This article was first published in the latest issue of the Moneyweb Investor. To read the magazine click here.
I’ve recently had the pleasure of spending some time in Amsterdam. I find spending time out of South Africa always lends a sense of perspective. For a start, its late spring weather left a lot to be desired when compared with Cape Town’s glorious autumn weather. But I also noticed that in Europe crime is on the up, racism is increasing and the effectiveness of government is decreasing. We are not the only ones with problems.
On returning home I couldn’t help reflecting that life in South Africa is not as bad as we tend to tell ourselves. Yes the politics is toxic, the economy is growing at 0.5% and racism remains massively polarising. We have our share of challenges.
That said, there is nothing to beat a genuine smile from a Home Affairs official when they say “welcome home”.
Yet as the thrill of travel fades, I have become as despondent as some of my fellow countrymen and women. Recently my housekeeper announced with pithy disgust that she will not be voting. When pressed she said because “nothing changes – the poor get poorer and the rich get richer”. The working class – on all social rungs – is dissatisfied with its lot for one reason or another.
At the same time the shoulders of the unemployed on the side of the road sag with every passing day, and no one really cares.
And our students – the elite in our society – remain angry.
So it was with this cloak around my shoulders that I was struck by the business news headlines recently – they seem to reflect a different country. Consider these headlines:
- Tiger Brands’ profit jumps on turnover growth;
- Payout to Tsogo Sun shareholders up 12% a share;
- Ascendis Health: Europe is calling;
- Brait net asset value up 80%;
- Investors back Curro’s R1 billion rights offer;
- Foschini Group wears the season well
What is going on? These results do not seem to reflect an economy on the brink of recession. Are things really as bad as they seem? The Ascendis deals are astonishing – the combined value of the two acquisitions is R7.3 billion. That is more than the company’s current market capitalisation. Credit must go to that management team.
A closer look suggests that while many big companies are delivering acceptable results, it is inflation or foreign remittances rather than local consumer demand that is driving growth.
Consumer demand is fragile at best. However, I think big listed business is always going to be okay. Many of our listed firms are geographically diversified and others are vertically and horizontally integrated, which means those at the top control much of the value chain. Think Tiger Brands, Pioneer, Famous Brands, Shoprite. When things get tough they cut back in a bid to become efficient. This means retrenching people. Trade union Solidarity is fighting this battle tooth and nail. The latest company to suggest restructuring is Netcare, which in May reported a currency-assisted 11% rise in half-year profit.
The companies that are battling are the small ones that skirt around the outside of the value chain fighting for scraps. A recent survey from Deloitte on business restructure, suggested that 80.6% of restructuring teams expect an increase in activity in the next 12 months.
We are facing some of the strongest headwinds of the democratic era – but there will always be growth and profit for innovative and hard-working companies – large and small. Specifically those in sectors such as food, communications, education, health and food nutrition, apparel, energy and specialty chemicals. Resources including mining, agriculture and construction are still at risk of being in distress in the next year.
The problem with the uneven and patchy growth that we are seeing is that the rich (shareholders) get richer and the poor (workers) get poorer. And that is not a great recipe.
However, I take some heart from the fact that behind the scenes there is an unprecedented level of cooperation between senior business leaders, labour and government in a bid to pull the economy right. In our cover story this month we ask whether this is enough to rescue the situation. As the article points out, the good people in business, labour and government are battling “malevolent forces” in parts of government and and I pray that what is for the good of the country triumphs over self-serving greed.
On another note, I have a request: We are bringing you the 14th issue of the Moneyweb Investor this month. Many of our readers engage with us directly – last month’s interview with a forex trader was a direct result of reader interest.
Please keep the comments and story suggestions coming on firstname.lastname@example.org.