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.
 
 
Source: Business Insider
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.
 
 
Source: Business Insider
Argentina's citrus-growing regions were affected by frost at the end of winter, high temperatures in summer, plus excessive rain that delayed harvest for about a month. The combination affected both quality and total output.
 
South Africa, on the other hand, had improved weather conditions the two main citrus-growing provinces, the Eastern Cape and Limpopo. An increase in planted area also helped.
 
The Eastern Cape and Limpopo account for 80% of South Africa's lemon and lime production, and increases there helped offset lower production in the drought-hit Western Cape.
 
But the European party for South African exporters may already be over, says Eddy Kreukniet of Exsa Europe
 
"We've now entered the final weeks of the season and the market it decreasing with the entry of Turkish and Spanish citrus."
 
Growers who, during this period, did not plant a mix of products, might be headed into a difficult year, warns Kreukniet.
 
 
Source: Business Insider
If ever there was a perfect example of South Africa requiring a burning platform before taking decisive action on the economy, it’s encapsulated in Home Affairs Minister Malusi Gigaba’s eventual climbdown on some of the more damaging elements of the destructive visa regime he implemented on his first sojourn at that department.
 
It has taken Gigaba three years to implement just some changes to the visa regime which, as tourism and business lobby groups have pointed out from the start, are damaging to the economy.
 
The amendments, if anything, serve to muddy the waters even further when it comes to visa requirements.
 
The new measures – which are touted as enabling regular business travellers to get extended visas, reducing requirements on citizens from selected countries to get access to SA, and finally the dropping of the ludicrous demand that the parents of foreign children carry additional documentation in addition to their passports to get access to the country - will require the retraining of legions of civil servants who are barely attuned to the last set of maddening rules.
 
It’s impossible to quantify exactly how much damage has been done to tourism over the past three years as government messaging around visa requirements varied between the murky to the destructive.
 
Some 13,000 families are reported to have been turned away from boarding flights to South Africa because they didn’t have the appropriate documentation demanded by South Africa’s Home Affairs department. It’s unclear how many more would simply have made alternative travel choices rather than be lumbered with the inconvenience of restrictive rules.
 
The effort taken to visit South Africa has seen the country significantly underperform in a booming global industry, which is currently growing north of 5% a year. Grant Thornton puts growth in tourism numbers to South Africa at half that.
 
It’s a massive wasted opportunity.
President Cyril Ramaphosa flagged tourism as one of the critical elements of his stimulus plan for the country. There is a direct correlation between an increase in visitor numbers and jobs created in the industry. The tourism industry calculates that one new job is created for every nine additional tourists to the country.
 
South Africa’s tourism numbers are blurred by the inability of Home Affairs to distinguish between migrant workers who repatriate a large portion of their earnings, and those whose spend goes directly on tourism and domestic consumption. Greater clarity is needed in defining the difference between genuine tourism, business travel and those who travel across borders for work.
 
The Tourism Business Council of South Africa, while unimpressed with the visa changes, is appealing for their speedy and efficient implementation to ease the burden on travellers this season. The reality is that foreign tourists going to long-haul destinations like South Africa plan significantly in advance and the changes are unlikely to have any real impact on the current tourist season. There is an immediate effect of bad regulation and a lag in repairing the damage it has caused.
 
Home Affairs' belligerence on domestic travellers requiring permission to travel out of the country by non-travelling parents and to carry unabridged birth certificates in addition to passports, remains a ridiculous bureaucratic burden for South Africans looking to travel abroad. The decision to force parents to grant permission for every trip was based on fake data of child trafficking from South Africa and remains a serious impediment to travelling families.
 
There is progress in other areas.
Visitors from China and India will no longer have to travel in person across the vast expanses of their respective countries to apply for visas in person, but will be allowed to use intermediaries. The long overdue introduction of biometric movement control systems at the country’s busiest airports should go some way to reduce congestion on arrival at South African ports of entry. Speed and implementation are of the essence.
 
Ramaphosa’s planned stimulus package announced on Friday showed that government was coming to terms with the fact that “business as usual” was no longer working. He promised greater clarity not only on tourism, but mining and land reform too.
 
Ratings agency Fitch, which already has a sub-investment grade rating on South African debt, has expressed reservations about the significance of the measures unveiled by the president last week amidst concerns that Moody’s, the only major ratings agency which retains an investment grade rating on SA, is considering the soundness of its position.
 
‘Petrified capital’
In his address to the UN in New York this week, the president used the opportunity to quell concerns about policy and the impact of land reform on property rights. The movement on visas, while positive, is hardly the radical overhaul needed to announce South Africa is open for business.
 
The president has tasked a group of veteran business leaders including former Standard Bank CEO Jacko Maree and the former finance minister and now Old Mutual chairperson, Trevor Manuel, with raising $100bn in foreign direct investment over five years.
 
Ramaphosa will be hoping that by talking up opportunities for reforms, he will encourage South African CEOs to loosen the purse strings on the so-called “lazy capital” locked into domestic balance sheets. Perhaps we should use the term “petrified capital” which like fossilised wood has turned to stone is immovable and stuck in time.
 
Our messaging around SA being open for business needs to change quickly if we are to grasp the nettle on an economic rebound.
 
Bruce Whitfield is a multi-platform award winning financial journalist and broadcaster.
Household consumption slipped in the second quarter of 2018 as people adjusted their spending habits following the VAT hike and fuel price increases, according to the South African Reserve Bank’s quarterly bulletin released on Tuesday.
 
The SARB noted that household spending was also suppressed by “diminishing wealth effects” in the first eight months of 2018, as the FTSE/JSE All-Share Price Index fell on a combination of negative sentiment towards emerging markets and domestic policy uncertainty, relating to how land expropriation without compensation would play out. 
 
Consumers have been hard hit by the VAT hike from 14% to 15%, effective from April 1 and five successive months of fuel price increases.
 
The research note by the central bank painted a grim picture of the economy
 
falling into recession in the second quarter of 2018, with negative gross domestic product growth in the first six months of the year and unemployment rising to 27.2% in April, May and June.
However in contrast to falling consumer expenditure, state spending increased with government contributing positively to GDP figures in the second quarter of 2018.
 
Household credit growing steadily
The Reserve Bank reported that while the household credit market remained “very subdued” during the second quarter of 2018, growth in household credit extension continued to trend steadily upwards over this period. Loans to the private business sector remained subdued and increased at a slower pace.
 
While households are battling the impact of the VAT increase, government’s finances are in slightly better shape due to the one percentage point hike. Former Finance Minister Malusi Gigaba said in February that the VAT hike was expected to
 
raise an additional R22.9bn.
The central bank's quarterly bulletin stated that the cash book deficit of national government was much smaller in April, May and June, than the previous year as revenue was boosted by the tax hikes.
 
The rand decreased against the US dollar by 10% in the second quarter, following the local currency’s relative strength in the first part of the year.
 
The Reserve Bank said the rand’s weakness was largely due US dollar strength, higher international oil prices, increased global inflation and risk aversion towards emerging markets.
 
 
News24

The impact of the escalating global trade war is likely to shave 0.1% off South Africa's gross domestic product (GDP) baseline forecast in 2019 and 0.2% in 2020, according to Fitch Ratings' June 2018 "Global Economic Outlook" baseline forecast.

Fitch forecast that the escalation in the trade war is likely to reduce the world GDP by 0.4% in 2019 and by 0.3% in 2020.

"An escalation of global trade tensions that results in new tariffs on $2trn in global trade flows would reduce world growth by 0.4% in 2019, to 2.8% from 3.2%," the Fitch Ratings said in a statement on Wednesday.

The US, Canada and Mexico would be the most affected countries. Fitch expects China would be less severely impacted, with GDP growth around 0.3% below the baseline forecast. Fitch points out that China would only be affected directly by US protectionist measures, whereas the US would be imposing tariffs on a large proportion of its imports, while being hit simultaneously by retaliatory measures from four countries or trading blocs.

"The imposition of further tariff measures currently being considered by the US administration and commensurate retaliatory tariffs on US goods by the EU, China, Canada and Mexico would mark a significant escalation from tariff measures imposed to date," according to Fitch.

"The tariffs would initially feed through to higher import prices, raising firms' costs and reducing real wages. Business confidence and equity prices would also be dampened, further weighing on business investment and reducing consumption through a wealth effect."

Export competitiveness in the countries subject to tariffs would decline, resulting in lower export volumes. The negative growth effects would be magnified by trade multipliers and feed through to other trading partners not directly targeted by the tariffs. Import substitution would offset some of the growth shock in the countries imposing import tariffs.

Fitch forecasts that most countries not directly involved in the trade war would see their GDP falling below baseline, though generally at a much lower scale.

Net commodity exporters would be more severely hit, as slower world growth would push oil and hard commodity prices down. On the other hand, for some net commodity importers, the benefits from lower hard commodity prices would more than offset the impact of lower world growth.

 

Source: News25

The SA Bureau of Standards (SABS) has been strongly criticised by business, which says the entity is losing the country at least R4 billion a year in exports in the manufacturing and engineering sectors alone.
 
This comes after years of businesses complaining about a lack of testing by the SABS, resulting in manufacturers losing contracts because they are unable to obtain the SABS mark timeously, or they have been unable to renew 2 600 permits to use the mark.
 
Trade and Industry Minister Rob Davies is assessing representations from the SABS board on why he should not go ahead with his intention to put the entity under administration for not performing to its mandate. The SABS falls under Davies’ department.
 
Steel and Engineering Industries Federation of Southern Africa economist Marique Kruger said the lack of testing and certification by the SABS within the required time frames was a concern, as certification was often needed for products to be sold locally and internationally.
 
Kruger said trade deals being delayed or cancelled due to a lack of testing hit smaller businesses the hardest and caused a loss of billions in exports a year in the manufacturing and engineering sectors.
 
“The impact on the domestic production value chain is also huge,” she said.
 
Director at GAP Holdings, Theuns van Aardt, said manufacturers in the solar water heating industry were “tearing their hair out” because they “cannot get a system approved by the SABS”.
 
He said the piping, pump and valve industries were similarly affected, and were “being put at massive risk”.
 
Business development manager Carolien van der Horst of the SA Capital Equipment Export Council said the SABS was also failing to audit the local content of products supplied in government contracts as stipulated in government’s Industrial Policy Action Plan.
 
Van der Horst said this resulted in companies possibly supplying imported products when servicing tenders from state entities. However, she said it seemed that no one wanted to pay for the SABS to conduct these audits.
 
SABS CEO Boni Mehlomakulu hit back at industry and the department of trade and industry this week, saying she was fulfilling her mandate according to policy that was implemented in 2005.
 
She said the issues affecting industry were inherent in the policy, which emerged from the 2004 National Economic Development and Labour Council (Nedlac) report, titled Modernising the South African Technical Infrastructure.
 
Informed by a department of trade and industry position paper in part authored by Lionel October, who was then the department’s deputy director-general, Nedlac agreed that the SABS should split into a commercial testing and certification entity, and its statutory standards setting body should be funded by government.
 
Previously, the SABS was the only testing entity, and business wanted policy changed to allow private testing laboratories to be able to compete with the SABS.
 
She said that, to protect the SABS from litigation where products had failed on the market as only select components had been tested, partial testing – up until then a norm – had been stopped in 2015, which elicited an outcry from industry.
 
There were also expectations that the SABS maintain 32 laboratories established in the 1970s – which Davies has said would take R1.6 billion to upgrade – and conduct the full array of tests for all compulsory standards, contrary to its commercial mandate.
 
Mehlomakulu added that there were certain companies that required a test once a year, and the SABS was expected to maintain the facilities and retain the expertise to conduct those tests, yet it was still required to be profitable.
 
She said she felt the department was not supporting its own policy: “For me, what’s unfair is the fact that no one wants to own the policy position, no one wants to talk about it.”
 
When questioned about the SABS’ R44 million loss in the 2016/17 financial year, she said the department pulled R55 million from its budget at short notice, so the loss was budgeted for and the SABS’ commercial arm was having to fund its statutory entity.
 
Mehlomakulu said the backlog of expired permits had been dealt with and she had developed a corporate plan to approach private funders to raise the capital to upgrade infrastructure because previous requests to Treasury had been turned down.
 
Regarding the auditing of local content to comply with recommendations in the Industrial Policy Action Plan, she said government entities saw it as another auditor-general activity and complained that the SABS was too expensive, while on the verification of local content on Transnet’s 1 064 locomotive purchase, the SABS “was blocked, totally blocked”.
 
“They would rather give the work to a private company because there aren’t all of these rules for transparency, reporting and all of that.”
 
Asked whether she believed private companies were getting paid off to produce compliant audits, she said: “I’ve seen it.”
 
Source: News24
Inflation eased to 4.4% for May compared to 4.5% in April, despite the implementation of a VAT hike implemented in April.
 
This is according to Statistics South Africa (StatsSA), which on Wednesday released the consumer price index figures for May. The index increased 0.2% month-on-month.
 
The market consensus was for CPI to accelerate to 4.6%, and in a market update on Wednesday RMB economist Isaah Mhlanga had projected an increase to 4.8% having considered the VAT pass-through.
 
Mhlanga also expected the fuel price and weak rand to impact inflation. “The oil price and a weak rand have had a huge impact (on inflation), but the second-round effects will only be visible in the months to come and they are difficult to quantify and separate from the first-round effects,” said Mhlanga.
 
He expects the current account deficit data due on Thursday to be a “shock to the currency”, RMB projects it to be 5% of GDP.
 
By 10:23 the rand was trading 0.44% firmer from the previous close at R13.68/$. 
 
Contributors to May's inflation include food and non-alcoholic beverages which increased 3.4% year-on-year. Inflation for restaurants and hotels increased by 5% year-on-year.
 
Transport contributed to the month-on-month inflation, the index increased 1.2%.
 
In May the CPI for goods increased by 3.5% year-on-year, unchanged from April. The CPI for services increased by 5.3% year-on-year, also unchanged from April
 
South: Fin24
Eskom's current load shedding due to the impact of protest action by workers will add to the weakness of the South African economy which is already battling, Economist
 
"Load shedding is unfortunate, because South Africa already has serious economic problems. Load shedding will take away consumer and business confidence as South Africans are already struggling to make ends meet," said Schüssler.
 
"Investors have pulled out of South Africa and continue to do so. South Africa has so many protest actions. It really hurts the economy."
 
He believes it will be harder for the local economy to catch up on whatever pace it loses now, due to the impact of load shedding. It would also make it harder for the country to avoid going into a recession.
 
"South Africa is sending out a message that we have severe interruptions in economic activity, and that we are not quite as open for business as we'd like to advertise," said Schüssler.
 
"We are creating a reputation of not implementing what we claim we will do. We say we will create a certain number of jobs and that we are open for business, but then Eskom implements load shedding."
 
'Totally irresponsible and grossly negligent'
 
"If this is the way Eskom's new management wants to run the power utility, then they must not be surprised that we are having load shedding and blackouts. In my view, it is totally irresponsible and grossly negligent of them to operate the national energy supplier in this way. This is very serious," said Blom.
 
He thinks Eskom's management could even be held personally liable for losses due to load shedding.
 
"They knew what was coming and know how vulnerable the situation is. We are heading for dark days and if Eskom wants to bully its workers and bully analysts critical of its management, the public should act as watchdogs," said Blom.
 
Earlier this year, Fin24 reported Blom as warning that load shedding could likely be expected this winter. Eskom subsequently denied that possibility.
 
"Eskom will remain vulnerable until it sorts out the labour and coal issues - which will not be soon. Furthermore, I hear of plant breakdowns," said Blom.
 
Credit: Fin24

It has been a difficult year for South Africa. In September the World Bank downgraded South Africa’s 2017 growth forecast to 0.6 percent, down from 1.1 percent at the beginning of the year. To get ahead the South African economy is in urgent need of more entrepreneurs to boost growth, foster innovation, and aid in job creation.

The reality is that much more must be done to create an enabling environment for entrepreneurship to truly flourish.

As we enter Global Entrepreneurship Week and acknowledge Women’s Entrepreneurship Day on 17 November, it is worthwhile to take stock of the current entrepreneurial landscape in South Africa and seriously question Donna Rachelson Seed Academyhow best to forge ahead. This is especially important considering government’s National Development Plan places the onus on small and expanding businesses to create some 90 percent of new jobs, with the ultimate goal of reducing unemployment to just 6 percent by 2030.

This is no small task given that in real terms the country needs to create about 11 million more jobs in the next 12 years supported by an average economic growth of 5.4 percent every year over the period to achieve that aim. Couple this with the World Bank’s projection that for 2018 and 2019 South Africa’s GDP growth is expected to pick up to a meek 1.1 percent and 1.7 percent respectively and it becomes clear that decisive action is urgently required.

Earlier this year Seed Academy conducted South Africa’s largest entrepreneurial survey, the Real State of Entrepreneurship in South Africa 2017. The survey canvassed over 1,200 entrepreneurs at any stage of business development to understand the nature of the challenges faced by entrepreneurs in key areas such as access to funding, business support and skills development. South Africa needs to significantly scale and improve the efficiency of SME funding especially in light of the fact that most early-stage business funding requirements are below R100k. In addition, further research indicates that while it is critically important to encourage new entrepreneurs, it is equally important to provide support to growing SMEs which only start to meaningfully contribute to job creation when they grow to R2 million or more in turnover.

The Global Entrepreneurship Monitor (GEM) report for 2016/2017 notes that Africa is the region reporting the most positive attitudes towards entrepreneurship, with three quarters of working-age adults considering entrepreneurship a good career choice while 77 percent believe that entrepreneurs are admired in their societies. In South Africa the right attitudes to entrepreneurship deserve the right support. By way of comparison, in Rwanda it takes an entrepreneur 12 days to register and start a business, while here at home the same process takes an average of 45 days. National policy makers should take note of this and focus on regulatory reforms to make it easier for new businesses to register and operate.

The recent GEM report highlights that countries with high rates of entrepreneurial success also have effective support structures from private and public sectors as well as established mentorship programmes for both aspirant and current entrepreneurs.

Seed Academy’s own entrepreneurial survey shows that local entrepreneurs see immense value in participating in training programmes with 78 percent of respondents indicating that they had engaged in entrepreneur training programmes or were part of an incubator at some point. Corporate enterprise and supplier development programmes also featured, although to a far lesser extent, with 14 percent of respondents having been part of these, indicating that more can be done to educate entrepreneurs about various ESD programmes available together with clear information on participation requirements.

Globally, the importance and benefits of increasing the economic participation of women are well understood. In South Africa, support for black women and youth entrepreneurs in particular continues to be critical to unlocking South Africa’s entrepreneurial potential.

Recently the World Economic Forum (WEF) issued its annual Global Gender Gap Report which found that should current rates persist, it will take 100 years before women achieve equality in the four areas measured by the WEF including political empowerment, economic participation, health and education. In South Africa we still have much work to do, but there are promising signs of change as the gap between the number of male and female entrepreneurs begins to narrow slightly, proving that efforts focused on the development of women owned businesses do pay off.

Given that entrepreneurs and small businesses are being tasked with the massive responsibility of reviving the economy and creating millions of new jobs, we owe it them to improve the entrepreneurial ecosystem and ensure an enabling environment for businesses to grow and thrive. Better and more robust engagement with policy makers and providers of financial and non-financial support is one place to start. Taking into consideration the ambition of the task, determined vision and leadership are needed from all sections of society as soon as possible.

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