Boardroom Talk Podcast: Alec Hogg

Alec Hogg looks at the economic news of the week, and says that SA must be ready to fight.

MONEYWEB [Felicity Duncan]:  Good afternoon and welcome to the Moneyweb Boardroom Talk podcast this Thursday the 28th of May.  I’m Felicity Duncan and I’m going to be chatting about the news of the week with Moneyweb editor-in-chief, Alec Hogg.  Alec, let’s just kick off, you just got back to Joburg today?

ALEC HOGG:  Hmm, I’ve been travelling a lot, as you know, and I think a little while ago you wrote something to say that travel broadens the mind.  Well it certainly does and I wonder why the people in Durban are getting so antagonistic lately.  It’s interesting, I’ve been to Durban maybe three or four times in the past month and when the locals have something to drink and they relax and they get to know you a bit better, they tend to tell you the things that are really bugging them and right now what’s really bugging people in Durban are the change in the street names.  In Durban North apparently – well just about every street name in Durban has been changed and it’s not just to names of people who were instrumental in the struggle, which you can understand, but as one of the guys said to me last night over dinner, he said, what has Che Guevara really had to do with Durban?

MONEYWEB:  Is there a Che Guevara street in Durban?

ALEC HOGG:  There is indeed.  There’s a Samora Machel street as well – I don’t think he ever visited Durban – and there are many of these strange names and there’s been no attempt to say why particular people who are being honoured in this way, who they are.  So there’s a whole lot of unknown people, not even on the Durban city website, and the locals believe that it’s Michael Sutcliffe who is the city manager, who has got some very good sides to him, but he’s got some very antagonistic sides as well, that he’s kind of gone against everybody’s concerns and they say there’s a third political party in Durban now which is the media who are continuously carping at Mr Sutcliffe.  So you come back from a place like that with mixed feelings.  Why the politicians have to antagonise, and you’re thankful to be living in Johannesburg where, you know, there still is a Jan Smuts Avenue – he was a great South African, whether he was white or whether he was a colonialist or a boer actually, which he was, that seems to be fairly irrelevant, here in this city the pettiness of that kind of fight has been left behind, thank goodness!

MONEYWEB:  And it’s a great relief.  I’m on Fourth Street – I would hate to have to suddenly live on Che Guevara Street.  Looking at the week, it was quite a lot of big news, two main stories.  Let’s pick up with the first which was the shocking GDP figures, a 6.4% contraction in GDP in the first quarter of the year, way ahead of expectations.

ALEC HOGG:  It was, and we thought that we dodged a bullet.  When I say “we”, as South Africans, because remember in the fourth quarter of last year, the annualised decline in gross domestic product in South Africa was only 1.8%.  That was negative for the first time in many years, but still it looked like, compared with 6% in America and 15% in Japan, that we were doing pretty well.  Well unfortunately not anymore and one is reminded of the fact that South Africa’s economy is $300bn, that’s the size of our economy – America’s economy is $14 300bn.  So you are talking of a factor of at least 50 of the size of America to the size of South Africa.  We are a cork on the ocean, we are a taker of what happens elsewhere and this is now another example – we’re not going to dodge any bullets.  The rest of the world is in a very difficult place at the moment and likely to stay there for some years.  Unfortunately for South Africa, we now know that we’re going to be there as well.  The good news is that our economy is being well managed, we don’t have too much debt, we’ve got interest rates which can still be reduced and there is a contra cyclical infrastructure programme in place.  So all round we’re in a better position than just about any other country in the world, but it doesn’t mean that things are going to be milk and roses.

MONEYWEB:  It’s interesting you mention the capacity we have to cut interest rates.  What do you think – Tito Mboweni is giving his speech right now – what do you think we’re going to see and is it smart, are we doing the smart thing by cutting rates to stimulate the economy?

ALEC HOGG:  Oh there’s no question that interest rates will be cut quite sharply again today and will continue over the next few meetings of the Monetary Policy Committee.  We’re in the position where we are able to do this.  The only question-mark against it has to be, will the rand take a hit as a consequence?  If that were to be the case, if the rand were to come under pressure because interest rates in South Africa were falling too fast, then you would have a reason for perhaps saying to Mr Mboweni, “Take it easy”, but the way that the Americans are printing money at the moment and the way that we aren’t, suggests that the rand will remain stronger for longer in this global environment ……

ALEC HOGG:  … and that the danger of having a currency that comes under pressure because of declining interest rates, is very limited.

MONEYWEB:  And that, obviously the rand and its relative strength, plays an important role in our current account which is another thing that we worry about a lot.

ALEC HOGG:  Ja, we mustn’t forget that, we have this massive infrastructure programme of a trillion rand and a lot of that is being imported.  So if the rand were to go from eight, where it is at the moment, to ten, that means you just simply pay 20% more for all of the equipment that you’re importing for our infrastructure boom.  So instead of it costing us a trillion rand, it costs us R1.2trn rand, which eventually you, myself and our children and our grandchildren will be paying for through higher taxes and higher government debt.

MONEYWEB:  Looking at some more news that we also heard this week about the gold production.  Now, gold is a key export for South Africa, it really fills a big hole in our current account by giving us those dollars and the news wasn’t great.

ALEC HOGG:  No, South Africa’s gold production continues to slide and it is a combination of primarily higher costs, but on the other hand, of the rich seams being mined out.  South Africa has got lots and lots of gold.  There’s no question that if the gold price were to go to $2 000/oz, South Africa would quite quickly become the world’s biggest producer of gold again, provided that labour costs don’t shoot up in the way that they have.  But we’ve had a situation in our country where because the costs have been rising much faster than inflation over a period of time, we’re becoming less and less competitive and gold that could perhaps be mined elsewhere or the richness of seams that could be mined elsewhere at a profit, here can’t be mined at a profit and as a consequence the miners are having to go to the remaining ore bodies that are richer and our gold production is down 10% on the previous quarter, roughly 5% year on year.  And what is concerning about that was that the miners, as you will remember in the first quarter of last year, were complaining bitterly because that was the quarter when Eskom had all of its power problems.  So we’re coming off on a really low base and we’re down another 5%.  South Africa has now slumped to number three in the world, well behind China and even behind the United States.

MONEYWEB:  Scary stuff!  On a much more positive front though, after these dismal GDP numbers, we had some exciting news from MTN.  On Monday they announced that they were looking at a deal with Indian [indistinct] giant, Bharti.

ALEC HOGG:  It is fascinating.  It’s good for South Africa in many ways that our champions are up there in world-class and even being talked to by other big players.  It’s also fantastic for South Africa that this relationship with India is strengthening.  If you have a look at this country’s history in the past, certainly up until 1994, it was very north and west focused.  It’s become increasingly east focused and that’s where you want to be, because going back to those GDP figures, America’s contracting at the moment at 6%, China is growing at 6% and if you think about it, if you’re an exporter who is selling products into the United States, it is so much more difficult today to get your products bought, whereas if you were selling it into China, of course it’s a lot easier to do it in a growing economy.  And India being the second powerhouse behind – it’s not exactly a powerhouse yet, but it certainly has the people and the capacity to become a powerhouse – with those ties and relationships that go beyond the Mahatma who of course was educated in South Africa, came here as a young man and left – they say he came here as a young lawyer and left as the Mahatma – well that was something that maybe is exaggerated and maybe it’s a South African spin on it, but there is that relationship and the relationship between India and South Africa, as it strengthens, can only be to this country’s benefit in the future.

MONEYWEB:  And what is your position on, you know, if the intended deal goes through, that will mean that all three of our big cell phone operators are majority owned or the controlling stake is owned by foreigners – does that worry you at all?

ALEC HOGG:  No, that should be seen as a very positive step and the reason for that is that if you have a siege economy as South Africa had, where South African owned businesses make the rules, there’s just so much more opportunity for them to collude.  Now if you have massive multinationals fighting over what is a fairly small area of the global economy, they will be bringing the best possible deals, they will be bringing a whole lot of new ideas here.  It is a very good thing to have business that is globalised.  It’s not always a good thing to have politics that is globalised, but if you can think global and think local and act global in a business sense, it really does help the consumers.  We know that SEACOM’S cable landed today.  The switch-on is only a month away.  That’s going to bring South Africa even more into the global environment.  It can only be a good thing, for a range of reasons, and to me the more we see these massive deals being conducted where South Africans get the benefit of operating to global prices rather than profiteering by locals, the better.

MONEYWEB:  That’s all we’ve got time for, but please join us again same time, same place, next week.  Thanks for listening to this Moneyweb Boardroom Talk podcast.

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