There are still opportunities for South Africans to start businesses despite the recession, says Siphethe Dumeko, chief financial officer at start-up lender Business Partners.
South Africa's economy shrank by 2,2% in the first quarter, and 0,7% in the second quarter of 2018, landing the country in a recession.
Dumeko said that entrepreneurs starting companies will, however, face an uphill battle.
“Procuring capital to start a new venture is predicted to become increasingly difficult, as the majority of funding institutions are expected to adopt an increasingly risk-averse stance,” Dumeko said.
Still, Dumeko believes three sectors could prove recession-proof for entrepreneurs.
“In spite of the continued underperformance of the country’s economy in recent years, private security has become an R45 billion industry with a growth rate of 15 percent per annum,” Dumeko said. He said this is because, during a time of economic recession and uncertainty, individuals tend to be more risk-averse.
Dumeko said, as morbid as it might sound, that businesses offering services related to death, including funerals, cremation, burial, and memorials, are usually some of the most recession-proof operations. “Deathcare services usually have a steady stream of business, regardless of the economic climate,” he said. South Africa’s funeral industry is estimated to be valued between R7.5 billion and R10 billion.
Despite economic pressures, the underperforming public education sector has fuelled demand for alternatives, Dumeko said. It is also reported, he said, that South Africa is experiencing skills shortages in almost all of its sectors, emphasising the need service providers that offer more effective, affordable and accessible adult education. “Businesses that offer accredited online training platforms have especially seen increasing interest in South Africa, as well as on the rest of the African continent.”
Although South Africa’s poaching levels fell slightly 1,028 rhino were poached in 2107. We lose up to three rhino a day to poaching; if this rate continues the species will be extinct by 2025. (Jay Caboz)
Reopening the trade on rhinoceros and tiger parts is looking more and more like a betrayal across two continents.
China has defended its move to allow such trade for the first time in 25 years, but conservationists are appalled.
According to a South African wildlife photographer and investigator, the fix is in-between China and South Africa's Wildlife Department - the professionals who are supposed to be protecting the endangered animals.
China has quickly found itself on the defensive after copping a flurry of global hate mail over its remarkable decision to betray a long-standing ban on the rhinoceros horn and tiger bone trade.
The state Council - the cabinet of the Chinese government and the power base of Premier Li Keqiang - made public a decision to permit the controlled sale of rhino and tiger products, tossing out a 25-year ban and seemingly walking back on China's recent commitments to wildlife protection.
Only last year China finally banned the trade in ivory, extending a much-needed lifeline to endangered species.
It seemed like a landmark moment after years of being kicked about for running amok with animal welfare. Here was an example of China adopting a path of engagement on universal values through multinational consensus.
But on Monday, the legislative body quietly announced that limited trade in body parts obtained from "farmed rhino and tigers" would be OK to use for scientific, medical, and cultural requirements, according to Agence France Presse.
The Council announced:
"Rhino, tigers and their related products used in scientific research, including collecting genetic resource materials, will be reported to and approved by authorities. Specimens of skin and other tissues and organs of rhino and tigers can only be used for public exhibitions.
Rhino horns and tiger bones used in medical research or in healing can only be obtained from farmed rhino and tigers, not including those raised in zoos. Powdered forms of rhino horn and bones from dead tigers can only be used in qualified hospitals by qualified doctors recognised by the State Administration of Traditional Chinese Medicine."
Needless to say this is bad news if you are a rhino or a tiger.
A few years back, the price for rhino horn peaked at around $65,000 (about R950,000) per kilogram. That makes it more valuable than gold and many times more valuable than elephant ivory.
Opening trade and creating a demand will most likely place pressure on supply, risking sourcing moving beyond farmed animals to the remaining endangered populations.
While the council did not specify what those medical, cultural or scientific requirements might be, it is widely understood the high restorative value Chinese-medicine practitioners place in the powdered or condensed forms of exotic animal parts. The rhino horn and tiger parts have obvious connections to virility and strength and have been used without Western scientific basis on ailments from back pain to arthritis.
The horn is made of keratin, like human hair and fingernails, but has been associated with a salve for fever, a miracle cancer compound and a very costly and roundly ineffective hangover cure.
Of course, what drives its ongoing value and desirability is its potency as a status symbol.
The foreign ministry spokesperson Lu Kang said on Tuesday that China's 1993 ban on rhino horn and tiger bone products did not take into account the "reasonable needs of reality," adding that China has improved its "law enforcement mechanism."
Those comments have been edited out of Kang's.
Unsurprisingly, animal advocates have been stupefied by the decision to open trade up for scientific research, education, and medical grounds.
"The resumption of a legal market for these products is an enormous setback to efforts to protect tigers and rhinos in the wild," Margaret Kinnaird, of the World Wildlife Fund (WWF), said in a statement on Monday.
And Iris Ho, a senior programme specialist at the International Humane Society said the Chinese government "has signed a death warrant" for imperilled rhino and tigers.
"This is a devastating blow to our ongoing work to save species from cruel exploitation and extinction, and we implore the Chinese government to reconsider."
But perhaps the most deflating critique came from the South African writer, investigative journalist, and photographer Don Pinnock, who connected the timing of China's lifting of the ban with a desire in South Africa's Department of Environmental Affairs to eke out some wiggle room for itself on wildlife trade.
"Could it be synchronicity or careful planning that this week saw China announce that it would legalise domestic trade in antique tiger bone and rhino horn - reversing a 25-year-old ban?" he wrote in an article published by Daily Maverick.
By opening to the trade on bone and horn products from captive-bred animals, Pinnock reckons the very officials in place to protect animals at the source, are eyeing potential profits out of China.
"The department's approach is what it calls "demand management.' It sounds smart, but it's nuts."
While there are a seeming handful of rhino left in the wild, South Africa and other African governments have encouraged the private farming of animals like the rhino and tiger.
The World Wildlife Fund says there are fewer than 4,000 tigers living in the wild, but there are some 6,000 captive tigers, farmed in about 200 government-sanctioned locations across China.
"Selling legal horn will signal that it's ethically okay to buy it, boosting sales. The stocks of the few rhino farmers and sale of state stockpiles would soon be overwhelmed and poaching of wild rhinos - already shockingly high - would rise."
The only sensible approach to this problem is to reduce demand in every way possible.
"Without detailing how it intends to do so, the department told South Africa's parliament it would instead attempt to manipulate Asian consumer behaviour to choose legal horn over poached horn. Plans for this mammoth PR task were not in evidence, but maybe the department knew China planned to legalise bone and horn sales - we also sell China lion bones," Pinnock added.
What appears to be happening at the other end of China's trade link, is the South African wildlife department is angling to increase the sale of rhino horn with one hand while coming down on poaching with the other - eliminate illegal trade, but at the same time, stimulate a parallel legal market.
In simple terms, stop the bad guys so the good guys can make a profit.
JOHANNESBURG - President Cyril Ramaphosa says the money pledged at the Investment Conference will translate directly to more jobs in the sectors that contributed.
President Cyril Ramaphosa declared the conference an overwhelming success that will yield thousands of jobs for the people of South Africa.
At the end of the conference on Friday, Ramaphosa announced a combined amount of R290 billion in investments In South Africa.
Over 1,000 local and international investors attended the conference at the Sandton Convention Centre.
Anglo American, the Brics Development Bank and automotive traders were the big contributors, investing R71 billion, R29 billion and R40 billion, respectively. Vodacom announced R50 billion in investment.
President Ramaphosa says prominent among these announcements are the themes of beneficiation, innovation and entrepreneurship.
“The number of new jobs and people who will be employed is going to be phenomenal and unprecedented in the history of our country.”
He says the country has battled with bringing in investment to generate growth.
South Africa packed 16.4 million cartons of grapefruit for export, end-of-season numbers show, an all-time record that will help keep it the top global supplier.
But SA's dominance has a lot to do with other countries cutting back on grapefruit growing because it has not been profitable in recent years.
A reduction in American marketing spend has seen grapefruit's popularity fall in Japan, but Chinese consumption is more than making up for that.
In the 2018 year South African growers packed an all-time record of 16.4 million cartons of 17kgs each of grapefruit for export, end-of-season numbers from the Citrus Growers Association (CGA) show.
That will easily be enough to keep SA ranked as the top exporter of grapefruit in the world, and essentially the only southern hemisphere supplier for high-demand markets in Europe and the East.
But that record could still come back to haunt the farmers responsible for the bumper crop.
"It could be that some fruit that should have stayed at home were exported."
The price reconciliation for the exported fruit will only be available late in the year, but early indications are the grapefruit prices were down around 27% in Europe compared to an average of the last three years, and there are reports of even more depressed prices.
And grapefruit wasn't exactly been a huge profit spinner to begin with.
"Grapefruit as a commodity went through many years of negative returns," says Chadwick. "For quite a few years it has been a marginal if not risky crop to grow."
While farmers in the likes of Argentina and Swaziland pulled out grapefruit in favour of crops with better returns, a surprisingly large number of South Africans stuck with it, in part because grapefruit are harvested early enough to not interfere with the harvesting and packing of oranges and other citrus.
In 2018 that translated into 70,000 tonnes of grapefruit exports to the Netherlands, the usual top buyer of SA's exports, an increase of 11% over 2017. Japan, last year's second-biggest importer, was easily overtaken for the number two slot as exports to China more than doubled to 51,000 tonnes.
In some eastern markets, particularly South Korea, South Africa has benefited from big marketing drives by growers in Florida keen to popularise grapefruit, Chadwick said. Such investments have been dwindling of late, and that shows in markets such as Japan, but for the time being at least the Chinese appetite is masking such declines.
Now the question is whether South African growers exported smaller fruit than they arguably should have to feed that demand, so pushing down prices and final profits across the board.
That's the problem with having a hemisphere – and a growing season – pretty much all to yourself, said Chadwick.
"If the market is bad, we have only ourselves to blame; nobody else is playing."
So far this year, tax collections seem to be much stronger than expected, which may mean that South Africans will be spared big tax hikes in February’s Budget, says PricewaterhouseCoopers (PwC).
In recent years, government earned much less tax than it expected: the tax shortfall in its budget reached R49 billion last year.
This resulted in massive tax hikes over the past two years. In the Budget this year, South Africans were hit with an estimated R36 billion in new taxes.
“For the first time in a number of years it is looking likely that further significant tax increases may not be required in the February Budget, something that the government would want to avoid in an election year,” says Kyle Mandy, tax policy leader at PwC.
“The good news is that revenue collections for 2018/19 are looking surprisingly good (compared to forecasts) based on the data available to the end of August, despite the economy being in a technical recession,” says Mandy.
As at the end of August, total gross tax income was up 11.2% compared to a forecast increase of 10.6%, suggesting collections are on track to exceed the budget revenue forecast in the year ending March 2019.
This is largely due to strong VAT income, which grew by 19.5% by August, compared to the budgeted growth of 16.8% for the year, said PwC.
VAT was hiked from 14% to 15% in February. Import VAT, which is growing at almost 15% - almost double the forecast growth – is also contributing. And income from the fuel levy, which currently represents some R3.37/litre of the inland petrol price of R17.08, is supporting tax income.
Personal income tax, the single largest source of tax revenue, is looking on track to meet the forecast. Mandy says that this is due in part to the higher-than-budgeted public service wage agreement, which will add R7 billion to the government budget.
“This is not a reason to celebrate as it will be net negative for the budget balance unless steps are taken to keep expenditure within the expenditure ceiling set out in the Budget.”
It is clear that companies are struggling: by August, corporate income tax was up only 2.8% compared to a forecast of 6.5%.
“The big question is what the outlook looks like for the rest of the financial year. Unfortunately, it is difficult to see much in the way of upside, but plenty in the way of downside risks to the forecasts,” Mandy warns.
Risks to tax income:
Personal income tax should remain stable for the rest of the year, but corporate income tax could come under more pressure as company profits suffer.
Tax income could be hurt even more if government announces in the mini-budget next week that white bread, sanitary products, school uniforms and nappies will be VAT-free from now on. An expert panel has recommended that these products should be free from VAT. This could shave off up to R6 billion in tax income.
The South African economy is in the midst of its longest business cycle downturn in more than 73 years, according to the Reserve Bank, and things aren't looking particularly favourable right now either.
The adverse business climate has impacted the stock market too this year, seeing listed companies declining year-to-date on the whole.
According to analysis done by Corion Capital, a boutique hedge fund manager, 60% of listed counters had depreciated by the end of September, with more than a third slumping in excess of 15%. Only 16% of the stocks in the All Share Index gained more than 15% this year to end-September.
Topping the list of poor performers are Tiger Brands, off more than 40%, two healthcare companies, Aspen and Mediclinic, MTN, and Woolworths.
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
Performance of the top 40 JSE shares. Tiger Brands and Aspen were the biggest losers, while Sasol and BHP Billiton were the top performers. (Corion Capital)
And the sharp sell-off has continued into October, with only the Resource Index managing to gain ground last week and the Banks Index hardest hit, losing 7%.
Garreth Montano, a director of Corion Capital, puts the bout of negativity swamping investor sentiment this year down to:
- Low GDP growth. South Africa has unfortunately missed out on a resurgence in the world economy and has been left well behind in terms of GDP growth. The reasons behind the sluggish performance of the domestic economy can be debated at length, but many view the Zuma era as a large contributor to the underperformance of SOEs, heightened corruption, lack of job creation and lack of investor confidence in attracting foreign direct investment.
- The land debate and mining charter have further dented prospects of new investment, which would aid growth as well as assist in creating new jobs. All of which are dearly needed.
- Many commentators believe that president Ramaphosa’s hands are tied until general elections, and the righting of the ship and benefits to the economy will start gaining momentum once there is more clarity around the land issue and elections are behind us.
To add to these internal challenges, emerging markets, as a whole, have had a difficult 2018, being largely led down by the crises in Turkey and Argentina. Trade wars have also had a negative effect, creating concerns about a drag on emerging markets exports due to potential for tariff impositions by the US, Montano says.
Locally the negative sentiment towards broader emerging markets has played out in large outflows fromn our bond market, as well as foreigners selling off equities, says Montano. Last week almost R6bn alone was taken out of South Africa by foreign investors.
These disinvestments have also played out in currency markets, driving the rand dramatically lower to more than R15 to the dollar at stages compared with its peak of almost R11.50 in February this year.
A small business incubation programme that is supported by by Rand Merchant Investment Holdings is looking for entrepreneurs who aim to disrupt financial services.
A total of 16 businesses will be selected to pitch for eight places on the AlphaCode Incubate programme of twelve months. The eight businesses will each get R1 million in grant funding as well as R1 million worth of support including mentorship, exclusive office space in Sandton, marketing, legal and other business support services as well as access to RMI’s networks.
The businesses must be no older than two years and must be 51% black owned and managed.
The competition is open to businesses across the financial spectrum including payments, insurance, savings and investments, advisory, data analytics and blockchain.
"We want to help take courageous entrepreneurs with seriously disruptive financial services business models to the next level," says AlphaCode head, Dominique Collett.
In partnership with Bank of America Merrill Lynch South Africa and Royal Bafokeng Holdings, AlphaCode Incubate has disbursed R13 million to 15 black-owned businesses over the last three years
Entries can be done on the competition website. The first round of applications closes on August 31.
Cape Town - The South African Human Rights Commission has said that economic challenges that prompted the VAT and fuel levy hikes announced in the budget could have been averted if the government had earlier demonstrated better management of the economy and clamped down on corruption.
“Public and private sector corruption, according to the Auditor General, a fellow Chapter 9 Institution, costs the nation billions on an annual basis,” it said.
The commission, a national institution established to uphold constitutional democracy and human rights, said it believed a “significant portion” of the economic challenges facing SA could have been avoided had the state “demonstrated better management of the economy and demonstrated an intolerance toward corruption, inefficiency and maladministration”.
In his maiden budget delivered on Wednesday, Finance Minister Malusi Gigaba announced that VAT would increase by one percentage point from 14% to 15%.
The current zero-rating on foods including maize meal, brown bread, dried beans and rice would remain, and “limit the impact on the poorest households”.
The SAHRC said it was “deeply concerned” that the VAT rate would go up, saying it was a tax that impacts the poor the most.
According to the budget, it is expected to bring in R22.9bn in additional revenue in the 2018/19 financial year.
“Further, the SAHRC is also concerned with the increase in the fuel price through the introduction of a 52 cents per litre fuel levy,” it said. “This increase in fuel price particularly impacts on the poor as it affects the price of public transport and the price of goods as the vast majority of goods sold to the public are transported on the road.”
The commission also acknowledged that the budget was a “complex and difficult balancing act”, saying it was “fully aware” of the difficulties in limiting expenditure while collecting revenue through taxes and stimulating economic growth.
Gigaba had argued that the government was doing all it could to reduce the impact of the VAT hike on poor households, noting that the state was also boosting social grants payments and increasing the bottom three tax brackets.
He said plans to spend R57bn over three years on fee-free tertiary education for students with a family income below R350 000 per annum was another “important step forward in breaking the cycle of poverty and confronting youth unemployment”.
“Labour statistics show that unemployment is lowest for tertiary graduates,” he said.“Higher and further education and training is being made accessible to the children of workers and the poor.”