Wednesday, April 27, 2016


This article first appeared in the Business Times section of The Sunday Times on 6 March 2016

THE announcement by Barclays Plc that it will be “selling down” its 62.3% holding in Barclays Africa Group was met with relative negativity from most South African media.

Many read the much-rumoured step by the UK banking giant as a vote of no confidence in the African and specifically the South African economy. Nothing could be further from the truth.

First , we need to ensure that we distinguish between Barclays Africa Group (the former Absa plus banks in 14 African countries) and Barclays Plc (the UK-headquartered banking giant that owns a majority share in Barclays Africa Group).

Apparently, many of the African countries, including their regulators and central banks, initially misunderstood the announcement to signal the shutdown of Barclays’ in-country operations.

Even some customers believed this meant that the bank was packing its bags and going back to England. The bank had to urgently put together an extensive media campaign to calm everyone ’s nerves, which I suspect was achieved.

Second, we need to understand that nothing is happening to Barclays Africa Group, other than its major shareholder announcing its plans to sell all or a part of its shares in the business.

Naturally, a major shareholder exiting any business will cause panic, but this exit has more to do with the challenges faced by Barclays Plc, regulatory and otherwise, than it has to do with us, the African countries.

Another impact the Barclays Plc exit may have on the African operations is a loss of the franchise and brand name, whose prestige has been enjoyed for almost 100 years on the continent. However, it’s too early in the game to speculate when this will happen, if at all.

What seems more certain is that the South Africa operation will retain its Absa brand. It appears that the “Barclay-rization ” of Absa will be averted. 

The brand has grown tremendously since the amalgamation of some of South Africa’s banks in 1991 creatively gave rise to the name Amalgamated Banks of South Africa, Absa.

So the English are going, Africa is not going to die, and South Africans can keep their Absa. However, another opportunity beckons.

For many years now, black business formations have been agitating for the creation of a black bank. Many have tried over the years, but due to various factors, including tighter regulation and the four-bank strategy of the central bank, it has proved difficult to achieve this.

Well, here is your chance, Black Business Council, Black Management Forum, Association of Black Securities and Investment Professionals, Association for the Advancement of Black Accountants of Southern Africa, et al.

An obvious partner would be the Public Investment Corporation, which could take a sizable stake in the bank and warehouse it for black investors.

Last year, a number of banking BEE deals matured, mostly at a profit for their investors, but nothing that resembles a black bank was created —although it’s worth noting the progressive strides being made by the likes of Nedbank in appointing black executives in key operational and strategic positions.

There is clearly an opportunity to do something transformative in the industry, with more than 60% equity of a large bank in Africa’s most developed economy suddenly available.

Hopefully, we won’t look back at this and lament the missed opportunity to move the needle in what has otherwise been sluggish economic transformation.


This article first appeared in the Business Times section of The Sunday Times on 28 February 2016 

THE first time I saw the budget speech on Wednesday morning, I was convinced pages were missing. I did my usual quick squiz of the document and looked for the key big-ticket items I expected.

I found nothing, other than that fiscal discipline would come from curtailing the public sector wage bill. So I read the speech again, much slower. Still nothing. I picked up the Budget Review, all 235 pages of it, and paged through it carefully. That is when I realised that none of what I thought was going to happen, actually happened.

My biggest surprise was the decision to keep the marginal tax rate constant at 41%. It is no secret that the government needs to generate more revenue. Last year, we missed our projected tax revenue by R4-billion, which widened the budget deficit further than expected.

Due to slow economic growth, the 2016-17 fiscal year is likely to be a difficult one for individuals and companies. So collecting additional taxes from individuals who are losing jobs as the commodities slump persists and companies that are reporting lower profits is going to be difficult.

There is no doubt the fiscus need much more revenue than what the minister asked for this week.

I would suggest that, ironically, most South Africans were ready to play their part in ensuring our country navigates these difficult times.

South Africans, especially the high-income earners, were ready to come to the party, and an increase in the marginal tax rate would have been appropriate. Some may wonder why I would advocate paying more tax.

It is not because I enjoy paying tax. However, I am acutely aware of the challenges facing my country, and I would not hesitate to play my part, even if it means earning less.

I think many other South Africans feel the same way.

In the Budget Review I discovered an interesting table outlining the amounts of tax expected to be paid by individuals at different levels of taxable income for the 2016-17 year.

South Africa has 13.7 million individuals registered for income tax. Some 6.6 million, or 48% of them, don’t pay any tax as they earn less than R70 000 a year. That leaves 7.1 million taxpayers. Of these, 2.6 million earn less than R150 000.

If you earn anything more than R701 301 a year, you are in the highest tax bracket and are paying 41% tax on your earnings.

According to the Treasury, there are only 429 173 people who earn more than R750 000. That is 6% of the total population of taxpayers. This group pays 47% of the tax bill.

In this group of 429 173 there is a special group. They are the 94 578 who earn more than R1.5-million a year.

This crowd couldn’t fill FNB Stadium and represent a mere 1.3% of the taxpaying population, yet pay a whopping 23.5% of taxes collected.

Finance Minister Pravin Gordhan argues that an increase in VAT is inappropriate in these tough times because of the tax’s regressive nature.

Everyone, including the poor, would have to pay more for all “VATable supplies”, although one could soften the blow by extending the list of zero-rated items.

But why then increase the general fuel levy by 30c, or 11.6%? Why would it not be a regressive tax? The fuel price not only affects those who own cars, or use public transport. It affects the prices of all goods delivered and services rendered.

So why hike the fuel levy and leave the rich largely unscathed?

My basic mathematics tells me that the fiscus could’ve raised the R9.5-billion it plans to collect from the fuel levy by increasing the marginal tax rate by a mere 0.5%.

This would affect only 429 173 people, and it’s the very rich 94 578 FNB Stadium crowd that would pay most of this increase in any case.

The increase in transfer duty for properties valued at more than R10-million and the increase in capital gains tax inclusion rates are a slap on the wrist. By the Treasury’s own admission, they would collectively raise only R2-billion for the fiscus.

In his budget speech, Gordhan repeatedly highlighted the need for all South Africans to work together to navigate these challenging times. Even rich South Africans were ready to come to the party, and the minister didn’t take the opportunity.

When I consider the reality of an economy that will see only 0.9% growth this year, the words of former finance minister Nhlanhla Nene’s keep ringing in my ears.

“If we do not achieve growth, revenue will not increase. If revenue does not increase, expenditure cannot be expanded.”

An increase in the marginal tax rate was appropriate, Minister Gordhan.


This article first appeared in the Business Times section of The Sunday Times on 21 February 2016 

THIS week’s news that eMalahleni-based Evraz Highveld Steel & Vanadium is considering liquidation and putting 2 187 jobs at risk was not only depressing but also highlights how global and domestic market dynamics impact the average Joe.

A perk of my work is disseminating what is often considered complicated and overly technical business news, in a manner that can be easily understood without dumbing it down.

The story of Highveld Steel is a sad opportunity for us to appreciate how market dynamics, and supply and demand, can shut down a market leader and put the man on the street, literally back on the streets.

In case you missed it, Highveld, once a doyen of South African industry, is facing liquidation mainly due to a glut caused by slowing global demand, which has resulted in cheap Chinese imports hitting our shores, making it near impossible to remain competitive.

This has led to parent company Evraz having to walk away from its investment and, more importantly, to 2 187 households losing their primary source of income.

According to its website, Highveld was established in 1957, when Minerals Engineering of Colorado built a plant in eMalahleni to produce 1.4 million kilograms of vanadium pentoxide a year. 

Two years later, Anglo American acquired a two-thirds share. In the early 1960s, another company, the Highveld Development Company, was established to investigate the viability of processing titaniferous magnetite ore for the production of liquid pig iron and vanadium-bearing slag.

The process to build an integrated iron and steelworks business started in 1964 and by June 1965, the company’s name had been changed to Highveld Steel and Vanadium.

A year later, Highveld was the global leader in vanadium production.

The next 30 years saw the company making acquisitions in companies producing manganese alloys, ferrosilicon, char, drums, pails, crown closures and stainless steel; as well as entering new markets in Austria, Japan and Spain.

Things looked up when in 2007, Luxembourg-based Evraz, one of the world’s largest vertically integrated steel and mining companies, completed its takeover of Highveld, by buying out Anglo American and Credit Suisse.

However, eight years later, in April 2015, the company went into business rescue after sustaining considerable losses for many years. Following lengthy consultations, over 90% of the company ’s independent creditors selected Hong Kong-based International Resources Ltd (IRL) as the preferred bidder for the business.

However, it wasn’t long until parent company Evraz approached the courts seeking to declare the business rescue plan of its South African subsidiary invalid.

Total creditors claims were R1.2-billion and IRL was offering a settlement of R380-million.

Clearly Evraz had done the calculations, and figured out that a shutdown of Highveld would be a better outcome than 31.67 cents in a rand and the rebirth of a competitor. Media reports at the time pointed to the possibility of Evraz standing to gain by letting Highveld go into liquidation.

“Evraz is one of the world’s largest producers of vanadium, and liquidating Highveld would take about 10% of supply out of the global value chain for the alloy, which is used in making products such as high-speed tools and jet engines. When Evraz bought Highveld it was forced by European Union competition authorities to divest of certain vanadium assets,” reported Business Day.

This opposition from Evraz eventually left Highveld in the lurch, forcing a production shutdown in July 2015, with no messiah in sight.

In October 2015, the company, in consultation with the unions, decided to apply for the Department of Labour’s training lay-off scheme, as a means to minimise the impact of retrenchments on employees. Instead of being retrenched, 600 employees would be trained in various skills and receive a cash stipend for six months.

The company’s application was approved on October 20, 2015 and training commenced on November 26, but the cash never came.

On February 8 the Department of Labour informed the company of its decision to “pause” its payment for the layoff scheme stipend, in response to the announcement that the IRL transaction had failed.

The company was forced to fork out millions, not budgeted for, to meet salaries for November and December 2015 and January 2016 — all during a time of zero production.

Without the funds from the lay-off scheme, and no IRL transaction, the company was forced to notify workers it wouldn’t be able to pay salaries at the end of this month — hence the possibility of liquidation.

The irony of all this is that Highveld is still South Africa’s second-largest steel producer.

The company has been a leading steel producer for more than 50 years and was ranked among 15 leading steel producers around the world.

When the country’s second largest steel producer is facing liquidation, it clearly spells disaster for South Africa’s steel industry as a whole. The government, through the International Trade Administration Commission, has tried to protect the industry by increasing the structural steel import duty.

However, it seems it’s all “too little, too late” for Highveld.

The company is now facing the end of the road and its 59- year history looks very likely to come to an end. Liquidation is by far the most likely outcome.

Creditors are likely to get nothing, given that the South African Revenue Service preferential claim stands at an estimated R550-million.

More importantly, though, all employees will immediately lose their jobs and receive no severance packages.

Rest in peace, Highveld. Condolences to the 2 187 families


This article first appeared in the Business Times section of The Sunday Times on 14 February 2016 

Watching President Jacob Zuma's state of the nation address this week reminded me of my favourite orator, Winston Churchill, who was once quoted as saying: "A good speech should be like a woman's skirt: long enough to cover the subject and short enough to create interest."

True to form, the president did speak for a very long time, even if you exclude the "points of order" preamble. Unfortunately, the demonstrations by the opposition parties have become the key attractions of the annual address, and have overshadowed the actual content delivered on the day. That speaks volumes about the real state of our nation.

When the "Honourable Speaker" eventually dealt with the EFF, Zuma proceeded to deliver what I thought was a long speech that didn't cover any real detail and certainly didn't create interest - at least not the detail and interest we needed.

A key precursor of Sona 2016 was a meeting between the president and the business community. Business has felt consistently left out by the government in policy and strategy formulation, especially as it relates to economic growth and transformation. Fair assertion or not, it is clear that South African business and politics have had an acrimonious relationship characterised by an elephant-sized trust deficit.

The CEOs apparently gave the president eight specific initiatives that can help the economy recover, and many of these were practical and measurable.

On the back of this, I hoped for a state of the nation address that would give some detail on the initiatives the government is considering to help ignite the economy and avert potentially crippling rating agency downgrades.

Excitement grew when I heard the president say: "A resilient and fast-growing economy is at the heart of our radical economic transformation agenda and the National Development Plan.

"When the economy grows fast it delivers jobs. Workers earn wages and businesses make profits. The tax base expands and allows government to increase the social wage and provide education, health, social grants, housing and free basic services - faster and in a more sustainable manner."

At this point I thought the president was preparing South Africans to understand and internalise the tough economic reality we are in.

I thought he would then follow up with something like "Compatriots, the opposite is also true. Without a fast-growing economy we cannot achieve radical economic transformation in the time frames we hope to. We cannot deliver the jobs we hope for. Workers cannot earn the wages they hope for and businesses will make less profit, some even losses; and the tax base will contract, making it difficult for government to sustainably deliver services."

But that didn't happen.

Instead, Zuma tried to give us a false sense of comfort.

After highlighting the challenges faced by the domestic economy, and the risks attached thereto, including the fact that the situation requires an effective turnaround plan from us, he said: "Our country remains an attractive investment destination. It may face challenges, but its positive attributes far outweigh those challenges. We must continue to market the country as a preferred destination for investments."

It was a missed opportunity.

It would have been beneficial to categorically state that 0.7% GDP growth is not an attractive investment return. We are not in a good space. On the face of it, and for some time to come, we are not an attractive investment destination.

However, the good news is that GDP growth rates are cyclical. We won't be here forever. We need to counter this slump with actions that quickly get us back to being attractive again. We need to highlight the long-term investment prospects of our country to investors, while showing empathy for the current poor performance of our economy.

This would have displayed much-needed empathy to an investment community that has more reason to exit its South African positions than to hold. C oming from our head of state, it would have gone a long way to reassure foreign direct investment cheque signatories that, notwithstanding the current economic slump, the government of South Africa is in tune with the realities and working hard to address them.

Another missed opportunity was Eskom. This state-owned enterprise has often been on the unfair side of criticism for the way it has reacted to the "energy crisis" that had grabbed the headlines. The headlines are no more. That is no coincidence. It is the fruit of hard toil by the company and its shareholder, the government.

Yes, the president did talk about the R83-billion invested and gave a short update on Ingula power station. However, he had an opportunity to pause and remind us all about the fears that existed just a year ago, and how the government got to work, put together a plan, and executed on it and now has actual results to show for its swift action. While still a work in progress, Eskom can be a very important case study that shows our capability in times of crisis.

But all is not lost. We have one more shot at this. Over to you, Minister Pravin Gordhan.


This article first appeared in the Business Times section of The Sunday Times on 7 February 2016 

THIS week I attended the government’s launch of the Black Industrialists Programme, hosted by the National Empowerment Fund and the Department of Trade and Industry.

I listened attentively as minister Rob Davies and deputy minister Mzwandile Masina provided details of the programme, how it would work, and what it would fund and not fund.

I am a big fan of what the government is trying to achieve with the Black Industrialists Programme. It is time we deliberately and unapologetically used state levers to create globally competitive black business champions in our economy.

The symbolism of being able to point to black entrepreneurs who control and operate major corporations in big industries is something we desperately need as a country still grappling with racial discrimination and inequality. This will have a profound impact on the psyche of future generations, who remain most affected by stubbornly high levels of unemployment.

The implementation of this programme must therefore be well thought through to ensure our efforts yield the best outcomes. In other words, we need to use our collective experience to give ourselves the best chance of success.

Unfortunately, at the end of the launch, I concluded that the government’s programme comes with two key flaws.

The first is that the government has single-handedly redefined the term “industrial ” to mean “manufacturing”. Not only is this simply incorrect, it is in stark contrast to local realities and global trends.

Just last month, world leaders at the World Economic Forum in Davos debated “the fourth industrial revolution”. That had nothing to do with manufacturing. It had everything to do with the knowledge economy, the fuel behind the growth of modern economies.

The second flaw is that the programme seems to have been crafted outside of the threats and opportunities before us today and in the foreseeable future.

In case you are not aware, the programme will focus on very specific sectors. These are the ocean economy; oil and gas; clean technology and energy; mineral beneficiation; aerospace; rail and automotive components; industrial infrastructure; information and communications technology; agro-processing; clothing; textiles, leather and footwear; pulp, paper and furniture; chemicals, pharmaceuticals and plastics; nuclear; and manufacturing-related logistics.

Why limit the programme to specific sectors? Black people hardly control any key sector of the economy.

The closest we have come is the taxi industry and football.

We ought to invite applications from any black entrepreneur in any sector, with a convincing plan, credible expertise and the will to succeed, with size, experience and expertise the only criteria. The programme shouldn’t be closed to sectors, only to small ideas with no major impact on inclusive economic growth and transformation.

The programme must be about catapulting or graduating existing black entrepreneurs in all industries to become leaders who control and operate the biggest companies in their sectors.

I have previously referred to a golden opportunity presented by depressed commodity prices. The list above does not include mining.

The policymakers have instead included “mineral beneficiation”. I am yet to be exposed to a big mineral beneficiation industry in South Africa. As far as I am aware, it doesn’t exist. Yes, I appreciate that we need to start beneficiating our minerals, but right now there is hardly any meaningful impact to be derived from having a black-controlled mineral beneficiation operator.

Even if the biggest mineral beneficiation company in South Africa was black-controlled, it would not move the needle in economic growth and transformation in the broader resources industry.

That ’s because the beneficiation industry is not yet adequately developed. It is a small part of the resources industry. So why are we wanting to create black industrialists in beneficiation when an even bigger opportunity beckons?

Imagine if a black steel operator acquired a Highveld Steel in business rescue or even an Arcelor-Mittal that recently announced that its loss is going to be 22 times higher than the previous year and more jobs cuts are on the way.

Imagine our pride if a black steel entrepreneur bought these businesses, drove down operating costs, the government stepped up to better protect the industry, and when global markets improved, we might have a steel industry actually controlled by black people.

I can say the same for platinum. Yes, Sibanye has acquired some of Anglo Platinum’s mines and Aquarius, but there is still Lonmin.

Imagine if Lonmin could be an asset we point to one day as a product of a clever move by a smart government, in a time of depressed platinum prices, that backed experienced black platinum group metals operators who persevered through the tough times and eventually controlled one of the largest platinum miners in the world?

Thanks to a question asked by the Black Business Council’s Gregory Mofokeng at the launch, I learnt that the construction industry has also been excluded from the so-called focus sectors. It has been replaced by “industrial infrastructure”. It’s not clear what this term means, but what is the logic of excluding the construction sector?

I am only aware of Dr Thandi Ndlovu ’s Motheo Group as a credible, sizeable, top-grade blackcontrolled construction group.

Not withstanding its impressive growth, Motheo is small fry compared to the big boys. Are we saying we don’t need a black-owned and operated Aveng, Group Five or Murray & Roberts? Surely not.

Let’s just be open to any big idea that will create a thriving economy that is controlled and operated by black people. Let us also move with the times. We live in a world where the best economies thrive because of innovation and knowledge, not by how much they manufacture.

Excluding service industries and making the Black Industrialists Programme exclusively about manufacturing is ill-advised. 

For example, ICT is on the list, yet the biggest ICT companies to come out of South Africa are mostly in the services space. Think of Dimension Data and EOH.

We need to learn from the past and craft policy that will give us the results we want. I’m afraid even the 100 industrialists in three years that Masina speaks of so passionately may very well be a pipe dream if the department guidelines are anything to go by.