred around the many busi­nesses con­trolled by the Gupta fam­ily.

The real drama came when JSE-listed Oak­bay Re­sources & En­ergy lost its au­di­tor, KPMG; banker, Absa; and JSE-spon­sor Sas­fin shortly af­ter Deputy Fi­nance Min­is­ter Mce­bisi Jonas re­vealed that the Gup­tas had of­fered him the po­si­tion of fi­nance min­is­ter in 2015.

The other ma­jor banks then also cut ties with the Gupta fam­ily busi­nesses.

Amer­i­can fast food brands con­tin­ued to pour into the coun­try dur­ing the year, with Star­bucks, Dunkin’ Donuts, Krispy Kreme and Baskin-Rob­bins all open­ing their first stores in South Africa in 2016.

MIN­ING AND FI­NANCES

In the min­ing sec­tor, the ma­jor de­vel­op­ments were the events sur­round­ing the third min­ing char­ter, about which the govern­ment and the mines have been at odds.

As the year closes, the de­part­ment of min­eral re­sources is ex­pected to re­lease the fi­nal ver­sion of the char­ter with the Cham­ber of Mines threat­en­ing to chal­lenge any sec­tions of the char­ter its finds re­pug­nant.

An­glo Amer­i­can con­tin­ued on its path to sell mines in or­der to cut its debt and fo­cus on plat­inum, di­a­mond and cop­per op­er­a­tions.

The di­rec­tors of Aurora Em­pow­er­ment Sys­tems got their just deserts when the Supreme Court of Ap­peal dis­missed their ap­peal against a judg­ment that they should pay dam­ages and salaries to some 5 300 mine work­ers who were once em­ployed by them.

Khu­lubuse Zuma agreed to pay R23 mil­lion in dam­ages to the Pamodzi and Aurora liq­uida­tors while the Bhana fam­ily mem­bers, who were in­volved in the de­struc­tion of Aurora, were se­ques­trated.

Dur­ing the year, mine work­ers and their de­pen­dants gained the right to sue the min­ing in­dus­try for dam­ages re­lated to sil­i­co­sis and tu­ber­cu­lo­sis.

In Mpumalanga, the Lily gold mine re­mains shut and un­der busi­ness res­cue af­ter a sink­hole trapped three min­ers un­der­ground. Ten­sion be­tween mines and com­mu­ni­ties made the news this year with Xolobeni on the Wild Coast and Richards Bay be­ing key fo­cal points of com­mu­nity out­rage.

Af­ter mak­ing bil­lions in losses and go­ing bank­rupt, a new African Bank was launched, with new share­hold­ers and plans to turn a profit. Dur­ing its first six months, the bank re­ported a loss of R1.7 bil­lion, which ev­i­dently means it has some way to go.

On the tax front, two new and con­tentious taxes loom on the hori­zon – the sugar tax on bev­er­ages and the car­bon tax.

Given the stag­nant econ­omy, National Trea­sury is ex­pected to an­nounce a hike in taxes in Fe­bru­ary next year to gen­er­ate an ex­tra R28 bil­lion in tax rev­enue.

In the bank­ing and fi­nan­cial sec­tor, Old Mu­tual an­nounced that it would be split into four pieces, Bar­clays sold its stake in Absa down to just above 50%, and Capitec con­tin­ued to grow at break­neck speed and launched a credit card.

RE­TAIL AND HOS­PI­TAL­ITY

In the re­tail sec­tor, ail­ing re­tailer Ed­con spent the year try­ing to get it­self out of a moun­tain of debt.

The ma­jor debt re­duc­tion event was the move by US pri­vate eq­uity firm Bain Cap­i­tal to for­feit its stake in a deal that saw Ed­con’s bond hold­ers be­come its share­hold­ers, while at the same time debt is set to fall from R29 bil­lion to R7 bil­lion once the deal is im­ple­mented next year.

An­other big event in the re­tail sec­tor was the news that Sho­prite CEO Whitey Bas­son would re­sign at the end of 2016 af­ter 37 years as the head of the re­tailer.

Of sub­stan­tial sig­nif­i­cance in­ter­na­tion­ally in 2016 was the UK ref­er­en­dum that de­cided that the UK would exit the EU, also known as Brexit. Philip Ham­mond, UK chan­cel­lor of the ex­che­quer, later vis­ited South Africa to al­lay re­lated fears among lo­cal politi­cians and busi­ness peo­ple.

Trans­porta­tion com­pany Uber cut its lo­cal fares this year, but came un­der fire both from the driv­ers who use its app and its ri­vals. Uber later in the year launched its UberEats app, which al­lows the or­der­ing of meals for de­liv­ery.

Also on the shared econ­omy front, two do­mes­tic worker apps, Domestly and Sweep­South, ex­panded out of their home bases in Cape Town.

In the ho­tel sec­tor, Carl­son Rezi­dor an­nounced plans to spend R1 bil­lion on three new ho­tels in South Africa, while Mar­riot launched five at a cost of R3 bil­lion.

Pol­icy around the national min­i­mum wage un­folded, with the pro­posed level set to be R3 500 a month.

The ef­fects of the dev­as­tat­ing drought

Pravin Gord­han

Khu­lubuse Zuma

Brian Molefe

Lynne Brown

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