Busi­ness must speak up

Financial Mail - Investors Monthly - - Contents - MARC HASENFUSS

In­cred­i­ble, isn’t it … to hardly hear the dis­tant din of things fall­ing apart over the rous­ing cheers of the mar­ket as the JSE’s all share in­dex swirls around the 54 000 point mark.

The vi­brant JSE is a wel­come dis­trac­tion in th­ese tremu­lous times, and pun­ters would no doubt be de­lighted to hold po­si­tions in the large “global” in­dex con­stituents like SAB-Miller, Naspers, Richemont, BAT, MTN, Stein­hoff and Aspen.

One has to pon­der whether the pre­mium rat­ings ac­corded to some of the global list­ings are not a very dire pro­nounce­ment on the lo­cal econ­omy. Af­ter all, it could be ar­gued that a will­ing­ness to pay steep earn­ings mul­ti­ples for off­shore ex­po­sure means lo­cal in­vestors are do­ing their damn­d­est to hedge against the lo­cal econ­omy, af­flicted by a brittle rand, frac­tious labour re­la­tions and — most wor­ry­ingly — a sput­ter­ing en­ergy util­ity.

If the surg­ing JSE of­fers in­vestors a place where they are in­su­lated from the eco­nomic re­al­i­ties of SA, then at least the un­for­tu­nate events at Evraz High­veld Steel & Vana­dium could not have been bet­ter timed.

Evraz, caught in a scyth­ing steel cy­cle, re­cently threw in the towel and opted for busi­ness res­cue. Of course, no one wants to jinx ef­forts to sal­vage one of the JSE’s stal­wart heavy industrial list­ings, but the suc­cess rate in busi­ness res­cues among listed coun­ters does not throw up any en­cour­ag­ing statis­tics.

But the melt­down at Evraz co­in­cides omi­nously with gov­ern­ment re­it­er­at­ing plans to cre­ate 100 black in­dus­tri­al­ists be­fore Pres­i­dent Ja­cob Zuma’s term closes.

It would be won­der­ful to see emerg­ing black in­dus­tri­al­ists, backed by the Industrial Devel­op­ment Cor­po­ra­tion, rush­ing to the res­cue of Evraz. But pre­vail­ing eco­nomic con­di­tions prob­a­bly de­mand cir­cum­spec­tion, even if there is an abun­dance of po­lit­i­cal will.

In fact, the industrial land­scape ap­pears rather bleak th­ese days.

Evraz, once con­trolled by com­mod­ity con­glom­er­ate An­glo Amer­i­can, was in the 1980s and early 1990s re­garded as one of the many com­pelling heavy industrial busi­nesses. In the days be­fore the list­ing of the old Is­cor, Usko and High­veld were the stal­wart steel mak­ers on the JSE.

Un­til 1995 the JSE was still pop­u­lated with a good num­ber of spe­cial­ist industrial busi­nesses, in­clud­ing Stan­dard En­gi­neer­ing, Lenco, Dor­byl, BTR Dun­lop, Dar­ling & Hodg­son, Bolton Industrial, NEI Africa, Long­mile, For­ward Cor­po­ra­tion and Otis El­e­va­tor.

It’s not so much how the num­bers have thinned out, but that some of the tough­est con­tenders have ca­pit­u­lated in re­cent years. Once a lead­ing en­gi­neer­ing con­glom­er­ate, Dor­byl could not find trac­tion with a much scaled down industrial of­fer­ing. More re­cently Delta EMD, which sup­plies the bat­tery in­dus­try, also opted to close what were once vig­or­ous op­er­a­tions.

With this edi­tion’s cover story on share­holder ac­tivism, per­haps it is time to con­tem­plate a bout of busi­ness ac­tivism.

Clearly the un­cer­tainty over the power gen­er­a­tion ca­pa­bil­i­ties of Eskom is a huge hin­drance to strate­gic plan­ning, the drawing up of cap­i­tal ex­pen­di­ture regimes and po­ten­tial cor­po­rate ac­tion.

Busi­nesses can prob­a­bly sur­vive rigid labour reg­u­la­tion, changes to em­pow­er­ment own­er­ship cri­te­ria and a volatile rand.

In­dus­try, how­ever, can­not sur­vive if its power source fiz­zles at a mo­ment’s no­tice.

While the re­spected Brian Molefe’s ap­point­ment at Eskom sug­gests a new (eco­nomic) re­al­ism from gov­ern­ment, there are still chal­leng­ing years ahead in terms of se­cur­ing re­li­able power sup­ply to in­dus­try.

CEOs do grum­ble in their com­men­tary on fi­nan­cial re­sults about Eskom’s drag on op­er­at­ing per­for­mances. Surely, though, the time has come to for­malise an ap­proach to gov­ern­ment with a view to en­sur­ing ac­count­abil­ity on nur­tur­ing an eco­nomic plat­form that is em­pow­er­ing for industrial par­tic­i­pants?

Some frus­trated eco­nomic par­tic­i­pants have even ar­gued for a tax boy­cott, which would en­tail pay­ing taxes into a trust fund un­til gov­ern­ment sat­is­fac­to­rily ad­dressed the Eskom is­sue.

That’s never go­ing to hap­pen. Still, busi­ness can’t main­tain a dis­grun­tled but pas­sive stance, and what might be re­quired is a mus­ter­ing of in­flu­en­tial busi­ness per­son­al­i­ties (Pa­trice Mot­sepe, Brian Joffe, Jo­hann Ru­pert and so on) to ad­vance on gov­ern­ment with a mission to clear up eco­nomic un­cer­tain­ties.


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