Finweek - June 2, 2016

JUNK

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GETTING RICH: IT’S ABOUT WHAT YOU SAVE, NOT EARN

2 June 2016

ENGLISH EDITION

CAREERS

TIPS TO NEGOTIATE

YOUR SALARY

ECONOMY

HOW TECH WILL SHAPE

AFRICA’S FUTURE

CEO INTERVIEW

DAVE MACREADY ON OLD MUTUAL’S GROWTH PLANS

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Opinion4 How tech will shape Africa’s future6 SA needs advanced industrial relations, fast

The week in brief 8 News in numbers10 Fun is key with this fitness app11 A room with a view of the future12 Tiger heads for calmer waters13 Could Anglo be leaving the City of Gold?14 Gold hedging makes a comeback

Marketplace15 Fund in Focus: Cashing in on banks16 House View: Santova, Richemont17 Killer Trade: Tongaat Hulett: Results may not be

so sweet18 Simon Says: Gooderson Leisure, Spar, Netcare,

Richemont, Capital Appreciation 19 Invest DIY: How to weed out undesirable sectors20 Pro Pick: Reinet Investments SCA: Much value

to be had21 Remgro: The all-in-one share22 Financial Planning: Wealth depends on how

much you save, not how much you earn 23 Directors & Dividends: Dealings and payouts

Cover24 South Africa: A country with a knife to the throat

In depth32 Zimbabwe’s diamonds: Marange: Looting one

of the world’s main diamond supplies

On the money36 Spotlight: Old Mutual prepares for the future38 Motoring: The solar revolution that will power

SA’s e-vehicles40 Management: Coaching to get organisational

culture aligned41 Copyright: Protecting intellectual property42 Entrepreneur: Taking androgynous male

fashion to the masses 44 Careers: Seven deadly sins of salary negotiation 45 Crossword and quiz 46 Piker

2016 hasn’t been kind to South Africa, and it’s likely to get a lot worse, if one believes some of the predictions in this week’s cover story. It is no secret that organised business and National Treasury have been working non-stop to try and avert a credit

ratings downgrade to junk, but without all parts of government, particularly the Presidency, pulling in the same direction, those attempts will only keep the wolves at bay for so long.

Two weeks ago, I took part in sani2c, a three-day mountain bike race that covers about 260km from Underberg to Scottburgh in KwaZulu-Natal. It was a reminder of what can be achieved in this country when all the moving parts are pulling in the same direction. I simply have never seen co-operation on such a scale between numerous rural communities, farmers, community organisations, schools, local authorities and major listed companies.

The result is a world-class event, the largest of its kind, which brings in millions for the direct beneficiaries of the race. Importantly, the money isn’t handed out as donations, but paid for services rendered – for example a rural community taking ownership of building and maintaining the single track crossing their piece of land.

The result has been substantial job creation in the run-up to and during the event, with numerous permanent jobs created and local businesses started thanks to the skills transfer that has taken place over the past 11 years. In 2015, R8.3m was paid to direct beneficiaries of the race; the economic impact on the region (including e.g. spending on accommodation, food, etc.) is estimated at more than R35m.

Not bad for an event that really started as a dream of Glen Haw, an avid sportsman and dairy farmer, in the late 1990s, and finally came to fruition in 2005 with 600 riders. (This year, 4 500 riders participated, and the event has been broken up to accommodate three consecutive starting days.)

For me, the hospitality and support from communities along the route, particularly in the spectacular Umkomaas valley, was undoubtedly the highlight of the race. As someone who would never cycle alone on the numerous tracks in and around Johannesburg, it is worth mentioning that my only safety concern on the route was related to keeping my collarbones intact.

The risk is that the whole race can go up in smoke if a single landowner pulls out, or a community protests on race day, or one rider gets violently robbed of a bicycle, as so often happens elsewhere in the country.

Our politicians would do well to ask Farmer Glen and his countless partners along the route how they keep it all together. ■

contentsfrom the editor

JANA MARAIS

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Editor Jana Marais Deputy Editor Anneli Groenewald Journalists and Contributors Simon Brown, Sean Christie, Johan Fourie, Moxima Gama, Marcia Klein, Paul Leonard, Schalk Louw, Shaun Murison, Buhle Ndweni, Andile Ntingi, Lameez Omarjee, Petri Redelinghuys, Jaco Visser, Glenda Williams Sub-Editors Stefanie Muller, Jana Jacobs, Katrien Smit Office Manager Thato Marolen Layout Artists Beku Mbotoli, Tshebetso Ditabo, Zandri van Zyl Sales Manager Faheem Ahmed [email protected] Sales Executive Wendy Navarra [email protected] Publisher Sandra Ladas [email protected] General Manager Dev Naidoo Circulation Manager Armand Kasselman 021-443-9975Published on behalf of Media24 by New Media Publishing (PTY) Ltd Johannesburg Office: Ground floor, Media Park, 69 Kingsway Avenue, Auckland Park, 2092Postal Address: PO Box 784698, Sandton, Johannesburg, 2146 Tel: +27 (0)11 713 9601 Head Office: New Media House, 19 Bree Street, Cape Town, 8001Postal Address: PO Box 440, Green Point, Cape Town, 8051 Tel: +27 (0)21 417 1111 Fax: +27 (0)21 417 1112 Email: [email protected] Executive Directors Group Commercial Director: John Psillos Managing Director: Bridget McCarney Non Executive Director: Irna van Zyl Printed by Paarlmedia and Distributed by On The Dot Website: http://www.fin24.com/finweek Overseas Subscribers: +27 21 405 1905/7

EDITORIAL & SALES ENQUIRIES

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t here are at least two views on the economic future of sub-Saharan Africa. One camp is largely optimistic, claiming that relatively high economic growth rates of the last decade (even during and after a global financial crisis) is evidence of “Africa rising”, slowly emerging

from three decades of slumber. Another camp is less optimistic, claiming that growth was limited to natural resource industries benefitting from rapid Chinese growth. (China grew at “only” 6.9% in 2015, adding $714bn to its GDP. South Africa’s GDP in 2014 was $350bn – China added more than two South Africas to the global economy in 2015 alone.)

Both camps have elements of truth. Many African countries (some very poor) have seen high economic growth rates recently. Growth remains essential in lifting thousands out of poverty. But it’s also true that much of this growth has been limited to resource sectors that don’t have the same spill-overs into other parts of the economy that manufacturing, for example, has. This raises doubts about its sustainability.

In April, the United Nations Economic Commission for Africa published a report that sides with the cautious view. African countries are stuck in low-productivity, primary-sector exports; the fall in the price of commodities, like oil over the past 18 months, has swelled budget deficits in places like Sudan, Nigeria and Angola. It is likely to have political consequences too.

To combat such vulnerability, the authors advocate “smart” industrial policies to “upgrade” the commodity sectors and promote the “development of higher-productivity sectors, especially manufacturing but also some high-end services”. They acknowledge two trends working against such industrial policy action. First, a shrinkage of the “policy space” due to the establishment of the World Trade Organization and the proliferation of bilateral and regional trade agreements. Simply put, countries have less scope for raising tariffs or other creative industrial measures than before. Second, the strengthening of global value chains makes “nationalistic” industrial policy less effective. The authors say there are “still many industrial policy measures” available.

What are these smart industrial policies? After spending 156 pages explaining the need for smart policies, the authors give us one page of very vague principles: policymakers “need to identify the ‘right’ policies”; policymakers “need to induce foreign firms to create linkages with the domestic economy”; and policymakers “should pay attention to the possibility of upgrading not just through the development of capabilities to physically produce goods, but also through the development of producer services, such as design, marketing, and branding”. So much for practical guidelines!

They’ve missed a golden opportunity to think more creatively about Africa’s economic future. Technology is changing Africa’s comparative advantage. Global manufacturing will become increasingly capital intensive as robotics and technologies like 3D-printing (not mentioned

once in the report) advance. What we consider low-skilled labour-intensive manufacturing (shoe-making, for example) may, overnight, become high-skilled, capital-intensive (once shoes can be printed), with production switching from countries like Vietnam and Bangladesh back to the developed world. Cheap labour will become less of an advantage as robotics becomes more affordable. (Also see story on p. 6.)

Trade costs also add to the expensive manufacturing costs in Africa. We have few large cities on the coasts with easily accessible port facilities. Landlocked Zambia has a railroad that goes through two other countries before reaching the eastern coast of Africa; Cambodia’s capital has a river port that can receive 8 000-ton ships. Statistics confirm this: the World Bank calculates the cost to import a 20-foot (6m) container to Cambodia at $930. It’s $7 060 in Zambia. It’s difficult to see how any smart industrial policy can mitigate such cost differences.

Does this mean Africa will remain a primary good exporter? Not necessarily. Mobile technology is revolutionising the way Africans do business. Technology negates Africa’s rugged terrain, leapfrogging the need for expensive fixed-line infrastructure. With the necessary investment, broadband and wireless technologies will do the same, allowing Africans to provide services to a world that would have been impossible to reach a decade earlier.

But, apart from a few small economies – Singapore and Luxembourg – there is little past evidence that services alone can propel Africa into the industrialised world. Little hope for the continent, then? An optimist may remember that technological innovation can revolutionise existing industries. Consider the much higher returns of Ugandan farmers after mobile technology allowed them access to real-time market prices. Or how middle-income South Africans with a spare room benefit from Airbnb. Or how renewable technologies – also neglected in the report – will affect African countries’ power-generation and -distribution capabilities, supplanting the need for coal and other minerals.

The image of factories with thousands of low-skilled labourers working 8-to-5 jobs clearly belongs

to a previous century. To imagine that industrial policy can somehow transplant that image to Africa in the 21st century is foolish. The smartest industrial policy we can hope for is instead a belief that Africans have the agency to shape their own destiny, as long as they have access to the hard (fast and affordable internet and reliable electricity) and soft (IT colleges and programming degrees) infrastructure that will allow them to benefit from the technologies of the future. ■ [email protected]

Johan Fourie is associate professor in economics at Stellenbosch University.

Technology could turn labour-intensive manufacturing redundant overnight. How can Africa remain relevant?

ECONOMY

opinion

4 finweek 2 June 2016 www.fin24.com/finweek

By Johan Fourie

How tech will shape Africa’s future

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t he world economy is on the brink of the fourth industrial revolution, but the key actors in South Africa’s industrial relations are paying little attention to the disruptive technological advancements that are unfolding.

Our industrial relations are many decades behind and in desperate need of a serious overhaul to limit a potential jobs bloodbath that will emanate from the fourth industrial revolution, the hallmarks of which are rapid and unprecedented technological advancements that are seeing machines and software applications replacing humans in the production and distribution of goods and services.

Not only jobs will evaporate, but also companies. Organised business, labour, government and civil society will have to rise above their differences and work together if we are to respond effectively to the threats and opportunities posed by the fourth industrial revolution.

At this juncture business and labour do not see eye to eye and are distrustful of each other. Workers feel that their leaders have abandoned them and are no longer representing their interests – resulting in workers going on wildcat strikes that trade unions (and employers) are unable to control.

The Marikana strike in the platinum belt in 2012 is a case in point, where a standoff over wages turned into a massacre that claimed more than 40 lives in August 2012.

The problem of fractured industrial relations is also compounded by the split in South Africa’s main labour federation, Cosatu, which has led to a breakaway faction embarking on forming a new federation competing head-on with Cosatu for members.

The proposed new labour federation, led by former Cosatu general secretary Zwelinzima Vavi and Numsa general secretary Irvin Jim, will likely pose more challenges for employers as it’s likely to be more militant and will demand higher wages to lure workers away from Cosatu. This will likely lead to more retrenchments and a surge in unemployment.

The fourth industrial revolution will only pile on more misery by threatening jobs and keeping jobseekers out of the market, particularly low-skilled jobseekers.

Klaus Schwab, founder and executive chairman of the World Economic Forum, warned in an article published in January that the fourth industrial revolution could increase “inequality” and “social tensions” as machines displace labour.

“This will give rise to a job market increasingly segregated into ‘low-skill/low-pay’ and ‘high-skill/high-pay’ segments, which in turn will lead to an increase in social tensions,” said Schwab. “In addition to being a key

economic concern, inequality represents the greatest societal concern associated with the fourth industrial revolution.

“The largest beneficiaries of innovation tend to be the providers of intellectual and physical capital – the innovators, shareholders, and investors – which explains the rising gap in wealth between those dependent on capital versus labour,” wrote Schwab.

He goes on to argue that technology is one of the main reasons incomes have stagnated, or even declined for the majority of the populations in high-income countries because demand for highly skilled workers has increased while demand for workers with less education and lower skills has receded.

In SA, we are already feeling the effects of the fourth industrial revolution. The violent confrontation between Uber drivers and traditional cab drivers in Johannesburg recently is an indication that technological advancements are threatening the survival of old business models.

Advanced automation and artificial intelligence are becoming pervasive. Self-driving cars and drones that deliver medicine and goods to consumers are already with us and will eliminate some suppliers in the value chains of industries. Often no human involvement is needed.

With a huge army of unskilled and low-skilled labour, SA is vulnerable to rapid automation of production and distribution processes.

A new form of advanced, mature industrial relations is needed fast. We need industrial relations that are based on social corporatism in which the state acts as a facilitator of class compromise or co-operation between business and labour.

Social corporatism exists in Sweden, Norway, Iceland and Finland where a big welfare state exists in an environment anchored on a social pact between capitalists and workers, forcing neither of the interest groups to act in a zero-sum game of sabotaging their economies. These Nordic countries have efficient

governments, high standards of living and are considered the most equal societies in the world.

A less extensive model of social corporatism is found in Austria and Germany, the so-called Rhine capitalism, where the bourgeoisie and the proletariat have such a cosy relationship that it has allowed Germany to become Europe’s wealthiest economy and a leading industrial exporter.

Germany’s industrial relations are so mature that during the economic recession between 2008 and 2009, German industrial workers agreed to take wage cuts or reduce working hours to help their employers ride out the economic slump. As a result, Germany’s manufacturing sector was saved while the world economy wallowed in a recession. ■ [email protected]

Andile Ntingi is CEO and co-founder of GetBiz, an e-procurement and tender notification service.

With the rise of automation, the relationship between local companies and workers needs an overhaul on a fundamental level.

ECONOMY

opinion


By Andile Ntingi

SA needs advanced industrial relations, fast

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in brief

the week

>> TREND: A fun alternative to your gym routine p.10

>> IN THE NEWS: A 3D-printed building p.11

>> New CEO, fresh start for Tiger Brands p.12

>> Anglo American starts downsizing its premises p.13

>> Are the gold hedgers onto something? p.14

“LET THEM SELL THEIR SUMMER HOMES AND JETS AND RETURN THOSE FEES TO THEIR INVESTORS.”– Letitia James, New York City’s public advocate, comments after the New York City Employees’ Retirement System decided to cash all its investments – about $1.5bn – in hedge funds, according to ft.com. Pension funds and other big institutions have been withdrawing from hedge funds, which has delivered “mediocre” returns since the global financial crisis, according to Neil Chriss, founder of Hutchin Hill Capital, while charging large fees, it reported. The hedge fund industry manages $3tr of assets.

– Roberto Azevêdo, director-general of the World Trade Organization (WTO), warns in an interview with the Financial Times that an exit from the EU would cost British consumers and businesses billions and force the UK to renegotiate the terms of its WTO membership. This would affect thousands of tariff lines covering the UK’s entire trade portfolio, its quotas on agricultural products, subsidies to British farmers, and market access for the UK’s banks and other services companies, ft.com reported. It would also lose preferential market access to 58 countries, covered by 36 trade agreements it enjoys as part of the EU. The cost of additional tariffs on the imports of goods is estimated at £9bn, while British exports would attract additional duties of £5.5bn, according to the WTO.

– Pierre de Vos, constitutional law expert and deputy dean of the University of Cape Town’s law faculty, writes on Daily Maverick about the National Prosecuting Authority’s decision to appeal a North Gauteng High Court ruling that ordered it to reinstate 783 charges of fraud, corruption and racketeering against President Jacob Zuma.

“Pretty much all of the UK’s trade [with the world] would somehow have to be negotiated. […] It is very important, particularly with regard to trade, which is something very important for the British economy, that people have the facts and they don’t underestimate the challenges.”


“GIVEN THE FACT THAT THE LEGAL PRECEDENT IS SO HEAVILY STACKED AGAINST THE NPA AND GIVEN WHAT THE SUPREME COURT OF APPEAL (SCA) HAS PREVIOUSLY SAID ABOUT THE CHARGES AGAINST PRESIDENT ZUMA, I SUSPECT THE NPA HAS ABOUT AS MUCH CHANCE OF WINNING THE APPEAL BEFORE THE SCA THAN I HAVE OF SCORING THE WINNING GOAL FOR BAFANA BAFANA IN THE SOCCER WORLD CUP FINAL.”

the week

Standard Bank has lost an estimated R300m in a co-ordinated theft from about 1 400 ATMs in Japan on 15 May, with thieves using fictitious cards following the leak of credit card information. Japanese police believe more than 100 people may have been involved in the co-ordinated withdrawal. Standard Bank said there has been no financial loss for customers, and that its estimated gross loss of R300m excludes any potential recoveries. Japan’s Yomiuri newspaper said the raids began early on the Sunday morning of 15 May, when banks were closed, and that the thieves may have had enough time to leave the country before authorities could act.

THE BAD

THE UGLY

South Africa was excluded from the top 25 countries listed in AT Kearny’s annual foreign direct investment (FDI) confidence index for the second year in a row, as there is a “perception of an insecurity of investments”, AT Kearney’s Africa region head Wim Plaizier told Engineering News. The 500 respondents surveyed were from companies with annual revenues of more than $500m. The US topped the index, followed by China, Canada and Germany. Reserve Bank data showed that FDI to SA dropped from R62.6bn in 2014 to R22.6bn in 2015, the lowest level in nominal terms since 2006.

DOUBLE TAKE BY RICO

Japanese automaker Toyota has invested over R6.1bn in its Prospecton plant in Durban to enable production of the new Hilux and Fortuner, the biggest single investment the group has made to date in SA. In addition to Toyota’s investment, its suppliers invested over R1.7bn, creating as many as 2 000 new jobs, the group said at an event at the plant on 24 May. President Zuma, who was also in attendance, said government has started working on a plan to extend its support for the industry beyond the current cut-off date of 2020, and plans to finalise the new incentive plan by March 2017.

THE GOOD

WORKING LONGER FOR TAX FREEDOM

South Africans are working 43 days longer to achieve “tax freedom” than they did in 1994, with 25 May representing the day this year on which we start working for ourselves rather than the tax man, according to the Free Market Foundation (FMF). The date is calculated by taking the total income of all South Africans divided by the number of days of the year, which shows that government effectively takes the first 145 days of our income, according to the FMF. In 1994, Tax Freedom Day was on 12 April, it said.

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By Lameez Omarjee

Fun is key with this fitness apptrendthe week

Fitness start-up FitKey is ideal for individuals who want to stay active and love variety, but don’t want to commit to a gym contract.

with women, and mostly with young professionals aged between 25 and 50.

First launched in Cape Town in July 2015, the app has since expanded to Johannesburg and Pretoria. There are also plans to operate in Durban by the end of the year, says Walther. Over 210 studios are registered with FitKey and the app has more than 2 000 users. Walther says they are currently experiencing growth of between 15% and 20% per month.

So far mostly small, independent studios are registered with FitKey. Walther says some users still have gym contracts with bigger gym chains, but also choose to use FitKey. Yet other users have left their gym contracts in favour of FitKey.

One of their primary goals is to help independent gyms and studios improve their businesses, and get more traffic to optimise their time and space, says Walther. The idea is not to compete with any sort of fitness activity, but rather to expand the fitness market. “We are becoming a fitness market place that makes it easier for people to define things they love to do and make it easier for them to book, and easier for them to pay.”

A long-term goal for FitKey is to be “the glue” or “middleman” between independent gyms and

studios and their corporate counterparts. “We want independent gyms and studios to be able to reward individuals in the same way that larger gym brands do, by partnering with medical aids and banks,” he says. So far, FitKey has a partnership with Momentum Multiply, where members get 25% off their subscription fee.

FitKey, which now consists of a team of seven, generates revenue from its subscriptions. Studios do not pay to be registered with FitKey. At the end of each month, FitKey makes a bulk payment to these studios after tallying class bookings, explains Walther. Studios looking to register with FitKey go through an application process. “It gives us a chance to get to know them and if the studio will be a fit for our system and our customers,” he says.

When Shimkin and Walther first started out, they had to find software developers for their product. “Skilled developers in South Africa are in huge demand; there are not enough of them,” explains Walther. Co-founder of the mobile payment app SnapScan, David Rubin, joined the team as chief technology officer. ■ [email protected]

p eople who want to keep fit but do not necessarily want to get locked into a lengthy gym contract can now use an app to find and

attend various classes at independent gyms and studios in their areas, without having to sign up for membership at these venues.

Start-up FitKey is a mobile app for people who prefer a varied fitness regimen. Users register on FitKey’s website (at a monthly subscription of R495 that can be cancelled at any time), and can then browse through the variety of classes available in their area. Users gain access to an unlimited number of classes at different fitness studios, says co-founder Evan Walther.

The app, available on iOS and Android, allows people to find and book classes using their phones. “[They can] do it quickly and easily, whether they are at work, or at home, or even travelling.” They can search via location, type of fitness and time. Individuals can book as many classes and activities as they want, with a maximum of three classes at each studio per month. If they want to attend more classes at a specific studio, they have to pay the studio directly for additional classes, explains Walther.

US-born Walther describes himself as a “former fat kid turned fitness enthusiast”. After moving to Cape Town two and a half years ago, Walther tried to stay fit by researching activities to do in his area. Over time he learnt about different fitness activities, such as paddle boarding, CrossFit and trail running.

When his job as a consultant for Springleap ended, Walther looked for another reason to remain in South Africa. He partnered with Joshua Shimkin, and together they developed FitKey as a way to help South Africans find a fitness lifestyle that keeps them happy, he tells finweek.

FitKey is targeted at people who want to be fit, but get bored with their routine. “They know fitness is something they need to do but they want it to be more fun and interesting,” he says.

Others who might benefit from FitKey are people who want to make fitness part of their lives, but don’t know where to start. It is intimidating for some people to go to a gym and be pressured into a year-long contract, says Walther. “FitKey gives individuals the opportunity to try out different things, without having to make a commitment.”

According to him, FitKey is currently popular

Evan Walther Co-founder of

FitKey

Joshua Shimkin Co-founder of

FitKey

“FitKey gives individuals the opportunity to

try out different things, without having to make

a commitment.”

Over 210 studios are registered with FitKey and the app has more than 2 000 users. Walther says they are currently experiencing growth of between

15%and

20%per month.

the week


$300m

Dubai claims to have built the world’s first fully-functioning 3D-printed office building, reports Reuters. According to a statement by the Dubai government, the prototype building has floor space of 250m2 and was built in 17 days, at a cost of $140 000. According to engadget.com, this is about half the price of a comparable structure built through conventional methods. The printer used is 6m tall, 12m wide and 36m long. While 18 people worked on the project, only one person was needed to operate the printer, reported engadget.com. The building, pictured above, will be used as the temporary headquarters for the Dubai Future Foundation.

Volkswagen has announced a $300m investment in the Tel Aviv-based ride-sharing app, Gett, reported ft.com. Volkswagen and Gett would form a strategic partnership to share data and work on future projects, it was reported. As part of the deal, Volkswagen would offer on-demand ride services to business customers. At the same time, Gett drivers would be offered discounts on Volkswagen cars to be used as taxis, said ft.com.

On the same day as the Volkswagen announcement (24 May), Toyota announced that it has invested an undisclosed amount in ride-hailing app, Uber. Toyota also committed to new leasing options for Uber drivers, but said that there would be more collaboration going forward, reported theguardian.com.

“Ride-sharing has huge potential in terms of shaping the future of mobility,” theguardian.com quoted senior managing officer of Toyota Motor Corporation, Shigeki Tomoyama, as saying. ■

A room with a view of the future

CATCHING A RIDE

While

18people worked

on the project, only one person was

needed to operate the printer.

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j ust two weeks into his tenure as CEO of Tiger Brands, Lawrence MacDougall’s first order of business is to kick off a full strategic review, including of the role of each portfolio of brands

and how they will provide growth and profitability. Tiger Brands’ results for the six months to

March reflect a recovery from what directors refer to as “missteps” in the past, which include an unsuccessful investment in Dangote Flour Mills in Nigeria.

MacDougall says the solid results were achieved from a business that the executive team “has managed to stabilise”.

The fact that the executive team itself is not stable – with chief financial officer Funke Ighodaro resigning recently and MacDougall joining on 10 May after chief operating officer Noel Doyle stepped in as interim CEO following the departure of CEO Peter Matlare at the end of last year – was raised as a concern by one investor who wanted to see “institutional memory” retained. MacDougall says he will try to balance knowledge and experience with fresh ideas.

In the six months to March, group turnover from continuing operations was up 9% to R15.9bn, operating income increased 7% to R2.1bn, earnings were up 7% to 1 021c/share and headline earnings were unchanged at 978c/share. A 7% higher interim dividend of 363c/share was declared.

Doyle sounds a cautionary note on inflation – which was 8% for its basket of products for the six months and is expected to increase in the second half to somewhere between 8% and 10%.

Nevertheless, the group has continued with a strategy of investing in marketing its brands – which include household names like All Gold, Purity, Albany and Koo – well ahead of sales growth. Marketing spend was up 23% against turnover growth of 9%. He says that when cost pressures were so high, there was “a temptation to cut the oxygen supply”, which the group has resisted. The pressure on margins and operating profit reflects all of these issues and actions.

Soft commodity prices, particularly maize and sorghum, were severely affected by rand weakness and the drought. The rest of the group’s domestic businesses showed a solid performance.

In the grains division, high inflation in raw material costs and intense competition affected both volumes and margins, and turnover was up 10% to R6.2bn but operating income dropped by 1% to R881m.

Milling and baking volumes dropped 2%, driven primarily by maize and sorghum. But turnover increased 9% to R4.3bn, largely due to price

By Marcia Klein

Tiger heads for calmer watersTiger Brands is recovering from past “missteps” and a strategic review by its new CEO aims to identify growth opportunities as well as possible headwinds coming its way.


the week in the news

Lawrence MacDougall CEO of Tiger Brands

increases, while operating income declined by 4% to R710m.

Consumer brands food turnover increased 8% to R5.8bn while operating income grew 4% to R609m. Groceries, beverages, “out of home” and meat categories were offset by snacks and treats, where operating income declined by 12% due to competitive pressure, operating issues and pressure on discretionary spending.

Purity baby food maintained its leading brand position and is adapting to the trend to buy baby food in resealable pouches.

Internationally, Kenyan consumer goods company Haco Tiger Brands and the deciduous fruit export business performed well. Tiger Branded Consumer Goods, formerly Dangote Flour Mills, was sold. Total turnover for the exports and international businesses increased 8% to R2.6bn and operating income increased by 34% to R292m due to a profit recovery at Haco and good growth at Chococam in Cameroon offset by results from Deli Foods in Nigeria. The exports business was affected by local currency devaluation and foreign currency shortages – a problem that became “critical” in March and which will persist, specifically in Mozambique and Nigeria.

Asked if this will prompt the group to consider withdrawing from these countries, Doyle says this is unlikely, and while it may lead to less profit, it will not result in losses.

The group is in a sound financial position, with cash generated from operations improving 31% to R1.9bn and net interest-bearing debt reducing by R1.1bn.

It warns that the full impact of the value of the rand and the drought is “yet to be fully felt on the shelf” and there will be price increases. The group is focusing on costs. “We are facing a tsunami of cost-push,” says Doyle. But it will not cut back costs which will haunt it in future years, hence its continuing investment in marketing its brands.

MacDougall says the strategic review is aimed at understanding opportunities for growth as well as current and potential headwinds, with a focus on the brand categories and relevant geographies. The situation is volatile in terms of human behaviour and shopping trends, and the review is aimed at very specific and strategic choices.

As he has just joined the group, it is not appropriate for him to comment on what went wrong in the past, he says. But this set of results shows that the team has made progress and a fair amount of work has been done to ensure it does not repeat its mistakes. ■

[email protected]

Tiger Brands warns that the full impact

of the value of the rand and the

drought is “yet to be fully felt on the

shelf” and there will be price increases.

The group is in a sound financial position, with cash generated from

operations improving

31%to R1.9bn and net interest-bearing

debt reducing by

R1.1bn.

Anglo American has already taken its overheads down by 50% and is looking to achieve more. Of the four buildings in Johannesburg, it could probably compress employees who survived the downsizing into two buildings.

Might it also look to replicate the De Beers move in Johannesburg with the diamond group’s surviving employees moving from the

Crown lodgings in the west of the city to Marshall Street or Main?

Interestingly, De Beers rents its offices in Crown whereas Anglo American owns its premises. If such a move were affected, it would also bring the groups together as they once shared offices prior to the controversial delisting of De Beers by previous part-owner, the Oppenheimer family.

As for Charterhouse Street, its famed high-security vaults in which it once stored billions of dollars worth of diamonds – for use when the market was starved of supply – is no longer required.

In a new 10-year marketing agreement through its Botswanan joint venture company Debswana, De Beers agreed to move its diamond-sorting operations to the country’s capital, Gaborone.

According to The Guardian, Anglo will seek a buyer for its Charterhouse offices, including the rooftop helipad used by Nicky Oppenheimer, once the chairman of De Beers before selling his family’s stake for a neat $5.1bn – roughly half of Anglo’s value today. ■

[email protected]

three hundred employees of De Beers this month began making the 3.7km trip from 17 Charterhouse Street, offices of the diamond group for nearly a century and

handily located near Ye Olde Mitre – London’s oldest pub – to 20 Carlton House Terrace, HQ of 85% shareholder Anglo American.

The move is part of a cost-saving drive that has more than just sentimental value at its heart as it also sees Anglo shed about a third of its 133 000 strong staff.

A natural question flowing from these moves is whether Anglo is considering a similar change to its Johannesburg properties. After all, Anglo owns four substantial buildings in Johannesburg, including the iconic 44 Main Street, the walls of which are covered with tapestries and Georgian etchings.

Says Pranill Ramchander, spokesperson for the UK group in Johannesburg: “Everything is up for consideration; we would consider it.” That sounds very much like a yes; that Anglo is to downsize its Johannesburg presence, if not vacate the place altogether.

Sources tell finweek though that this isn’t a simple decision. Thought must go towards what Anglo represents to Johannesburg, not least of which is its founding-father position. It also contributes towards the security of the city.

“They [Anglo] have to make some calls, especially when you’re changing the shape of the organisation, change will inevitably occur. And you’re already seeing that. When you walk around the offices there, there are a lot of vacancies,” one source says.

By David McKay

Could Anglo be leaving the City of Gold?A cost-saving drive sees Anglo possibly selling the De Beers offices in London. The company could be considering doing the same with its properties in Johannesburg.

on fin24.com#trending

Zuma signs law to appease provident fund members

President Jacob Zuma has signed the Revenue Laws Amendment Act

into law to postpone annuitisation for provident funds, according to National

Treasury. This affects provident fund members only, by delaying the requirement for them to purchase an annuity at retirement and the ability to transfer accumulated retirement

savings between all retirement funds tax-free until 1 March 2018. It was

initially due to come into effect on 1 March this year, but pressure from labour unions forced government

to reconsider the deadline. All other aspects of the retirement reform

amendments contained in the Taxation Laws Amendment Acts proceeded as

scheduled on 1 March 2016. 24/05/2016 10:26

Twitter loosens rein on 140-character limit

Internet micro-blogging tool Twitter will relax certain conditions regarding its 140-character limit, the company

said in a recent blog post. Replies using the ‘@’ symbol and media attachments

such as photos and videos will no longer count toward the 140 character

limit, said Twitter’s senior product manager Todd Sherman. “Over the past decade, the Tweet has evolved from a

simple 140-character text message to a rich canvas for the creative expression

featuring photos, videos, hashtags, Vines, and more,” he wrote.

24/05/2016 16:34

How to stop smartphone data drain

Mobile applications running in the background of smartphones

cause South Africans to complain about disappearing data, according

to industry association, Wireless Application Service Providers’

Association of SA (Waspa). “Unmanaged data usage can easily

deplete airtime balances when apps are automatically updating and fetching new content users haven’t requested,”

said Waspa general manager, Ilonka Badenhorst. “Our advice to mobile users is to disable automatic app

updates in (their) settings.” 25/05/2016 08:10

CARL

COUR

T / AF

P

That sounds very much like a yes; that Anglo is to downsize

its Johannesburg presence, if not

vacate the place altogether.

The De Beers headquarters in Charterhouse Street, central London.


finweek 2 June 2016 13 @finweek finweek finweekmagazine

g old hedging – selling gold at a pre-determined price before it is mined – became a dirty couple of words in the mining

industry especially as the price of bullion began to increase shortly after the 2008/09 global economic and financial crisis.

At that point, gold was about $800/oz before adding $1 000 to its value by 2011, when it traded at about $1 800/oz. Locking in profits in the teeth of a bull market hardly made any sense.

In any event, investors could all too well remember the travails of Ashanti Goldfields, which almost went bankrupt after burning its fingers on exotic derivatives contracts. AngloGold Ashanti, meanwhile, paid $1 300 per gold ounce to cancel its hedge book in 2010 at a cost of $2.6bn – it was a painful exercise, but it saved itself billions of dollars over the next few years as gold soared.

Funny, then, that gold hedging had made a minor comeback in the first quarter of 2016.

According to JP Morgan Cazenove’s commodity team, some 79.6 tons of hedging was announced in that period alone compared to only 9.2 tons in the whole of 2015. What’s strange about this is that gold staged a revival in the first quarter of this year after several years of retraction – a development that suggests investors think the recovery of bullion could give way to volatility.

“JPM feels that hedging strategy in Q1 shifted from protecting specific projects at the beginning of the quarter towards more strategic though still short duration hedging towards the end as producers found it increasingly more prudent to lock in hard-earned profits,” said John Bridges, an analyst for JP Morgan.

The view of Nick Holland, CEO of Gold Fields, is that banks might be concerned gold is peaking hence the pressure on their clients to take advantage of the strong price now.

“I understand if people feel pressure to do it and if they do it in small chunks maybe it’s not that bad,” he said. “Remember that global [gold] supply is probably 2 000 tons. So if you

By David McKay

Gold hedging makes a comebackSome predict a bull run for the yellow metal – did those hedging make a wise choice?



Mark Bristow CEO of Randgold Resources

Nick Holland CEO of Gold Fields

annualise it [79 tons over 12 months is 6.6 tons a month] it’s still quite small.

“Philosophically, we don’t believe in the risk,” said Holland. “We don’t believe in putting a product on to the market before you’ve even produced it,” he added.

Peter Steenkamp, CEO of Harmony Gold, acknowledged hedging metal was “a tool you can use”, but his company’s preference has been to hedge the currency as an alternative means of minimising gold market volatility.

Harmony announced in February that it would hedge about a third of its rand receipts for about R6.2bn. In other words, it has established a minimum and maximum exchange rate at which its future dollar gold

sale proceeds could be exchanged into rand. “This has stood us in good stead with all the volatility in the currency this year,” said Steenkamp.

He added that the group would keep an eye out as to a good time to lock in gold sales, a tactic which Randgold Resources CEO, Mark Bristow, also said he was not averse to. “We do it when we’re starting up a project or closing it; for instance, we hedged the final production of Morila [a gold mine in Mali] just to enable us to push it to shore,” he said.

Bristow doesn’t believe now is a good time to hedge generally, however. “Large-scale hedging is

a joke. And the stars are aligning for another gold bull run, which you’re seeing with all the political turmoil across the globe,” he added.

Said Holland: “The long-term fundamentals for gold is very positive with production having come off last year. Central banks are buying; ETFs [exchange-traded funds] have gone up.

“The fundamentals are good but it’s going to take a while to run through the system. We haven’t seen that yet, but I think between now and then you can expect some volatility,” he said.

At the time of writing, the gold price in dollars has increased nearly 18% year-to-date from $1 060/oz to $1 250/oz whereas in rand, the increase in the price received by SA gold miners has increased about a fifth. At R630 000, the rand gold price is at its highest for at least five years. ■

[email protected]

“The long-term fundamentals for gold is very positive with

production having come off last year.

Harmony announced in February that it would hedge about a third of its rand receipts for about

R6.2bn.

PERFORMANCE (ANNUALISED)

■ PSG Diversified Income Fund ■ Benchmark as at 30 April 2016:

Latest 12 months

Latest 3 years

Latest 5 years

Since inception in April 2006

8

2

4

6

0

7.4% 7.5%

6.5%7.3%

Fund manager insights:The fund’s equity exposure, which is close to its mandated maximum 10% of the underlying fund value, is skewed towards those stocks that provide annuity-like income, explains Ian Scott, manager of the fund. These stocks include banks and life insurers.

“If you think about income funds, they’re basically a quasi-bank product,” he says. This means that they need to supply investors with a constant income stream.

The fund sees opportunities in financial stocks as they’ve been “unloved” for a number of years, especially the banking stocks, explains Scott. Following the 2008 financial crisis and subsequent tightening of banks’ capital requirement rules, their risk profiles have changed for the positive.

“Banks are much safer than they were prior to the 2008 crisis,” says Scott. Stricter domestic credit-granting rules, through the National Credit Act, also contributed to banks’ healthier balance sheets, according to him.

The fund’s allocation to domestic bonds, at around 43%, is focused on corporate floating-rate notes, which limit investors’ exposure to credit risk, says Scott. Nominal government bonds, which pay fixed interest rates, comprise around 15% of the fund, he says.

There is no exposure to inflation-linked government bonds, says Scott. They’re currently trading at yields of around 1.7 percentage points higher than inflation, which makes them expensive, according to him. In addition, these bonds are less liquid and don’t allow for easy entry or exits from positions, he says.

In that sense, nominal government bonds offer better propositions with yields at about 2.5 percentage points higher than inflation, according to Scott.

The fund’s cash holding (48% of total assets, as at 30 April) is skewed towards bank debt with maturities longer than 12 months. Bank funding shifted in 2014 as the stricter capital adequacy requirements of Basel III regulations were adopted by local banks, forcing them to adjust and align their liabilities with their assets.

“Last year you could buy three-year bank NCDs [negotiable certificates of deposit] at yields of inflation plus 2.5 percentage points,” says Scott. “We took that opportunity last year.”

Why finweek would consider adding it:The fund has been outperforming its real benchmark over a couple of historical periods, thus ensuring capital stability to investors while delivering inflation- beating yields. ■

[email protected]

as at 30 April 2016:

1 Berkshire Hathaway 2 Old Mutual plc3 Markel Corp.4 FirstRand 5 Microsoft Corp.

TOP EQUITY HOLDINGS

as at 30 April 2016

1 Standard Bank of SA 2 Absa Bank 3 Republic of South Africa4 Nedbank Group 5 FirstRand

TOP ISSUER EXPOSURE:

market place

Don’t miss: The finweek: Money

Matters show every Friday at 1PM on CNBC Africa, channel 410. In the show, we talk to experts about this issue’s top stories.

FUND IN FOCUS: PSG DIVERSIFIED INCOME FUND

Cashing in on banksBy Jaco Visser

Benchmark: CPI + 1 percentage point

Fund managers: Ian Scott and Paul Bosman

Total expense ratio (TER): 1.18%

Fund size: R974m

Minimum lump sum/ subsequent investment:

R2 000 or R250 monthly

Contact details: [email protected] or 0800 600 168

FUND INFORMATION:

The fund invests predominantly in fixed-income-type assets and is mandated to allocate as much as 10% to local and foreign equities.

Nominal government bonds, which pay fixed

interest rates, comprise a

15%of the fund.


7.6%

6.6%

7.8% 7.4%

I’ve maintained a bearish outlook on Richemont since last year – it was overextended and needed to correct. The luxury goods group has gradually pulled back over the past months – at the time of writing, it was down nearly 15% since the start of the year (also see page 20).

The group, whose brands include Cartier, Montblanc and Van Cleef & Arpels, warned on 20 May that global trading conditions will remain tough until September, with sales in April dropping 18% from a year ago. Watch sales have been hit especially hard, and Swiss manufacturers are facing high costs due to the strong franc. The Swiss National Bank stopped maintaining the franc’s peg against the euro in January 2015, leading to a strengthening in the currency.

Watch sales, which were down 8% at constant rates, were also hurt by lower demand in Hong Kong and lower tourist numbers in Europe following the terrorist

attacks in Paris and Brussels. The segment still contributes the bulk of Richemont’s revenue, accounting for 46% of sales in the past financial year (2015: 49.6%). For the year to end March, Richemont reported a 6% increase in sales to €11.1bn, with net profit jumping 67% to €2.23bn, short of analysts’ expectations. Operating profit was down 23%, partly due to the impact of foreign exchange fluctuations. Its net profit was boosted by an exceptional €639m gain related to the sale last year of Net-a-Porter, its luxury online store.How to trade it: Stay short if Richemont encounters major resistance at 9 950c/share, as support at 9 110c/share could then be retested. If that level should give in, next support would be at 8 600c/share. Richemont would have to trade above 10 035c/

share to escape its current bear trend and above 10 675c/share to recover its previous losses. Failing which, go short or stay short with a reasonable trailing stop-loss. ■[email protected]

Recent results show growth across all regions. Much of this growth was organic and even the South African division managed to increase the bottom line.

The company is also generating more cash thanks largely to the offshore operations and it now has just over R120m cash on hand, up 175% from the previous period. The market cap is only some R650m, so just under a fifth in hard cash. As cash was rising, Santova’s debt was falling, with the debt-to-equity

house view

RICHEMONT

SANTOVA*

A tiny player expands impressively

Reeling from several blows

By Simon Brown

By Moxima Gama

HOLD

HOLD

SELL

SELL

BUY

BUY

Last trade ideas

Netcare

AngloGold Ashanti

Barloworld

FirstRand

HOLD

BUY

BUY

HOLD

Last trade ideas

Calgro M3

Kumba Iron Ore

Apple

Capital & Counties Properties

marketplace

ratio falling by more than half. So all round a good set of numbers for

this micro-cap stock, but the market was not interested as the stock remains stuck at around 400c. This is of no concern to me; at some

point the market will wake up and start bidding the share higher. That said, it might take a while for this to happen. We all love to see stocks we own moving up, but sometimes they remain static and we need to be patient.

I have been adding to my position at around 400c. ■*The writer owns shares in Santova.

BUY

BUY

BUY

SELL

Imag

e: ww

w.ca

rtier

.com

Watch sales, which were down

8%at constant rates, were also hurt by lower demand in Hong Kong and lower tourist numbers in Europe.

Santova now has just over

R120mcash on hand, up

175%from the previous period.


The Ballon Bleu watch by Cartier, one of

Richemont's brands.

to 540 000 (2016: 412 000); Mozambique to 300 000 (2016: 232 000) and Swaziland to 58 000 (56 000). The group is also benefitting from increased market protection for sugar in SA.

Tongaat Hulett is scheduled to release its results for the year to end March on 30 May.

TONGAAT HULETT

TONGAAT HULETT

t he drought in KwaZulu-Natal has hurt local sugar producers, with Tongaat Hulett warning in a

trading statement on 20 May that its operating profit for the past financial year is expected to drop by some 13.5% to R1.8bn, driven largely by an 84.6% drop in operating profit from its sugar operations.

Tongaat Hulett produces sugar in South Africa, Zimbabwe, Mozambique and Swaziland. Its other key business operations include its starch and glucose operations, as well as land conversion and development, which has been a lucrative business for the group. In the financial year to end March, Tongaat sold 121 developable hectares in attractive areas such as Umhlanga on the north coast of KwaZulu-Natal, contributing more than R1.1bn to the group’s operating profit, it said in its trading statement. This compares

with the sale of 108 developable hectares sold at a profit of R829m in the 2015 financial year.

Its sugar operations, traditionally the core of the business, have however been struggling. Sugar production declined in all its markets, but SA was hardest hit, with production dropping more than 40% to 323 000 tons in the past financial year. Zimbabwe was the biggest producer for the group, with output of 412 000 tons (2015: 445 000). Overall sugar production totalled 1.02m tons, down from 1.3m tons in 2015 and 1.4m in 2014. In addition to the lower production, export revenues were also impacted by lower international sugar prices.

Tongaat Hulett is the biggest private sector employer in both Zimbabwe and Mozambique, illustrating the importance of the sector for the regional economy. In SA, about 1m people are directly impacted by the local sugar

Results may not be so sweet

What next? Possible scenario: In my previous technical analysis of Tongaat Hulett, published in the 11 June 2015 issue, I suggested a short below 13 615c/share, as the descending phase of a double-top pattern had potential to depreciate the share price to the 8 545c/share level. Having fulfilled that objective and retaining support at 7 785c/share, Tongaat Hulett has breached the resistance trendline of its major bear trend, even confirming a positive breakout above 10 700c/share. Therefore, go long. Above 12 500c/share, Tongaat Hulett would return to its previous bull trend. A 100% retracement to 17 500c/share would be possible in the medium term on continued upside through 13 600c/share.Alternative scenario: The previous bear trend would be resumed below 9 540c/share. Support at 7 785c/share could soon be tested and even breached. ■ [email protected]

52-week range: R77.85 - R137.84

Price/earnings ratio: 14.65

1-year total return: -14.3%

Market capitalisation: R14.5bn

Earnings per share: R7.34

Dividend yield: 3.5%

Average volume over 30 days: 225 016

SOURCE: INET BFA

Moxima Gama has been rated as one of the top 5 technical analysts in South Africa. She has been a technical analyst for 10 years, working for BJM, Noah Financial Innovation and for Standard Bank as part of the Research Team in the Treasury Division of CIB.

industry, whose players include Illovo Sugar and Tsb Sugar, which is owned by RCL Foods.

After a long bearish streak – the share lost 46% of its value in 2015 – Tongaat Hulett is finally recovering, with a 22% increase in its share price since the start of the year. And despite the poor performance by the sugar operations in the past financial year, the group is forecasting substantial growth in output in the next three years. South African output is expected to grow to 715 000 tons by 2018/19 (2016: 323 000); Zimbabwe

Moxima Gama on finweek: Money Matters on CNBC Africa every Friday at 1pm.

Don’t miss!

By Moxima Gama

marketplace killer trade

Tongaat Hulett is scheduled to release its financial year results at the end of May and the group has warned investors to brace for a lower operating profit, with sugar production having declined in all its markets.

SOURCE: MetaStock Pro (Reuters)

Peter Staude CEO of Tongaat

Hulett

Gallo

Imag

es/iS

tock


Richemont results included lots of accounting one-offs, from both the previous and current period, which all impacted results. But the short version is that it’s finding it tough, with the gross margin down 1.8% while operating margins fell 7% (in part due to the one-offs). I remain a shareholder and, as mentioned previously, have been buying down at these levels. What

is being missed is that Richemont has almost R100bn in net cash and this is about 20% of its market cap. This reduces its price-to-earnings ratio (P/E) to below 20 times and raises the issue of what it’ll do with the pile of cash. It’s not buying back shares and the dividends

remain modest. Most likely it will hang onto the cash pile and use it when it finds compelling acquisitions.

RICHEMONTGOODERSON LEISURE

The market did not much like the Netcare results as operational leverage all went the wrong way. Revenue was up 15.4%, profit after tax up 20.7% and earnings before interest, taxation, depreciation and amortisation (ebitda) up 13.6%, while headline earnings per share (HEPS) only grew 10.9%. You want HEPS to be the faster-growing number, showing strong operational leverage. Take it a step further and the interim dividend was flat at 38c, but a line in the results stated that debt was higher in part because dividend was being paid from debt! I get what the directors are doing – keeping continuity with the dividend, in part, to protect the share price because a reduced dividend would spook the market. But paying dividends from debt can become a dangerous spiral and I would rather a company cut the dividend than fund it with debt.

NETCARE

Simon’s stock tips

Simon’s stock tips

Founder and director of investment website JustOneLap.com, Simon

Brown, is finweek’s resident expert on the stock markets. In this column, he provides insight into the week’s main

market news.

Dangerous dividend debt

By Simon Brown

marketplace Simon says

Might be something here…Gooderson is a stock I keep on going back to; on the surface it looks really great, but an absolute lack of liquidity has always bothered me and the bid/offer spread is currently sitting at over 20%. Its latest announcement got me poring over the numbers again. It’s selling assets that in total will net some R30m, with the final payment due in June 2017. Now with a market cap of only just above R62m, Gooderson becomes seriously interesting. The sale has not been without issues as it’s now on the third buyer and the price of SanRock resort has dropped from R11.5m to R8m. But if it can pull this deal off, I will dig deeper and see if it is possible to build up a stake in the company.

CAPITAL APPRECIATION

Watching keenly to buyI wrote about Capital Appreciation when it initially listed and was trading at around 120c. At the time I was not impressed as the net asset value (NAV) is only 80c and, importantly, that NAV is cash as it’s a special purpose acquisition company (SPAC), and it needs to make a deal. Thus far Captial Appreciation hasn’t conducted one, but with a very impressive board I expect it will pull off a deal and I am watching the share closely. If the share reaches the low 80s ( just above NAV) I would be a buyer. ■

[email protected]

*The writer owns shares in Richemont.


Sitting on a cash pile

Spar results were decent enough but Ireland does not look awesome. The gross margin in Ireland is better than South Africa, but after operating expenses Spar’s left with almost zero operating margin. Ireland is earning euros and has some new deals in place that should improve the situation, while the announced acquisition of Spar Switzerland looks attractive. But I want all these deals to settle down before deciding how great they really are. Deals always carry the risk of overpaying, lack of efficiencies and the like, so let’s give it another year to see how the deals will really work.

SPAR

Let’s see how foreign deals play out

www.

spar

.co.za

Paying dividends from debt can become a dangerous spiral and I would rather a company cut the dividend

than fund it with debt.

What is being missed is that Richemont has almost R100bn in net cash and this is about

20% of its market cap. This reduces its price-to-earnings ratio (P/E) to below 20 times and raises the issue of what it’ll do with the pile of cash.

broadly it stands. Construction companies have only price as their edge and that results in a race to the bottom that sees them slashing profit margins. There is nothing attractive about that and that’s why I stay well away from the industry.

■ Is there legislative risk?Another issue I look at is legislative risk. Is there a danger that government will change the playing field and threaten profits?

Here the industry to look at is healthcare. This is a booming space as we humans continue to live longer and longer. We’re also able to cure more ailments and illnesses and

today consumers have more wealth to pay for treatment. Add in regulations that make becoming a healthcare provider a long, complicated and expensive process, and on the surface healthcare is an excellent space to operate in. Further, healthcare is not something the average

person will skimp on and if you’re sick you’re very likely to do something about it.

What’s not to love? Legislative risk, that’s what. Healthcare costs that have been rising well above inflation, which is of concern to governments around the world.

We’ve already seen single-exit pricing in the pharmacy sector locally and we’re likely to see more crackdowns on healthcare costs

across the world. Hence the only space you’d want to look at in healthcare is generic drugs and drug distribution (and maybe retail). Aspen is hence the natural choice for further digging, as is Clicks, with its in-store pharmacies and UDP drug distribution business, while Discovery* is a company that would actually benefit from lower healthcare costs. So with just a few minutes’ thought we’ve managed to remove 20 or more potential investments from the pool of some 500 investable companies,

reducing our workload and helping us to find awesome stocks to buy. ■

[email protected] *The writer owns shares in Discovery.

there are some 500 shares on the JSE, but I only want to invest in about 10 to 12 of them. As I have written many times before, I only want the absolute

best of the best. No second best, no maybes, only the proven best in their respective industries.

As analyst Jean Pierre Verster (formerly of 36One, currently on gardening leave after resigning in May) once said to me: “Just because a stock is listed does not mean you need to own it.” He’s right, absolutely right. My process of stock selection is actually more about finding industries and stocks to avoid. If I can decide that an entire industry is just not investment grade (by my requirements of quality), then my workload is reduced. So for me a large part of the investment process is to start with looking for reasons not to even bother with an industry.

Knowing that I want to avoid a sector means I don’t have to spend time looking at the individual stocks within that sector, which gives me more time to focus on winning stocks and industries. This is important – we’re part-time investors and don’t have the luxury of spending all our time researching potential investments.

So how do you identify these sectors to ignore?

■ Does the sector have an edge?One of the first questions I always ask is what the industry’s edge is. Let’s take this into the construction industry: what is its edge?

In short, there isn’t one. Sure some within the industry have differing skill sets and/or experience, but surely anyone can acquire those. The reality is that for this sector, the edge is about price, how cheaply you are able to complete a project. Now if the only thing separating you from the competition is price, then you have no moat as the competition can just drop their profit margin and be cheaper than you.

Now, sure, this is a simplistic view, but

marketplace invest DIY

PORTFOLIO COMPOSITION

By Simon Brown

How to weed out undesirable sectorsA quick way to eliminate a large chunk of JSE-listed stocks as potential investments is to remove entire sectors that are less than stellar from the equation.

“Just because a stock is listed does not mean

you need to own it.”


So with just a few minutes’ thought we’ve

managed to remove

20 or more potential investments from

the pool of some 500 investable companies, reducing our workload and helping us to find

awesome stocks to buy.

Gianlu

igi Gu

ercia/

AFP/

Getty

Imag

es


By Shaun Murison

marketplace pro pick

REINET INVESTMENTS SCA

Much value to be had

b orn out of the Compagnie Financière Richemont (CFR) stable, Reinet Investments SCA was established as a

separately listed investment vehicle, with the group’s primary asset being that of the former Richemont’s interest in cigarette manufacturer British American Tobacco (BAT).

The group has a keen focus on a wide range of asset classes, including both listed and unlisted equities, bonds, real estate as well as derivative instruments with a view to take on long-term investment opportunities while placing an emphasis on the protection of shareholder capital.

The group trades on a very conservative price-to-earnings ratio (P/E) of around 5 times, with a forward P/E estimate of around 7 times, although with investment holding companies it is prudent to look at the net asset value (NAV) as a more meaningful metric in terms of assessing the value proposition.

As guided by the group’s most recent results, for the year to end March, the Reinet Fund SCA (a wholly owned subsidiary of Reinet Investments SCA) had a NAV amounting to €5.2bn, reflecting a year-on-year increase of 3%. A rough estimation regarding the group’s asset composition sees

The current share price appears a significant undervaluation relative to the wealth of its assets.

The assets of this investment company are significantly undervalued. It is an option for investors looking for a safe harbour in the current uncertain environment.

the investment in BAT at nearly 70% thereof, the holding in the Pension Corporation (in the UK) is around 17% of NAV and the balance of the unlisted assets around 13% of NAV. Net borrowing from medium-term financing provides about a 5% negative contribution to the NAV figure.

Dividing the NAV by the number of shares in issue and converting into a rand value (using an exchange rate of R17/€) results in a NAV value per share of around R45. The value of the Reinet Fund will vary from that of its parent company, Reinet Investments SCA, when considering the parent company’s assets, liabilities and including amounts payable and receivable (from the fund), although it does make up the most substantial element of the group’s balance sheet and valuation.

Even if the NAV figure is discounted further, the current share price appears a significant undervaluation relative to the wealth of its assets. While it is often the case that an investment holding corporation will trade at a discount to NAV, the apparent discount for Reinet looks to be between 25% and 30% (depending on exchange rate and current share price), which is substantially larger than that of its sector peers.

As the BAT investment accounts for slightly more than 70% of the group’s NAV, we can deduce that the current share price is essentially fully valued in terms of the BAT holding. This means very little value has been assigned to the share price in terms of the group’s unlisted investments. Valuing the unlisted assets does have an air of subjectivity, especially that of a pension fund (Pension Corp), which finds uncertainty in terms of valuation through being a liability-driven investment as well as being reliant on actuarial assumptions. However, we think it is think is unfair to apply little to no value on these assets.

Reinet Investments SCA, through the Reinet Fund, provides a defensive edge in an uncertain marketplace. The quality of assets appears significantly undervalued within the company’s current share pricing, which in turn provides a potential arbitrage opportunity for the far-sighted investor. ■[email protected]

Shaun Murison is a market analyst at IG.

A rough estimation regarding group’s asset composition sees the investment in BAT at nearly

70% thereof, the holding in the

Pension Corporation (in the UK) is around 17% of NAV and the balance of the unlisted assets

(net of liabilities) at around

13% of NAV.

52-week range: R24.91 - R34.90

Price/earnings ratio: -

1-year total return: +35.88%

Market capitalisation: R68bn

Earnings per share: -

Dividend yield: 0.67%

Average volume over 30 days: 2 848 070

REINET INVESTMENTS SCA

3 500

3 250

3 000

2 750

2 500Jul ‘15 Sep ‘15 Nov ‘15 Jan ‘16 Mar ‘16 May ‘16

Cents

SOURCE: INET BFA Gallo

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i will never forget how revolutionary Pantene 2-in-1 shampoo (shortly followed by the well-known Dimension 2-in-1 shampoo) became in the late 80s. Before

then, you were forced to purchase shampoo and conditioner in separate containers if you needed those products. The invention of 2-in-1 shampoo wasn’t only a matter of convenience for consumers, who could now enjoy both products in one bottle, but it also meant that they could save money in the process.

In the same way that we had to purchase shampoo and conditioner separately before the 80s, many investors looking to buy shares are still made to believe that if they don’t have enough capital to distribute over more than one or two shares, their choices are limited to unit trusts and more recently, exchange-traded funds (ETFs) only. But this is completely inaccurate. In fact, there are several other options available to such investors. A holding company is a lot like 2-in-1 shampoo: in one bottle (share) you can have exposure to several listed and unlisted companies. This type of company, as its title suggests, is the holder of several other companies.

Remgro remains one of the best-known South African holding companies and due to the amazing value that these types of companies currently offer, I would like to focus your attention on Remgro this week.

Remgro was founded in the 1940s by well-known entrepreneur, Dr Anton Rupert, made its initial appearance as the tobacco company, Voorbrand, and later became known as Rembrandt Group. Rembrandt was listed on the JSE exactly 60 years ago this year, and made its debut as Rothman’s International on the London Stock Exchange (LSE) in the 1970s. In 1980, Rembrandt decided to separate its South African interests from its offshore interests, which led to the rise of Richemont. Since then, the company has been restructured several times, and it has distanced itself from quite a few companies in the process, of which the most famous transaction has to

be the unbundling of British American Tobacco Company (BAT) in 2008.

There was great concern that Remgro wouldn’t be able to keep up its successful run after this unbundling, but these rumours were unfounded as Remgro not only managed to outperform the FTSE/JSE All Share Index by 20% since the BAT unbundling in 2008 (28 October 2008 to 18 May 2016), but when compared to the South African General Equity Unit Trust Sector, of the 78 funds available, only 36One, Foord, NGI Prive Wealth and PSG Asset Management managed to outperform Remgro over the same period.

Today, Remgro consists of eight listed companies, which make up 80.2% of the holding company, along with quite a few unlisted companies. Its largest holdings can be found in the local and LSE-listed MediClinic, RMB Holdings and RMI Holdings. Both RMB and RMI are holding companies in their own right and, in turn, own several well-known companies and banks, including Discovery, FNB, MMI and Outsurance.

What probably attracts me to Remgro the most is its discount to intrinsic value. Because more than 80% of Remgro is listed,

it makes it easy to monitor when the company offers more value compared to other times. At current market prices, Remgro’s net asset value (intrinsic value) per share amounts to R310, while the share price is trading around R235. This not only means that you’re getting more than one product in one bottle, but also that you get ‘310ml’ for the price of ‘235ml’.

Since 2010, Remgro has traded at an average discount to intrinsic value of roughly 14%.

This discount now stands at 30%, its widest levels in six years, which looks very attractive to me, even at these uncomfortably high-priced JSE valuation levels.

REMGRO

The all-in-one share

By Schalk Louw

marketplace investment

Remgro has been performing very well and holds great intrinsic value. Schalk Louw explains why this share is an excellent investment for the long term.

SOURCE: Remgro

COMPANIES VALUE (RM) % OF TOTAL Mediclinic (LSE) 13 599 8.3% Mediclinic SA 48 241 29.3% RMB Holdings 20 737 12.6% RMI Holdings 17 944 10.9% RCL Foods 9 994 6.1% Distell 10 129 6.2% FirstRand 9 363 5.7% Grindrod 2 054 1.2% Other investments 32 409 19.7% Net asset value 164 469

*As at 18 May 2016SOURCE: PSG Old Oak

Remgro is a fantastic company with a long and rich profit history. As a Western Province and Stormers supporter, I could only wish that it owned more than its current 24.9% holding in WP Rugby, versus its 50% holding in Blue Bulls Company. Irrespective of my rugby interests, however, Remgro remains an excellent value proposition over the long term. ■

[email protected] Schalk Louw is a portfolio manager at PSG Wealth.

SHARE PRICE PERFORMANCE SINCE REMGRO/BAT UNBUNDLING VS

FTSE/JSE ALL SHARE INDEX

Remgro’s net asset value (intrinsic value) per share amounts to

R310,while the share price is trading around

R235.

Rembrandt was listed on the JSE exactly 60 years ago this year, and made its debut as Rothman’s International on the London Stock Exchange (LSE) in the 1970s.

INVESTMENT COMPOSITION* OF REMGRO


30 000

02/0

1/09

02/0

2/10

05/0

3/11

29/0

1/12

28/0

2/13

24/0

1/14

24/0

2/15

28 000

24 000

20 000

16 000

12 000

8 000

REMGRO ALSI FINDI

As at 30 June 2015, Remgro outperformed the:- Alsi by 50.2%- Findi by 9.7%

As at 15 September 2015, Remgro outperformed the:- Alsi by 50.5%- Findi by 9.6%

big earners need to focus on building wealth just as much as lower-income earners.

If you earn, say, R80 000 to R100 000 or even more per month you may think

that you’ve made it. But getting out of the “hunting state” and losing the killer instinct too soon could see you moving right back to the bottom of the food chain.

True financial independence means saving up enough money to live off the income for life. How much do you need? As a general rule, for every R1 000 of monthly income that you want, you need about R240 000 in capital.

People who earn large incomes for certain periods should ideally take advantage of that higher income to feather their nest and fast-track their progress towards financial independence. This strategy will ensure that they can maintain an above-average standard of living for life. If you aren’t saving, you can enjoy a really comfortable standard of living while the income is flowing, but then drop back into the sad pool of South Africans who have underfunded retirements once it stops.

Some people think that as soon as they earn a big income they no longer need to use a personal budget. But this is a completely erroneous deduction that turns many top income earners into hard-up pensioners with underfunded retirements, forcing them to find a job to supplement their income in their 70s.

Many big earners are unaware that they need to be working toward financial independence. A medical doctor once told us that he always thought that if he just put his head down and went for it everything would work out in the end. But after doing a thorough financial plan he realised that his income had given him a false sense of security.

Big earners are less likely to control the outflow of money in their month-to-month private spending. If they see it and they want it, they buy it – without paying attention to mundane concepts such as actually budgeting for it, which is for “lesser mortals with smaller incomes”.

In fact, when it comes to financial faux pas, people with bigger incomes generally make the most expensive mistakes. Big earners tend to have a sense of financial invincibility. They are not too concerned with going into overdraft because they know that they have the ability to

wipe it out in a month or two, if they really had to. But the truth is that higher earners cannot be

totally relaxed until they have built up an investment portfolio big enough to support them for life: this is financial independence. Until then, they should be in a kind of hunter state, working toward the prize of true

financial independence.I’d like to share two examples with

you. Steve had a cash business with a huge turnover but a very thin profit margin. Because large volumes of cash moved through the business he made a considerable amount of money, even though the margins were wafer thin. He sold the

business and bought another one with a lower turnover but larger profit margins with the idea that he could spend less time working and have a better quality of life. However, a few of the old habits that he had developed during his big turnover days almost sank his financial ship.

While going through a financial planning exercise, Steve was asked to make a list of his debt. After adding up the numbers he felt ill. He always knew that he had many accounts but he had no idea that cumulatively he was over R2m in debt.

He realised that by becoming accustomed to dealing with

enormous amounts of money on a daily basis, he began to disregard small

amounts of R100, R500 or even one or two thousand. Do that for long enough and the small amounts become big amounts.

By contrast another self-made millionaire asked for help in reshuffling his personal financial portfolio. Interestingly, this man, who is in the top 5% of income

earners, would query a R300 discrepancy on his bank statement. Although this was a

small amount relative to his wealth, he didn’t ignore it – he watched all his outflows carefully.Income is not wealth. If you earn R1m and

you spend R1m you are not getting wealthy, you are just living high. Wealth is not what you earn, it’s what you accumulate. ■

[email protected]

Paul Leonard is Citadel’s regional head: Eastern Cape.

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Wealth depends on how much you save, not how much you earn

marketplace retirement

FINANCIAL PLANNING

By Paul Leonard


It is a fallacy that only lower-income earners must plan their finances carefully – even the rich can end up struggling after retirement if they spend recklessly.

Big earners tend to have a sense of financial

invincibility.

Interestingly, this man, who is in the top

5% of income earners, would query a

R300discrepancy on his bank statement.

DIVIDEND RANKINGSHARE F’CAST

DPS (C)F’CAST DY (%)

REBOSIS 121 12.4

DRDGOLD 80 10.7

LEWIS 460 9.6

EMIRA 146 9.5

OCTODEC 203 9.2

VUKILE 148 8.8

ACCPROP 54 8.6

PAN AFRICAN 26 8.5

FORTRESS A 129 8.3

REDEFINE 86 7.9

COMPANY DIRECTOR DATE TRANSACTION TYPE VOLUME PRICE (C) VALUE (R) DATE MODIFIED

ALTRON A E Defillo 20 May Sell 818 580 4,744 24 May

ALTRON A KG Edmond 20 May Sell 3,023 580 17,533 24 May

ALTRON A G Geldenhuis 20 May Sell 10,685 580 61,973 24 May

ALTRON A A Holden 20 May Sell 19,194 580 111,325 24 May

ALTRON A AG Johnston 20 May Exercise Options 2,473 580 14,343 24 May

ALTRON A AG Johnston 20 May Sell 1,827 580 10,596 24 May

ALTRON A NM Kayton 20 May Sell 6,611 580 38,343 24 May

ALTRON A B Meyer 20 May Sell 5,656 580 32,804 24 May

ALTRON A W Oosthuysen 20 May Sell 5,047 580 29,272 24 May

ALTRON A PR Riskowitz 20 May Exercise Options 28,152 580 163,281 24 May

ALTRON A LM Savage 20 May Sell 8,368 580 48,534 24 May

ALTRON A AMR Smith 20 May Exercise Options 7,096 580 41,156 24 May

ALTRON A RE Venter 20 May Exercise Options 21,317 580 123,638 24 May

ARM T Mkatshana 18 May Exercise Options 13,489 9425 1,271,338 19 May

ATLANTIC LEAF P Bacon 13 May Exercise Options 6,794 £1.08 £7,337 18 May

ATLANTIC LEAF P Leaf-Wright 13 May Exercise Options 4,278 £1.08 £4,620 18 May

ATLANTIC LEAF P Leaf-Wright 13 May Exercise Options 23,786 £1.08 £25,688 18 May

ATLANTIC LEAF W Morton 13 May Exercise Options 1,667 £1.08 £1,800 18 May

ATLANTIC LEAF N Winearls 13 May Exercise Options 381 £1.08 £411 18 May

CLIENTELE IB Hume 17 May Purchase 1,299 1435 18,640 18 May




DELTA AFRICA B Corbett 16 May Purchase 44,709 1880 840,529 18 May

DELTA AFRICA B Corbett 19 May Purchase 420,000 1968 8,265,600 23 May

DRDGOLD M Burrell 20 May Exercise Options 26,325 512 134,784 25 May

DRDGOLD M Burrell 20 May Sell 26,325 846 222,709 25 May

DRDGOLD H Gouws 20 May Exercise Options 56,650 512 290,048 25 May

DRDGOLD H Gouws 20 May Sell 56,650 846 479,259 25 May

DRDGOLD WJ Schoeman 19 May Exercise Options 99,175 512 507,776 25 May

DRDGOLD WJ Schoeman 19 May Sell 99,175 825 818,193 25 May

HUDACO CV Amoils 16 May Purchase 2,650 10342 274,063 18 May

HUDACO CV Amoils 16 May Purchase 515 10342 53,261 18 May

HUDACO GR Dunford 11 May Purchase 12,382 10276 1,272,374 18 May

HUDACO GR Dunford 16 May Purchase 2,759 10342 285,335 18 May

IMPERIAL OS Arbee 17 May Purchase 23,200 12701 2,946,632 23 May

IMPERIAL OS Arbee 18 May Exercise Options 54,003 12777 6,899,963 24 May

IMPERIAL MJ Lamberti 18 May Exercise Options 43,383 12777 5,543,045 24 May

IMPERIAL MJ Lamberti 18 May Exercise Options 80,340 12777 10,265,041 24 May

IMPERIAL PB Michaux 18 May Exercise Options 43,046 12777 5,499,987 24 May

IMPERIAL M Swanepoel 18 May Exercise Options 50,873 12777 6,500,043 24 May

IMPERIAL M Swanepoel 18 May Purchase 13,500 12765 1,723,275 23 May

IMPERIAL RA Venter 18 May Exercise Options 66,883 12777 8,545,640 24 May

LODESTONE G Trope 13 May Purchase 20,000 685 137,000 18 May

LODESTONE G Trope 13 May Purchase 7,000 700 49,000 18 May

NU-WORLD JK Makamu 19 May Sell 10,000 2215 221,500 23 May

RBPLAT N Carr 1 April Exercise Options 188,809 3879 7,323,901 25 May

RBPLAT LC Jooste 1 April Exercise Options 28,145 3879 1,091,744 25 May

RBPLAT SD Phiri 1 April Exercise Options 345,554 3879 13,404,039 25 May

RBPLAT MJL Prinsloo 1 April Exercise Options 241,985 3879 9,386,598 25 May

RBPLAT V Tlhabanelo 1 April Exercise Options 93,854 3879 3,640,596 25 May

SPAR R Venter 18 May Exercise Options 50,000 5023 2,511,500 25 May





STANDARD BANK MJD Ruck 18 May Sell 20,000 11477 2,295,400 19 MayTEXTON JA Legh 19 May Purchase 130,000 825 1,072,500 20 May

DIRECTORS’ DEALINGS BEST AND WORST PERFORMING SHARES

SHAREWEEK PRICE

(c)CHANGE

(%)

BEST

Beige 3 50

Coal of Africa 81 30.65

Moneyweb 25 25

Wearne 11 22.22

Ascendis 2480 13.29

WORST

Nutrition 1 -50

Atlatsa Resources 80 -38.46

Visual 13 -35

African Dawn 3 -25

Freedom Property 14 -22.22

marketplace directors & dividends


All data as at 25 May 2016 at 12:00. Supplied by INET BFA.

INDICES

INDEX WEEK VALUE

CHANGE* (%)

JSE ALL SHARE 53 050.75 0.48

JSE FINANCIAL 15 15 038.04 2.47

JSE INDUSTRIAL 25 72 098.08 1.09JSE SA LISTED PROPERTY 643.94 0.96

JSE SA RESOURCES 17 568.02 -2.74

JSE TOP 40 47 033.76 0.85

CAC 40 443 152 2.6

DAXX 1 005 731 1.15

FTSE 100 621 926 0.87

HANG SENG 1 983 043 0.02NASDAQ COMPOSITE 486 105 2.57

NIKKEI 225 1 649 876 -0.88

*Percentage reflects the week-on-week change.

cover story South Africa


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tis the eve of 9 December in the 21st year after the end of apartheid and the president of South Africa is midway through an aimless

55-minute speech about Pan-Africanism at an exclusive black-tie event attended by the leaders of no less than 10 other nations on the African continent, and the South African rand is plummeting. Fast.

The Presidency has just issued a statement to say that the much-respected finance minister Nhlanhla Nene has been relieved of his duties and replaced with the unknown Des van Rooyen. By the time afternoon comes around on 10 December 2015, hundreds of billions of rands’ worth of value has evaporated from banking shares (the prices of which dropped more

than 20%) and other financial institutions’ market capitalisations. The rand has plummeted to new record lows of nearly R16 against the dollar. (Little did we know what was still to come: on 11 January, it would touch on R17.99 against the dollar in early Asian trade after Zuma defended his decision to fire Nene, saying the market reaction was exaggerated.) It appears that the country had just been thrown back into the dark ages.

Influential leaders in the spheres of business, religion and civil society rise up, speak out and take action. Emergency meetings are called and after the sun has risen and set another three times, Des van Rooyen is replaced by Nene’s predecessor, the revered Pravin Gordhan. The game of

Nhlanhla Nene Former minister of finance



DECEMBER’S NENEGATE DEBACLE WAS BUT ONE OF MANY INSTANCES OF POLITICAL MEDDLING THAT COST THE COUNTRY’S ECONOMY DEARLY. BUT ARE THE ZUMA

ADMINISTRATION’S ACTIONS ALONE TO BLAME FOR THE DIRE STRAITS SOUTH AFRICA FINDS ITSELF IN? AND WHAT WERE THE MORE POSITIVE DEVELOPMENTS THAT HAVE OCCURRED OVER THE PAST FEW MONTHS?

finweek 2 June 2016 25

A COUNTRY WITH A KNIFE TO

THE THROATBy Petri Redelinghuys

Peter Attard MontaltoEconomist at Nomura

ministerial musical chairs has ended and the country has peered over – but thankfully not crossed – the edge of catastrophe.

The foray has come to an end as abruptly as it started – but not without claiming numerous victims. Individual investors have been decimated – the Public Investment Corporation, which manages investments on behalf of the Government Employees Pension Fund (GEPF), among others, lost R99bn in the 48 hours after Nenegate. Though Nenegate has not been the only factor, the rand was trading 29% weaker against the dollar than a year ago. The prime overdraft rate has increased by 1.25 percentage points to 10.5%. The faith of the international investing community has been lost. SA will mourn these events for a long time to come. Politics has interfered with the markets.

Gordhan versus ZumaSince the highly controversial events of Nenegate, an ongoing saga has unfolded within the South African political landscape. The president has managed to survive a Constitutional Court ruling that found he breached his oath of office, an attempted vote of no confidence in Parliament, and a High Court ruling that 783 charges of

corruption, fraud and racketeering should be reinstated against him. (Both Zuma and the National Prosecuting Authority said on 23 May that they would appeal the High Court ruling.)

Despite the lessons from Nenegate, there has been no attempt from the Presidency to publicly express confidence in, and support for, Gordhan. The finance minister’s job seems insecure, with ongoing rumours about his possible arrest related to the special investigations unit that was set up during his time as the Commissioner of the South African Revenue Service (Sars).

With the often-public battles between the Zuma and Gordhan camps – also known as the tenderpreneur and anti-tenderpreneur camps – continuing, the market has been swinging back and forth like a pendulum as the sentiment of the international and local investment community regarding the political stability of SA keeps changing.

The graph on the next page indicates to us the severe reaction the rand has had to the events of Nenegate and the reports of Gordhan’s possible arrest, which would pave the way for Zuma to fire him.

It could get worse, warns Peter Attard Montalto, London-based economist at

The faith of the international investing community has been lost. SA will mourn these events for a long time to come. Politics has interfered with the markets.

Though Nenegate has not been the only factor, the rand was trading

29% weaker against the dollar than a year ago. The prime overdraft rate has increased by

1.25 percentage points to

10.5%.

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President Jacob Zuma and the finance minister, Pravin Gordhan, during a meeting with cabinet ministers and business leaders on 9 May in Pretoria.



Japanese investment bank Nomura. Montalto said in a recent note to clients that Zuma is “hunting for any route to remove Gordhan, which should be hard but not impossible. We think the market is still grossly underestimating political risk premia, and President Jacob Zuma’s present position and power – he is not a lame duck and may discount market turbulence.”

Despite the pressure, which has led to Gordhan’s unprecedented appeal to the public to “protect” the National Treasury staff, he has (so far, at least) stood his ground on two of the key issues that were seen to be contributing to Nene’s downfall: resisting a bailout of South African Airways (SAA) and giving the green light for the nuclear build programme to go ahead. Serious concerns remain over the affordability of the latter. SAA, which is chaired by Zuma’s close confidante Dudu Myeni, requires Treasury to extend new government guarantees to continue operating as a going concern, something Gordhan has refused to do until Myeni is removed and the board reshuffled.

However, Zuma now seemingly has the upper hand in the battle at Sars, where Gordhan ordered new Commissioner Tom Moyane to halt a pricey restructuring. It seems the restructuring is going ahead, with Moyane telling Parliament on 17 May that it was already approved by Nene in August 2015.

Gordhan’s support will also be illustrated

by the extent to which ministers co-operate with Treasury investigations and findings on tenders. The first litmus test will be whether the department of correctional services cancels a controversial R378m tender awarded to Integritron Integrated Solutions (IIS), as ordered by Treasury following an investigation by Treasury’s chief procurement officer (CPO).

The Treasury investigation found that IIS was irregularly appointed on a number of grounds, including that it didn’t have the capacity and ability to execute the contract, that a fronting relationship exists between the main contractor and the sub-contractor and that a false declaration was made by the bidder. Gordhan accordingly advised correctional services minister Michael Masutha to cancel the contract, restrict IIS and its associates from doing business with government, and investigate disciplinary charges against members of the bid committee and the accounting officer.

So far, there has been no cancellation. Masutha told Parliament in May that the department is busy auditing the contract, and that it is also the subject of a court case. The Sasstec group of companies, of which IIS forms part, wanted to interdict Gordhan, Masutha and Solly Tshitangano, chief director for governance, monitoring and compliance at the CPO’s office, from implementing Gordhan’s instructions in the letter, News24 reported.

Political riskTwo key dates the markets will be focusing on are 3 June, when Standard & Poor’s (S&P) will announce the outcome of its latest ratings review of SA’s sovereign debt, and 3 August, when South Africans will vote in local government elections. Assuming that the local elections will do little to change the current status quo, we must try to understand the impact that the current political turmoil has had, and will continue to have, on our economy.

After all, our fate as an international investment destination now lies in the hands of the credit ratings agencies, particularly S&P, whose current rating of

According to Standard Bank's chief economist Goolam Ballim, the following are common trends ahead of a downgrade:

■ GDP growth slows to below 2%;

■ The budget deficit widens, as a credit ratings downgrade speaks to the ability and willingness of a nation to service its debt;

■ The current account remains firmly in a deficit;

■ Asset prices start to move, with substantial depreciation in currency and noticeable equity weaknesses;

■ Sovereign credit risks start to rise;

■ Inflation starts to pick up;

■ Monetary policy rates and bond yields move higher as a precursor;

■ Real monetary policy rates remain well in positive territory. The Central Bank raises rates in anticipation of elevated inflation and weakening currency, with the hopes of maintaining a positive real rate. This signals a defensive stance from the Central Bank, which aims to prevent the currency from depreciating even further. ■

COMMON TRENDS

AHEAD OF A DOWNGRADE

Dudu MyeniChairperson of SAA

Tom MoyaneCommissioner of Sars

The president has managed to survive a Constitutional Court ruling that found he breached his oath of office, an attempted vote of no confidence in Parliament, and

a High Court ruling that

783 charges of corruption, fraud and racketeering should be reinstated against him.

EXCHANGE RATE (R/$)

Jan ’15

R/$

Apr ’15 Jul ’15 Oct ’15 Jan ’16 Apr ’16

11

12

13

14

15

16

17

18

Rand weakens against dollar

Three finance ministers in

one weekRumours of

Gordhan being sacked

SOURCES: Capital Economics, Stats SA

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@finweek finweek finweekmagazine finweek 2 June 2016 27

SA’s debt is just one notch above junk. (Fitch is also due to release a ratings decision on SA in June. It currently rates the country one notch above junk, with a stable outlook.) Therefore we must try to understand our own situation from their perspective. So what are they watching?

From a political risk perspective, the Zuma/Gordhan battle, and the possibility of Gordhan getting fired, will remain a red flag. The ratings agencies have mentioned, more than once, that one of South Africa's biggest threats is political instability, and with a president who seems hell-bent on staying in office at any cost, it seems unlikely that one could consider SA to be politically stable.

The local government elections will show whether Nenegate and the Constitutional Court judgment against Zuma, along with the allegations of “state capture” related to the Gupta family, have dented support for the ANC. The elections will be a litmus test as to whether and by how much these developments are eroding support of the ruling party, and of the consequences for the robustness and clarity of economic and fiscal policy, Moody’s said in its recent review of SA’s credit ratings, published early in May.

Another factor to consider is that of social unrest. Last year SA experienced

With regard to its economic condition, South Africa could be likened to an ill patient under high care at a hospital, according to Standard Bank’s chief economist Goolam Ballim. The low energy levels and symptoms suffered by the “patient” are reflected in volatile stock markets, a high inflation rate and depreciating currency.

Speaking at a media briefing to discuss the implications should Standard & Poor’s downgrade SA’s credit rating to junk, Ballim said a rating agency’s judgment simply serves as reminder of the patient’s condition, which is already embedded in their identity. However, this label has the potential to shift the patient into intensive care.

S&P is set to announce its decision on SA’s credit rating on 3 June. S&P’s current rating of SA, of BBB- with a negative outlook, is the worst of all the ratings agencies, said Ballim, and there is a strong likelihood that the country will be downgraded.

Of the six countries – Brazil, Bulgaria, Croatia, Hungary, Romania and Russia – which have been downgraded in the past eight years, S&P has been the vanguard for five of them, he explained.

WHEN THE DOWNGRADE HAPPENSUltimately, said Ballim, financial markets “tend to convulse prior to a downgrade and the real economy smashes afterwards”. It is the impact on the real economy, where South Africans live, which must be considered.

Sub-investment status will result in a recession for SA, according to Ballim. This means 200 000 jobs are at risk, he said, which will impact 600 000 dependents.

Established households with higher skilled individuals will cling to jobs. While their income is not at risk, they will suffer more “balance sheet shock” than “income shock”. Their savings, investments and wealth will be impaired as a result of higher interest rates. This may boost their level of debt, said Ballim.

The middle class, however, will suffer an income shock. Their buying power will be reduced as a result of job-loss risk.

Poorer households, often supported by blue-collar workers, will become more dependent on the state. Without much to lose on their balance sheet or incomes, they will be trapped or “locked in a poorer stable”, he said.

The politically connected will experience some level of wealth impairment and some level of balance sheet shock. The level of excess characterising their lifestyles may be somewhat reduced. ■

THE EFFECTS OF A DOWNGRADE

The ratings agencies have mentioned, more than once, that one of SA’s biggest threats is political instability, and with a president who seems hell-bent on staying in office at any cost, it seems unlikely that one could consider SA to be politically stable.

Atul GuptaOne of the controversial

Gupta brothers

Goolam BallimChief economist at

Standard Bank

S&P is set to announce its decision on South Africa’s credit rating on 3 June.

SA CREDIT RATING

Credit ratingA-

BBB+

BBB

BBB-

BB+

BB

1994

1996

1998

2000

2002

2004

2006

2008

2010

2012

2015

Investment grade cut-off

SA international credit rating

SOURCE: Stanlib

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By Lameez Omarjee

an uprising amongst students over university fees that resulted in a series of increasingly violent protests and damage to university facilities. The remnants of the #FeesMustFall movement, and its spin-off #omf (Outsourcing Must Fall) campaign, are still reverberating through universities today, illustrated by incidences of arson and property damage at a number of universities throughout the country over the last few months. The youth of SA are unhappy with the progress since the end of apartheid and understandably believe that by now more could have been achieved. If something is not done to address their grievances, it is difficult to see a de-escalation in their destructive activities.

Civil servants, too, are not happy with the current state of affairs and are taking to the streets to literally litter their opinion, as illustrated by the recent lengthy Pikitup strike in Johannesburg. Their issue is wages, a common theme for social unrest in SA in the private sector as well. The people demand better living conditions and higher wages although the state, and the companies that often fall victim to similar protests, cannot afford to keep increasing the wages of those most affected by SA’s rampant food inflation as the country’s economy is simply not growing fast enough to support higher wages.

This in itself is a tragedy. The South African government stands accused of grand larceny while the economy and the lives of ordinary people are deteriorating, although those in the upper echelons of power enjoy lives of opulence. Inequality reigns supreme and there will only be more social unrest unless the status quo is decisively addressed.

On the plus side, Moody’s said in its May review that it remains confident in the country’s institutional strength, which it sees as high, notwithstanding recent corruption scandals. Moody’s also said that SA’s monetary and fiscal institutions have proven to be sound over time.

The state of the economyWhile confidence in the strength of SA’s

According to Standard Bank's chief economist Goolam Ballim, the following are common trends after a downgrade:

■ GDP slips into recessionary territory with negative growth lasting longer than four quarters (a year).

■ Budget deficit improves in the near term, but there is a risk of relapse. The economy slips into recession, adding pressure to authorities. Before the downgrade, fiscal authorities would be prone to consolidation, and they show commitment to fiscal probity after the downgrade.

■ Sovereign credit peaks around the time of downgrade and slowly improves.

■ The currency stabilises around the time of downgrade. So do equities.

■ As the currency stabilises, inflation trends lower.

■ Monetary policy rates peak around the time of the downgrade before declining, and 10-year bond yields follow the same pattern as the policy rate. ■

COMMON TRENDS AFTER A DOWNGRADE

institutions to weather the political storms will be crucial to keep further downgrades at bay, ultimately it is the state of the country and government’s finances that will determine the likelihood and timing of a downgrade to junk.

Uncertainty over a possible junk rating has cast a shadow over local markets – it remains to be seen to what extent a downgrade has already priced into the market. Should S&P assign a junk rating in June, many funds would be forced to sell off South African assets and bonds and our market would suffer severely. Goolam Ballim, chief economist of Standard Bank, said on 23 May that a downgrade would lead to negative GDP growth of -0.3% this year and at least 200 000 job losses. (See sidebar on p. 30.)

One factor the ratings agencies would consider is the outlook for economic growth. Statistics SA reported on 23 May that it had to revise its estimate for real GDP growth in the fourth quarter of 2015 downwards from 0.6% quarter-on-quarter to 0.4% quarter-on-quarter. It kept its estimate for 2015 unchanged at 1.3%, making it the slowest annual expansion since the 2009 recession, according to NKC African Economics.

Why does this matter? The “downward revision of real GDP growth in Q4 provides further evidence of the economic quagmire SA is facing, with low expansion rates contributing to the private sector’s poor business confidence and low job creation. Looking ahead, economic performance, or the lack thereof, in the first quarter of 2016 will be a key factor in ratings agencies’ analyses,” NKC African Economics said in a note to clients.

Moody’s has been slightly more optimistic, saying in its May review that it expects economic growth to “gradually strengthen after reaching a trough this year, as the various supply-side shocks that have suppressed economic activity

Statistics SA reported on 23 May that it had to revise its estimate for real GDP growth in the fourth quarter of 2015 downwards from

0.6% quarter-on-quarter to

0.4% quarter-on-quarter.

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since 2014 recede”. Electricity supply is now more reliable, the drought is ending and the number of workdays lost to strikes has shrunk significantly, Moody’s said. The inflation outlook is also more subdued now, which could lead to less steep interest rate hikes than was anticipated earlier this year, offering some relief to household finances. The market consensus is for a further 50 basis-point increase over the remainder of the year.

Another factor is the state of government’s finances. Moody’s said in its May report, when it maintained its credit rating at two notches above junk with a negative outlook, that it expects government debt ratios to stabilise in the current financial year at around the current level of 51%. Positives highlighted by Moody’s included government’s pledge to achieve a budget surplus in the 2017/18 financial year; its track record of achieving fiscal targets; and the budget’s high degree of flexibility.

It is easy to blame the historical, current and ongoing political situations for the poor performance of the South African financial markets over the past two years. But there are macro factors at play as well, and even though it may sound as if a dead horse is being beaten, China’s slowing economy is taking its toll on emerging markets. The fact is that the general South African equity market has not had any real growth for the last two years due more to major global economic challenges.

I would argue that thus far the political turmoil has had a muted impact on our market on the whole, although the chickens are about to come home to roost. The major risk now is that SA is downgraded by the ratings agencies and that international investment funds flow out of our economy. If this happens, then I believe we can lay the blame at the feet of politics. ■

[email protected] Redelinghuys is a stockbroker, trader and market commentator.

HOW THE ECONOMY WILL REACT POST-DOWNGRADEBy Lameez Omarjee

South Africans should brace for the following changes, should S&P downgrade the country to junk status on 3 June, according to Standard Bank’s Goolam Ballim:

GDP: It is expected that the GDP will slip into an economic contraction. It is hard to believe that SA can avoid a recession, he said. The tightening of financial markets could add more strain to the economy. Factoring in a downgrade, GDP growth could be negative for 2016 at -0.3%, and then accelerate to 1.1% in 2017. Without a downgrade, GDP growth will be at 0.6% for 2016 and 1.2% in 2017.

MANUFACTURING SECTOR: Although SA’s manufacturing sector appears to be delivering a “superior” performance, it is still plausible that the sector will, on average, fall into a contraction following a downgrade, said Ballim. A weaker rand could compensate to some degree, as it could result in an increase in export demand. He added that local demand may take strain.

GOVERNMENT DEFICIT: While the deficit may initially show some improvement, it is likely to worsen due to weaker anticipated GDP growth. Besides a worsening budget deficit, a weaker GDP could also lead to a decline of revenue flowing to the state, said Ballim. The government has taken a defensive approach in terms of its fiscal policy, so SA will take on this risk with some fortification.

EQUITIES: Equities price in a fading economy and deteriorating fiscal measures and may take a massive knock as a result of the poor health of the economy.

CURRENCY: There will be some stability in currency depreciation, with no immediate appreciation.

10-YEAR BOND YIELDS: We could see elevated interest rates. The rates will stabilise, but they will still be at high, punitive levels, he added.

BANK POLICY RATES: We should anticipate tightening monetary policy, to deal with a weaker currency and inflation. As a result the tightening is an attempt to restrain the rand from further relapse.

MISERY INDEX: The misery index, which reflects consumer confidence, is showing less discretionary spending as a result of higher unemployment and inflation. ■

Positives highlighted by Moody’s included government’s pledge to achieve a budget surplus in the 2017/18 financial year; its track record of achieving fiscal targets; and the budget’s high degree of flexibility.

Moody’s said in its May report, when it maintained its credit rating at two notches above junk with a negative outlook, that it expects

government debt ratios to stabilise in the current financial year at

around the current level of

51%.

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26 May 2016

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By Sean Christie

i n early March this year, not long after his 92nd birthday, Zimbabwean president Robert Mugabe made a shocking claim. Since 2008, he said, an estimated $15bn worth of diamonds had

been extracted from the Marange diamond fields in Chiadzwa ward in the east of the country near Mutare, and yet no more than $2bn had been remitted to Zimbabwe’s National Treasury.

“Lots of smuggling and swindling has taken place,” Mugabe said, “and the companies that have been mining [have] robbed us of our wealth.” The nonagenarian ruler went a step further and insinuated that the people he had appointed “to be the eyes and ears” of government in Chiadzwa had been complicit in the looting.

FACETS OF

POWER

FACETS OF POWER

Politics, Profits and People in the

Making of Zimbabwe’s Blood Diamonds

EDITED BY

RICHARD SAUNDERS & TINASHE NYAMUNDA

EDITED BY RICHARD SAUNDERS & TINASHE NYAM

UNDA

A shocking account of the Marange diamond tragedy which, instead of uplifting the lives

of the poverty-stricken local people living in one of the most arid regions of Zimbabwe,

dashed their hopes and exposed the ruthless and inhuman nature of a corrupt, selfish and

shameless regime. This well-researched book is a must read, not only for this our present

generation but for posterity – with a view to saying “never again”.

– The Rt. Rev. Dr. S. Bakare – Bishop Emeritus of the Diocese of Harare

London and Antwerp are famous for major diamond robberies. These are nothing compared

with what happened in Zimbabwe. Facets of Power is an insider’s look at one of the greatest

and most disgraceful diamond heists of all time. It will help to ensure that Marange crimes

and the criminals who committed them are not forgotten.

– Ian Smillie, author of Blood on the Stone: Greed Corruption and War in the Global

Diamond Trade, and Diamonds.

The diamond fields of Chiadzwa in the Marange District, among the world’s largest sources

of rough diamonds, have been at the centre of struggles for power in Zimbabwe since their

discovery in 2006.

Against the backdrop of a turbulent political economy, control of Chiadzwa’s diamonds

was hotly contested. By 2007 a new case of ‘blood diamonds’ had emerged, in which the

country’s security forces engaged with informal miners and black market dealers in the

exploitation of rough diamonds, violently disrupting local communities and looting a key

national resource. The formalisation of diamond mining in 2010 introduced new forms

of large-scale theft, displacement and rights abuses, with as much as $13 billion now

estimated by government to have gone missing.

Facets of Power is the first comprehensive account of the emergence, meaning and

profound impact of Chiadzwa’s diamonds. Drawing on new fieldwork and published sources,

the contributors present a graphic and accessibly written narrative of corruption and greed,

as well as resistance by those who have suffered at the hands of the mineral’s secretive

and violent beneficiaries. If the lessons of resistance have been mostly disheartening, they

also point towards more effective strategies for managing public resources, and mounting

democratic challenges to elites whose power is sustained by preying on them.

Richard Saunders is Associate Professor in the Department of Political Science, Faculty

of Liberal Arts & Professional Studies at York University, Toronto, Canada.

Tinashe Nyamunda is a Postdoctoral Research Fellow at the University of the Free State,

Bloemfontein, South Africa.

www.witspress.co.za

Cover artwork © Robin Hammond/Panos

Available as an eBook

9 781868 149759

ISBN 978-1-86814-975-9

Factes of Power.indd 1

2016/04/11 2:23 PM

MARANGE: LOOTING ONE

OF THE WORLD’S MAIN

DIAMOND SUPPLIES

For Richard Saunders and Tinashe Nyamunda, the editors of a new book called Facets of Power – Politics, Profits and People in the Making of Zimbabwe’s Blood Diamonds, Mugabe’s sensational admissions could not have come at a better time. Beforehand, allegations of massive corruption at Chiadzwa had always been contemptuously dismissed by those in charge of the Zimbabwean diamond racket – a small clique of extremely powerful government and army officials, in partnership with a handful of mining operators.

Their denials ran up against a lot of evidence to the contrary, but so resistant to civil complaint did this clique’s control of the diamond fields appear to be (and there has been plenty of brave and spirited activism, particularly in 2009 to 2010) that a sense of national


in depth Zimbabwe’s diamonds

resignation set in. Now, thanks to Mugabe’s admission, Zimbabweans

are again demanding answers. Where did the money go? How was the plunder enabled? Who is to blame? Can the looters be arrested? How can it be prevented in the future?

Facets of Power (henceforth Facets) does not claim to tell the full story of Chiadzwa, but it is far and away the most comprehensive resource published to date, comprising 10 excellent essays by 12 individuals with intimate ties to the Chiadzwa story. As a study of elite capture in Zimbabwe it has no equal.

Economic troublesMany will be familiar with the story’s outline. Zimbabwe’s economy started skidding in the 1990s, leading to a commensurate drop in the ruling Zanu-PF party’s popularity and the rise of political opposition led by the trade unions and civil society. When Zanu-PF’s grip on power was directly threatened in 2000, the country’s leaders refashioned the state, rendering it practically immune to popular will. Then they dissolved the country’s commercial agricultural sector, precipitating economic chaos and immense social suffering. Soon the government was as financially bankrupt as it was morally, and a political transition seemed inevitable.

In 2006, with inflation galloping into the record books, there was a diamond strike at Chiadzwa. The legal title-holder to the most important part of the alluvial deposit was a British-registered company called African Consolidated Resources, but the government encouraged local Zimbabweans to mine the deposit themselves, leading to a diamond-rush that drew tens

HARARE ■

MUTARE

MARANGEDIAMONDFIELD

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200km

Zimbabweans are demanding answers after their president, Robert Mugabe,

admitted that roughly $13bn had been looted from the country’s Marange diamond

fields in Chiadzwa. A recently published book, edited by Richard Saunders and

Tinashe Nyamunda, investigates how these diamond fields got captured.

of thousands of artisanal miners from the region and across the country.

As the significance of the strike became apparent (some experts estimated that Chiadzwa could represent as much as 20% to 30% of the world’s rough diamond supply) the increasingly vulnerable ruling elite saw an opportunity to extend its dominance, and turned on the artisanal miners, launching Operation Hakudzokwi (You Will Not Return) in late 2008.

The Mutare morgue began filling up with the corpses of miners killed by Zimbabwean soldiers, a death toll that went above 200. The government declared Chiadzwa a protected area in terms of the Protected Areas and Places Act, and soon formed a series of 50/50 partnerships with hitherto unknown mining operators, some of which had South African connections.

Having effectively lost the presidential elections in 2008 to Morgan Tsvangirai, Robert Mugabe forced a run-off election, which Tsvangirai did not contest citing the sinister campaign of violence initiated against opposition leaders and supporters in the lead-up. Mugabe’s victory was thus unacceptable

to the international community, and South African president Thabo Mbeki was brought in to preside over the formation of a Government of National Unity.

There was much hope at the time that power would be fairly shared between Zanu-PF and the two MDC parties, and that Chiadzwa’s riches would be responsibly managed and used to resuscitate the economy. These hopes were horribly misplaced. Zanu-PF retained control of the army, police and the ministry of mines – all the country’s leaders required to plunder Chiadzwa.

Zimbabweans are again demanding answers. Where did the money

go? How was the plunder enabled? Who is to

blame? Can the looters be arrested? How can it be prevented in the future?

As the significance of the strike became apparent (some experts estimated that Chiadzwa could represent as much as

20% to 30% of the world’s rough diamond supply) the increasingly vulnerable ruling elite saw an

opportunity to extend its dominance.



The Kimberley ProcessThe only thing left standing in the way of the looting was the diamond world’s regulatory system, known as The Kimberley Process (KP). When reports of the Zimbabwean government’s abuses in Chiadzwa were first made public in 2008, the KP dispatched a review mission to the area, and based on the mission’s report moved to suspend diamond exports from Zimbabwe in 2009. The KP did not cite human rights abuses, though, but rather issues to do with the irregular sale of diamonds. In 2011, despite the existence of fresh evidence of human rights abuses in Chiadzwa, and also hard proof of large-scale illegal trading, the KP members voted to lift the ban on Zimbabwe’s diamonds.

What makes Facets such an important book – easily the most important book about mineral extraction to be published in 2016 so far – is the way in which each of the very different essays explores the KP’s capitulation, providing compelling evidence in support of the claim that Zimbabwe is the new and complex face of blood diamonds. In his introductory essay Saunders, an expert in the field of resource extraction in Zimbabwe, reminds readers that the KP was established in 2003 with the aim of preventing conflict diamonds from entering the mainstream rough diamond market. As an agreement between governments, industry and civil society the KP was initially very effective in places like Angola and Sierra Leone, and to a slightly lesser extent the Democratic Republic of the Congo.

The Southern African diamond-producing states, including South Africa, were instrumental in the setting up of this historic regulatory framework, and were rightly praised for the parts they played. But the KP had its weaknesses, as all regulatory frameworks do. It defined conflict diamonds narrowly, as “rough diamonds used by rebel movements to finance wars against

ZIMBABWE’S ECONOMY

AT A GLANCEZimbabweans were left gobsmacked by Mugabe’s March claim that $13bn has been looted from Chiadzwa, and for good reason. $13bn is roughly equivalent to Zimbabwe’s GDP, and is far in excess of the country’s $10.8bn debt. The consensus amongst observers seems to be that Mugabe deliberately exaggerated the figure (in pursuance of political ends), but as the former minister of finance Tendai Biti commented recently, $4bn in the hands of a responsible government would have been sufficient to complete the expansion of the Kariba power station, dualise the Harare-Beitbridge Highway, modernise the country’s dilapidated railway infrastructure and revive industry.

Zimbabwe’s economic decline is a horror story of ongoing twists and turns, though it can be broadly divided into the hyperinflation from 2001 to 2008, and the dollarisation era (the suspension of the Zimbabwean dollar and its replacement by a multi-currency system dominated by the US dollar) which started in 2009, not long after the Zimbabwean dollar achieved the highest monthly inflation rate not attributable to a war: 79 600 000 000%.

An initial period of optimism took the Zimbabwe Stock Exchange up to a market capitalisation of $5.96bn, but when Mugabe and Zanu-PF took the 2013 national elections on a platform of intensified land redistribution and indigenisation of the resources sector, foreign investment once again dried up, and as of 20 May, the ZSE’s market capitalisation was $2.9bn.

The government’s inability to access foreign funding has made it reliant on the Treasury Bill market, which the Reserve Bank of Zimbabwe appears to have been manipulating for some time, contributing towards a crippling cash crisis and imperilling the entire Zimbabwean banking system.

In early May Zimbabwe’s Reserve Bank governor, John Mangudya, announced that Zimbabwe, in an attempt to relieve the all-consuming cash crisis, will print its own version of the US dollar, referred to as “bond notes”, which he said will be backed by a $200m loan from the Africa Export-Import Bank. ■

In 2011, despite the existence of fresh evidence of human rights abuses in Chiadzwa, and also hard proof of large-scale illegal trading, the KP Members voted to lift the ban on Zimbabwe’s diamonds.

President Robert Mugabe

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legitimate governments”. It did not foresee what Saunders describes as “The confluence of…a once-in-a-lifetime diamond strike; a state characterised by militarised partisan control, elite predation and withered professional capacity; and the presence of willing partners in a shadowy international trade.”

Chiadzwa, in other words, was not just another challenge for the KP but rather a Rubicon that it needed to cross in order to remain relevant in a world much changed since the bloody heydays of Charles Taylor. Each of the essays in Facets illuminates a facet of the KP’s failure to update itself. Saunders succinctly sketches the local political context, revealing how the plunder of Chiadzwa was made politically possible by the collapse of the Zimbabwean economy, the erosion of law and more broadly the deprofessionalisation and partisan politicisation of the state from the early 2000s onwards.

Alan Martin, an experienced KP monitor and representative of Partnership Africa Canada, one of the founding KP members, provides a fascinating geo-political context for the KP’s failure to evolve, demonstrating how a parallel trade in Chiadzwa diamonds was directly enabled by well-known diamond figures, and indirectly by KP member states desperately seeking economic advantage in a diamond world increasingly divided between multiple power centres.

Martin’s deconstruction of the Dubai diamond world’s role enabling the illicit trade in Chiadzwa diamonds is particularly enlightening. Farai Maguwu is another heavyweight contributor. As the founder of the civil society organisation (CSO) that first exposed the killings in Chiadzwa he has been in the thick of the diamond story for almost a decade. The details of his victimisation by the Zimbabwean government are shocking (he was detained without trial for 40 days), as are his allegations of a campaign from KP member states to “suppress the truth about the real situation in Chiadzwa” by ostracising the CSOs calling most loudly for accountability for human rights abuses and disappearing diamond revenues.

Many of the essays seem to be in conversation with each other, which is not surprising considering that most of the contributors come from local CSO circles. Some might see this as a weakness – too many views from the same angle – but in the case of Chiadzwa, where so much obfuscation has taken place, and so many dirty tricks have been deployed, this kind of mutual emphasis is essential.

A South African connectionTake, for example, the contribution from Shamiso Matisi, a Zimbabwean lawyer and member of the KP’s Civil Society Coalition. He builds on Maguwu’s

suspicions about the neutrality of KP member states by revealing that the South African monitor dispatched to Chiadzwa by the KP sold Farai Maguwu out to the Zimbabwean authorities after meeting with him in Mutare in 2011. The actions of the KP monitor (who

is identified in the book), he writes, led directly to the beating of Maguwu’s relatives and the destruction of their property, and soon afterwards to Maguwu’s arrest and detention.

He writes that, “The roles played by [the KP monitor] and some of his colleagues…testified to an abiding regional solidarity among nationalist politicians in the KP [which] seemed to be rooted in parallel experiences as governments in direct contest with civil societies.” His point, essentially, is that African governments that once championed the regulation of conflict diamonds appear to have become enablers of the new trade in blood diamonds.

Members of South African civil society organisations will be interested to learn, from several of the essays, how Chiadzwa locals

were treated by mining operations with South African connections. The company with the strongest South African ties is Mbada Diamonds Ltd, a 50/50 joint venture between government’s Marange Resources and Grandwell Holdings, a subsidiary of the South Africa-based Reclam Group (in which Old Mutual has a stake).

Essayists Crescentia Madebwe and Victor Madebwe expose in depressing detail how, in place

of the diamond-led “development” promised by Mbada and other mining operators, the

fabric of local communities has been torn apart by forced removals and unkept compensation promises.

Much of the information in Facets is underwritten by a little known report into operations at Chiadzwa, tabled in Zimbabwe’s parliament in 2013 by Edward Chindori-Chininga, a Zanu-

PF MP and chair of the Parliamentary Committee on Mines and Energy. Chindori

was a party insider, who knew mining. He was also clearly a patriot, because he

continued to develop his damning report in the face of extreme resistance. Days after he tabled it,

Chindori was killed in a suspicious car accident. Calls for his report to be debated continue to be resisted by the country’s rulers.

Facets, a brave document in its own right, is dedicated to Chindori’s memory, and to the people of Chiadzwa, “who have endured the most and gained the least from their rich lands”. ■

[email protected]

Zimbabwe-born Sean Christie has been contributing his journalism to books, newspapers and magazines since 2007. He is a previous recipient of the CNN African Journalist of the Year Award, as well as the Taco Kuiper Prize for investigative journalism.

Groups of miners in the diamond fields in

Marange in 2006. When the scramble peaked in October

2008, more than 35 000 people, including children and women, were either

mining or buying diamonds in Marange.

His point, essentially, is that African

governments that once championed the regulation of conflict diamonds appear to

have become enablers of the new trade in

blood diamonds.

www.

hrw.

org



Dave Macready Chief executive of

Old Mutual South Africa

The group has reportedly been approached by possible buyers for its stake in Old Mutual Asset Management, in which it holds more than

60%.


CEO INTERVIEW

Dave Macready, chief executive of Old Mutual South Africa, discusses the group’s outlook in a tough economic climate and how the government-business conversation about steering SA in the right direction is shaping up.

By Buhle Ndweni

THIS WEEK:>> Motoring: Carports go green p.38 >> Management: Aligning company strategy and corporate culture p.40 >> Copyright: Keeping your creations safe online p.41

>> Entrepreneur: A Sowetan designer makes his mark p.42

>> Careers: How to get the pay cheque you want p.44

on the money

Old Mutual prepares for the future

a year into his new job as chief executive of Old Mutual South Africa (OMSA), Dave Macready believes the group’s local business is in the “best shape it’s been for a

long time”.Financial services group Old Mutual moved its

primary listing to London in 1999, a decision that has been the source of much criticism over the years as the group continued to earn the bulk of its profits in South Africa, while its debt and expensive group head office costs were in London. In addition, Old Mutual reports its results in pounds, while earning the bulk of its profits in rand. The consistently weakening currency is currently 102% lower against the pound than five years ago.

Another factor that weighed on investor sentiment in recent years was Old Mutual’s seemingly scattered focus on emerging and developed markets, with a number of acquisitions that failed to bear fruit. Rival Sanlam, by comparison, largely remained focused on emerging markets, resulting in a formidable business footprint on the continent.

New group CEO Bruce Hemphill’s plan is to split the group into four separate businesses: Old Mutual Emerging Markets, which focuses on savings, investments and insurance; Old Mutual Wealth, a wealth manager based in the UK; Old Mutual Asset Management (OMAM), based in the US; and Nedbank, in which it owns the majority stake. In the 2015 financial year, the Nedbank stake was the major contributor to group operating profits. (Old Mutual plc

has reportedly been approached by possible buyers for its stake in OMAM, in which it holds more than 60%. The group said they are looking at all available options.)

The proposed split aims to give the separate businesses easier access to capital markets for their funding needs, simplify their regulatory obligations, make it easier for the market to value the separate operations appropriately and save costs.

StrategyEnsuring that the South African buisness stays strong and keeps growing as a market leader drives Macready’s strategy. His focus is on enhancing customer service through an omni-channel approach (including digital, face-to-face and telephonic services),

while consolidating the group’s extensive branch footprint. And like its peers in the industry, Old Mutual recognises the untapped potential that lies in the middle-income market, especially the black middle class.

“One of the reasons we have focused on the black middle-income market is that our brand

and our proposition resonate with the aspirations of this segment, particularly black professionals and the youth,” Macready says.

The group also hopes to benefit from the upward mobility of lower-income earners, where it enjoys substantial market share. “We are a big player currently in the mass market, which is growing quickly, and we need to follow our customers and remain relevant to them as they migrate through mass into the

New group CEO Bruce Hemphill’s plan is to

split the group into four separate businesses.


on the money spotlight

Macready served as group managing executive of Nedbank Wealth and was a member of the Nedbank group executive committee before taking over as chief executive of Old Mutual SA on 1 May 2015. A chartered accountant by training, Macready was a partner at Deloitte in Cape Town and London from 1987 to 1997. This was followed by roles as divisional director of international, asset management and corporate marketing, and managing director of Nedcor Investments. He holds a BComm (Hons) in Financial Management from the University of Cape Town and has completed Harvard’s Senior Executive Programme.

SOURCE: Old MutualCV

WHAT MAKES A GREAT LEADER? When I’m asked about leadership, I immediately think of the great leaders who have exuded vision, belief and passion. Leaders with vision often come to the fore in a time of crisis, when their ability to see the bigger picture is most needed. Leaders need to see around corners to envisage a new future. They look beyond the current reality, and reinvent a new future. They are game changers and by doing so create belief in a future better than the current reality in crisis.

Great leaders do the right thing, even when no one is watching. They have the courage to make hard but necessary decisions and the courage to abandon the past. They have the willingness to learn, unlearn and re-learn, as well as the courage to be the change that they want to see.LEADERS HE ADMIRES: There are a lot of leaders who inspire me. These include Public Protector Thui Madonsela (courage), New York’s former mayor Rudy Giuliani (leadership in a crisis) and America’s 16th president Abraham Lincoln (courage to abandon the past).MANAGEMENT STYLE: I like surrounding myself with positive people. I believe in having a passionate team and I like trying to stretch people to break boundaries, because growing talent is an important part of leadership. I am a no-nonsense kind of guy and firmly believe in keeping things focused and simple. Actions for me speak much louder than words and building belief while empowering others to take action is the key, in my mind, to effective leadership.

HOW DO YOU RELAX? I relax through sports. I’ve always been keen on sports, especially endurance sports. I find there’s a close link between endurance and business in a way, and I get to relax and get to know myself better through challenges around endurance sport, whether it’s running, triathlons or cycling. They are all great opportunities to build self-belief and to do some quiet introspection.FAVOURITE GADGET? My favourite gadget on a bicycle is a power meter, which helps you to measure your fitness by monitoring how much power you’re putting out. It’s quite funny because it’s also kind of how I see business...to be fit in business you need to measure the power you put out and make sure that it delivers on your goals. I’m a bit of a geek when it comes to effective training and understanding power-to-weight ratios as well as the mental dynamics of endurance sports.

ABOUTDAVE MACREADY

middle-income market. We believe we really have an advantage here which will enable us to compete successfully in the middle-income market,” he explains.

Ulimately, a winning strategy boils down to having great people on board, Macready says. “Being the market leader in the future will depend on winning the war for talent by being a great place to work.”

Outlook for SADespite solid 2015 results, economic uncertainty and increasing political risk in SA may dent the outlook for the group. Economic growth is forecast to total only 0.6% this year, according to the International Monetary Fund (IMF), and interest rates are expected to rise by at least another 50 basis points by year-end. This will put further pressure on households already battling higher food and fuel prices, driven in part by a volatile and weak rand. In addition, it remains likely that the country’s sovereign credit rating will be downgraded to junk before the end of the year, which will also impact on the credit ratings of financial services institutions, notably banks, which cannot have a higher rating than the sovereign.

These issues do not only affect business, but also ordinary South Africans. “We talk about it as if it’s a business thing or a government thing, but the real impact is inevitably felt by all South Africans. Poor education, steep income inequality, inflation of basic food items, transport and utility costs, and low opportunities for employment are the real issues that affect all of us,” he says.

Macready believes all financial services companies need to prepare for the inevitable strain on clients’ financial health. “Because of financial pressures, we can expect more people to find it difficult to keep up to date with policies, pay off their existing debts or continue their savings, and as a result maybe take on new loans that they cannot necessarily afford. We try to address some of these issues with our financial education programmes and we emphasise the value of expert advice and proper money management. Lack of saving in SA is a big concern for everyone and we really need to do what we can to improve our national savings culture as a key priority.”

But these challenges cannot be tackled alone, says Macready. It is essential that both the private and public sectors as well as labour and civil society as a whole, actively engage and collaborate with each other to find solutions to help develop a sustainable, inclusive and growing economy.

“There are constructive conversations happening at the moment. And there’s a real desire – and it’s not just talk – to work together with a common framework to make SA stronger and more competitive,” he says. “I think the leadership shown by finance minister Pravin Gordhan and the Reserve Bank governor Lesetja Kganyago at the moment is incredible in terms of how they are steering the ship and moulding some of the important conversations.” ■[email protected]

bMW Group South Africa is no stranger to pioneering alternative forms of green energy. Last year the company

unveiled its partnership with Bio2Watt, the methane from cow dung facility that currently supplies 35% of energy requirements at BMW’s local vehicle production plant in Rosslyn.

Now the company is forging ahead with another clean energy solution, solar power. It’s a free energy source that will power BMW’s i3 electric and plug-in hybrid vehicles or even domestic appliances.

South Africa, with its abundance of sun, should be a pioneer of this technology, says Tim Abbott, CEO of BMW Group South Africa and sub-Saharan Africa. “We should lead the revolution in terms of solar power because it has not been taken up around the world. So we are going to set the course.”

Kick-starting that solar revolution locally has seen BMW Group South Africa rolling out its i solar carport in sunny SA, the first vehicle manufacturer to offer this unique charging product. The solar carport concept

to charge electric and plug-in hybrid vehicles was revealed in Los Angeles in 2014, but SA will be the first country to bring it to market from July 2016.

Unique charging solutionConstructed predominantly from bamboo

because of the material’s renewability and strength factors, the BMW i solar carport with its bamboo struts, stainless steel meshing and see-through glass solar panels takes its design cues from BMW’s i branded vehicles, the i3 electric and i8 plug-in hybrid sports car.

The carport, which takes just days to construct, supplies an

average of 3.6kW of solar power (at peak times on a clear sunny day) straight to the BMW i Wallbox that is used to charge electric and plug-in hybrid BMW models.

The current i3 battery capacity of 19 kilowatt hours (kWh) provides a range of around 150km. In a 12-hour cycle, the sun (at this time of year) will produce 14.3kWh providing a range of 120km. In summer that will increase to 20kWh.

By installing a static storage system

on the money motoring

By Glenda Williams


ENHANCINGE-MOBILITY For BMW’s i3 pure electric compact car – 124 of which have been sold locally since launch in 2015 – solar charging will take this vehicle completely off the grid and give it a zero carbon footprint. For its i8 plug-in hybrid sport sibling and other plug-in hybrids it means a reduction in emissions and reduced costs to run these vehicles.

Range anxiety too may be a thing of the past. In the fourth quarter of 2016, BMW i will expand the model range of the BMW i3 by offering a version with significantly increased battery capacity. The BMW i3 (94 Ah) will offer a capacity of 33 kilowatt hours (kWh), which BMW South Africa and sub-Saharan Africa CEO Tim Abbott says gives the car a range of over 200km on pure electric power and 330km with the range extender. Owners with first-generation batteries will be able to have this new battery retrofitted.

Although only two weeks into the pilot programme, UberGREEN – BMW and Nissan’s partnership with Uber to make available their i3 and Leaf electric vehicles to Uber users – has already been very encouraging. “The uptake on UberGREEN has been phenomenal,” says Abbott. “Initially around half a dozen cars were supplied, but Uber now have 40.” It says much about consumer interest in the e-mobility movement. ■

The carport, which takes just

days to construct, supplies an

average of 3.6kW of solar power.

Tim Abbott, CEO of BMW South Africa and Sub-Saharan Africa at the launch of the i solar carport, shown here with BMW’s i3 electric vehicle.

Imag

es: B

MW SA

The solar revolution that will power SA’s e-vehiclesA pioneer of alternative forms of green energy, BMW Group SA has unveiled its unique solar power solution to power its e-vehicles

It’s been a busy year for the BMW Group in this, its centenary year, including locally, where the German carmaker has had a presence for 43 years.

Marking the start of construction on the new state-of-the art X3 body shop, CEO of BMW South Africa and sub-Saharan Africa Tim Abbott was joined by deputy minister for trade and industry, Mzwandile Masina, Gauteng MEC Lebogang Maile and Rosslyn plant director Stefan Huelsenberg at the ceremonial ground breaking of BMW Group South Africa’s recently acquired piece of land, adjacent to its current Rosslyn plant.

Part of the carmaker’s R6bn investment announced last year for production of the new generation BMW X3 in SA, the new body shop, which will be built by SA construction firm Stefanutti Stocks, will measure 26 000m2. That’s 50% larger than the current body shop used to produce the 3 Series BMW and a significant portion of that R6bn investment.

And the number of robots will also increase by 50% to 300. That, together with the larger size of the body shop and increased technology will result in greater employee numbers, says plant director Huelsenberg.

Production of the X3 does not just involve a new body shop. The X3 is bulkier, longer and heavier than the 3 series, meaning that equipment and structures have to change to accommodate it.

Modifications to the assembly structure include the lifting of roof heights and replacement of overhead conveyors. The existing paint shop structure will be refurbished to also include new robots. A new IT back-up centre will be built, as will a new technical training centre to enhance employee skills.

The construction phase of the body shop will be concluded in the first half of 2017 and be followed by installation, testing and commissioning of the new equipment.

BMW aims to increase local content of the X3 and kick-started that initiative by hosting black industrialists at the plant in May. “We will have a supplier day in the next couple of months and invite local companies to tender for supply on the new X3. Many of them will be black-owned as we are keen to get that content into the car,” Abbott tells finweek.

Recently it was announced that BMW SA would, mid-year, take over responsibility for sub-Saharan Africa where the company will look to export its new generation X3 model. BMW SA does not currently export the 3 series sedan into this region but with the X3 feel they have a product that will resonate there. ■

NEW ERA FOR ROSSLYN PLANT

(batteries), solar energy can be stored for charging when there is no sun, or surplus energy could be used for other utilities.

Not only does this smart charging product reduce the cost of electro-mobility, it is another solution to charging dilemmas for e-vehicles.

Upping the charging anteLack of charging infrastructure to support electric vehicles (EVs) together with a reliance on an unstable electricity grid has meant that range-anxious South Africans have yet to adopt e-mobility with any enthusiasm.

Other than charging units at BMW’s 19 i-dealers (26 by year-end) and the few public charging areas that BMW and Nissan have built to support their EVs, EV owners are mostly reliant on electricity to charge their vehicles from home. Increased charging units, together with the solar carport and this charging system that can be integrated with home management systems to make customers fully self-sufficient, will increase consumer confidence in the viability of electric vehicles.

Abbott says they are still working hard to get government to accept that charging infrastructure is needed if electric mobility is to come to the streets. “There is a willingness but then of course there is the cost,” he adds.

Cost, though, does not appear to be deterring big business, with Abbott saying that major supermarket chain Pick n Pay is considering installing a charging post at every branch throughout the country. And he says they are discussing with Telkom the use of solar panels at its sub-stations with a charging point for EVs.

“Solar power is starting to resonate with business and consumers. Technology

is moving at such a pace and we are now seeing a definite move towards solar. And it is becoming much more affordable. A few years ago the payback for solar was probably around 12 to 15 years. Now it’s more like seven years,” says Abbott.

The solar carport, which is produced by photovoltaic solar system designer and installer Sunworks, would be a substantial investment for domestic users, a cost that Abbott is not yet willing to quantify. “This is a pilot and we are still finding our way. There may be materials we don’t need to use or we may need to strengthen it,” he says.

But it turns out there is a more affordable solution for domestic users. Aside from the unique carport offering, BMW will also offer a system where the hardware used in the solar carport can be implemented or incorporated into a solar system that households or businesses might already have.

“In reality, some people won’t be able to construct this at home so they may put the solar panels on their roof or garage that can feed down [to BMW’s home charging unit the i Wallbox],” says Abbott.

Apart from the carport unveiled in Midrand on 20 May, in the coming months BMW Group SA says it will expand the installation of the solar carport in major city centres like Johannesburg, Cape Town and Durban for public charging.

“It’s about showcasing the technology in high-visibility areas,” he adds.

Solar power is a clean and sustainable source of energy and because it is free, it is also cost-effective. The bigger picture of course is that of solar energy being used for charging. But if you happen to be an owner of a BMW plug-in hybrid or i3 EV, there may be good reason to park your car in the sun. ■ [email protected]

on the money motoring


BMW’s Rosslyn plant director, Stefan Huelsenberg, with Tim Abbott, CEO of BMW South Africa and sub-Saharan Africa, and deputy minister for trade and industry Mzwandile Masina, with children from the early learning school at the plant, at the ground breaking of the new state-of-the art X3 body shop.

AVERAGE POWER COST COMPARISONS(for a distance of 150km)

Fuel model Fuel 150km cost cost (rounded off)Petrol (8l/100km consumption) R12.74/litre R99-R102Diesel (6l/100km consumption) R10.58/litre R64-R68EV (electricity per kW hour) R1.36/kWh R24-R25EV (solar generated power) Free Free

BMW’s public charging station for EV and PHEV vehicles in Melrose Arch, Johannesburg

i n this time of uncertainty, following a coaching approach in organisations bring mutual understanding, consensus around a table where informed decisions can be

taken and brings clarity where there are complexities.

A coaching approach can give people vision or help them create a vision for themselves. That goes for leadership teams and individuals in an organisation.

This was the subject at USB Executive Development (USB-ED) and finweek’s regular We Read For You presentation recently held in Cape Town and Johannesburg. The book reviewed was Coaching Leadership Teams – getting organisational culture aligned, written and presented by Dr Salomé van Coller-Peter and aimed at helping team leaders, coaching practitioners and organisational effectiveness specialists discover how to do just that.

Central to the theme of the book is the question of how one should go about successfully managing coaching projects that focus on teams and alignment.

According to Van Coller-Peter leaders in both small and large organisations have two main streams of activities to conduct. Firstly a strategy for a vision, mission and goals, and secondly a corporate culture for how business is conducted with ethos becoming more and more a part of it.

“Although it takes time, organisations have to align strategy and corporate culture to build a sustainable business or organisation.”

Corporate strategy provides the competitive advantage as companies cannot compete so much on price anymore. It is more to do with why customers come back to do business with a company and

it is because they want more of “you” and your products.

Therefore, companies have to look at how they treat people and what values they want to instil internally and externally. People want to feel they have a purpose in the organisation, are part of it and that they are making an important contribution. That is ultimately why they come to work.

Key to the coaching task is how an organisation can take its values and translate them into leadership practices. For this the values of the leadership of an

organisation should be put on the table and discussed.

The big question is: What are the values and actions the company want to be remembered by? What actions are being taken to ensure that everyone in the organisation is aligned in their conduct?

“Strong corporate cultures have strong alignment among its subcultures and to bring that about one has to start at

the top of an organisation. Corporate culture facilitates business and has everything to do with it. It needs to be at the centre of strategy,” Van Coller-Peter said. ■ [email protected]

Dr Salomé van Coller-Peter graduated from Middlesex University in the UK with a doctorate in coaching. Her pioneering work in the field of alignment within executive teams has been published both locally and internationally. She is a faculty member of the University Stellenbosch Business School (USB) and has developed an MPhil Management Coaching programme, which was rated as the best master’s programme in Africa by Eduniversal.

This article is based on USB-ED’s recent We Read For You event that focused on Van Coller-Peter’s book. finweek is the USB-ED’s media partner in its We Read For You series. The next event will be held on 7 June in Johannesburg and 9 June in Cape Town where the South African Management Index Report will be released. Dr Carly Steyn and/or Dr Diane Bell will unpack the challenges and opportunities facing South African managers at the event. To register, please email [email protected] or visit www.usb-ed-com/WRFY. Attendance is free.

Coaching to get organisational culture aligned

on the money management


Dr Salomé van Coller-Peter

Company strategy and corporate culture should be aligned for an organisation to be sustainable and successful. But how is that achieved?

“Strong corporate cultures have strong alignment among its subcultures and to bring that about one has to start at the top of an organisation.”

Key to the coaching task is how an organisation can take their

values and translate them into leadership practices.

the internet – a global content market and platform to create, distribute, consume and share. And along with that comes risk to intellectual property, risk to ideas and results

of creative endeavours like designs, music and literary works.

The recent Moneyweb/Fin24 court case highlighted some of the copyright problems that could arise when publishing and repurposing online content.

For the creative industry, the internet has been both boon and curse. Bypassing traditional avenues that can be both a barrier to entry as well as costly, artists have relished the opportunity to take their creative content global through the online platform.

But being able to access content on the web has repercussions. Today almost anything can be downloaded and sampled, putting content at risk from all forms of piracy like plagiarism and copying.

“If you want to protect your work, you have to do it in the same way as protecting your privacy,” says Hugh Melamdowitz, a partner at Spoor & Fisher. “Understand that your ability to control the dissemination of uploaded works becomes very difficult. As soon as you push send it’s out there and you lose control.”

“Most people think because something is on the internet it’s in the public domain and therefore one can make copies and use the work. That is not correct. While there is nothing wrong with distribution over the net, the question is when

effecting distribution whether you are rewarding the creators of the work,” says Melamdowitz.

Protection of artistic works is afforded globally by copyright legislation, but while creators are theoretically able to prevent infringement, it doesn’t mean that they do.

“The major disincentive to litigating on copyright infringement is that the return is

not going to be particularly high, normally a maximum royalty of 10% of the product. So you are not talking much money. When you do catch someone infringing, the cost and return has to be

weighed up very carefully.” Infringement can sometimes be settled

quickly by issuing a Letter of Demand, at a cost of around R2 000. But should litigation be pursued this can easily cost

R300 000, Melamdowitz tells finweek.Copyright infringement is not the only factor

that creators need to concern themselves with. There are ramifications to sharing and uploading content that could affect their rights.

“As soon as you start giving away your content, you limit your rights. The new rights holders will be those who control content,” says Melamdowitz.

Measures such as copyright deter the misuse of creative works. But if the intellectual property forms part of a commercial venture there is even more reason to mitigate risk. Aside from putting in place those steps necessary to minimise risk (see box), there are legal routes like trademarks and patents that afford added protection. ■ [email protected]

on the money copyright

By Glenda Williams

Protecting intellectual property


The internet has created a platform to generate revenue. But how does one protect creative and potentially monetising endeavours?

SEVEN TIPS TO PROTECT YOUR INTELLECTUAL

PROPERTY

1. Draw attention that copyright subsists to deter potential infringers.

2. Give notice that illegal copying will be prosecuted.

3. Trademark and/or patent those items allowed by law.

4. Encode watermarks. 5. Consider encrypting your

uploads. 6. Pay attention to where

you are uploading your work and how this may affect your rights. Uploading content to sites like YouTube grants the public the right to reproduce, use and even create derivative works out of that. Other social media platforms such as Facebook have similar terms and conditions.

7. Read the terms and conditions of sites that you are uploading to. Ensure you are not relinquishing rights to your works by accepting these. ■

Intellectual property legislation is an agreement between government and the creator whereby the creator gets a limited period of protection.

Ideas, per se, are not protectable and if discussed will be in the public domain. The only way to protect an idea (before creative work is undertaken) is by way of a confidentiality agreement between parties, says Melamdowitz.

What can be protected, he says, is the embodiment of that idea, the manifestation of the creative work around that idea. COPYRIGHT: As soon as a work is created, owners have automatic copyright protection that can only be

transferred by way of a written agreement. ▶ Protection period: Life of creator plus 50 years after death▶ Protection area: Global▶ Cost to register: Cannot be registeredPATENTS*: Can be applied for work around ideas that are inventive, novel and innovative▶ Protection period: 20 years▶ Protection area: Territory within which it is registered▶ Cost to register: Can range from around R20 000 upwards for a professional search to final registration TRADEMARKS*: The unique name, logo, slogan

etc. that distinguishes the business and brands are afforded protection from infringement and competitor misuse▶ Protection period: As long as registration is in place▶ Protection area: Territory within which it is registered▶ Cost to register: Average cost R3 000 to R5 000*Patents and trademarks are territorial and need to be registered in the territories where they require protection. This includes protection from patent trolls who look for inventions that may not be registered in a particular country and can thus be exploited. ■

Hugh Melamdowitz Partner at Spoor

& Fisher

self-taught fashion designer and entrepreneur from Soweto, Thabo Khumalo, is the owner of androgynous fashion brand ToVch

(pronounced “touch”), which he founded in 2010. In 2014 he was runner-up in the SA Fashion Week (SAFW) Scouting Menswear Competition, opening doors for him to showcase his designs on the runway with some of SA’s most well-known designers and brands, including House of Olé, Ephraim Molingoane (Ephymol), Roman Handt, Paledi Segapo (Palse Homme), Gert-Johan Coetzee and Craig Jacobs.

What did you do prior to starting your own business?I started sewing and redesigning clothes at the age of eight. I used to redesign the clothes my mother had bought me. I broke a few sewing machines and needles, which got me into a lot of trouble with my mom until she decided to sell me one of her old sewing machines when I was 19. In the beginning I did not take fashion seriously and would only sew and redesign my own clothes, so no revenue was generated. I had to find work to survive – my first job was managing a hair salon. Overseeing its daily operations gave me insight on what it takes to run a business and inspired me to follow my passion.

Where did the idea come from and what is the inspiration behind your collection?I identified a gap in the local market for menswear. The female fashion industry was saturated and competitive, while fashion for men was less crowded and beginning to show rapid growth. The menswear market is growing as more men feel that their appearance is important and are willing to invest more time, effort and money on their grooming and appearance. ToVch is inspired by street fashion and Generation Z. ToVch imparts a feminine touch to menswear and brings masculinity to feminine dressing.

How did you make your first sale?My first sale was through friends. They loved my clothes and style and would place orders. After I showcased my work at the Mpumalanga and Soweto Fashion Weeks, some boutiques noticed my designs. One boutique with stores in The Glen, The Zone, Maponya Mall and East Rand Mall, approached me to supply their shops – a dream come true for a young designer from Soweto.

Initially I experienced the normal hiccups, like late, irregular, and incomplete payments. But this did not deter me. I am currently supplying to Fashion Kraal, situated in Johannesburg. They also have an online store. We also have clients who walk into our studios.

When did you officially start operating?I registered the company in 2010 as Ghetto Bling, inspired by Soweto street fashion and glamour. We later relaunched to Touch Of Bling to launch in the SAFW Scouting Menswear Competition. We’ve since changed the name to ToVch in order to appeal to a wider market.

How did you get funding to get started?While working as a hair salon manager, I saved up all the money that I made after work and during weekends from my fashion business. I raised just about enough to afford three months’ rental for a studio in the Johannesburg CBD, which I initially shared with other designer friends. My business could finally move out of my mom’s house in Soweto.

How did you come to enter SA Fashion Week (SAFW)? I learnt about the competition through

staying up to date with the local fashion industry (I follow SAFW on social media and read fashion and entrepreneurship publications). It was a tough competition – the selection criteria are very stringent and

the judging panel very strict. You need to be authentic and know your story as a designer. From 14 designers, seven went through to the finals and I was selected as first runner-up.

As a finalist, I could showcase at the SA Fashion Week Autumn/Winter 2015 Collections in October 2014 to an audience of buyers, media and fashion leaders. I got introduced to different markets and big fashion

industry players – the resultant growth of the brand led to the rebranding (as ToVch) in order to cater for different markets.

What have been the three biggest difficulties you’ve had to overcome? ▶ Competing with an influx of well-established brands by big retailers and boutiques, and imports of low-quality Chinese products and global brands. Ours is a premium and exclusive brand and our products are tailor-made according to the customer’s specifications, which makes the production process costly.▶ Exploitation by boutiques. Violation of terms and conditions of contracts, including payment conditions. We now sign contracts with clear and comprehensive terms and conditions with whomever we do business.▶ Marketing the brand with limited funds. We use social media and word-of-mouth to market the brand. We also engage celebrities to be our ambassadors by dressing them for special events.

Biggest lesson learnt?I have been taken advantage of many times by clients and shops I supplied to because

Taking androgynous male fashion to the masses

on the money entrepreneur

By Buhle Ndweni


Thabo Khumalo, owner of clothing brand ToVch, has come a long way from sewing his own clothes on his mother’s sewing machine. Today, he is well on his way to becoming one of the top names on the local fashion scene.

“Ours is a premium and exclusive brand and our products are

tailor-made according to the customer’s

specifications, which makes the production

process costly.”

on the money entrepreneur


Thabo Khumalo Owner of fashion brand ToVch, pictured at his studio in the Johannesburg CBD

I did not have solid and comprehensive contracts in place. Small businesses, artists and creatives in particular, must seek legal advice and go for business coaching prior to signing any contracts or engaging their stakeholders and customers.

How tough is competition in your sector, and what differentiates your product from others?Fashion is a cut-throat industry affected by economic, political, environmental, social, legal and technological forces.

I continuously scan my sector, both globally and locally, in order to stay relevant. I maintain my competitive advantage by designing and producing gender-fluid fashion-forward and street-inspired menswear. I also design and print my own fabric, focusing on bold prints and designs, meaning my fabric prints and designs are original, unique and exclusive.

I realised that many SA designers buy their fabrics from almost the same suppliers or factories, which makes it highly likely that they will end up showcasing another designers’ fabric. The bold prints and designs make my collections stand out. I love that exclusivity; that’s why I prefer printing my own fabrics.

How many people do you currently employ?ToVch currently employs seven people. We now have an office manager, a project stylist (project based), marketing and sales intern and two seamstresses. The business is led by both myself, as CEO, and my business partner Msekeli Mpapama, who handles the daily operations.

What is the best business advice you’ve ever received?Look for a compatible business partner, find an experienced mentor and have a solid business plan. In the fashion business it’s important to find a business partner that brings business acumen and the resources necessary to run the business’s operations, while you as the fashion designer focus on your creativity, customer service and other core capabilities of the business.

How do you stay motivated?I am a very spiritual person. I pray winning and I pray losing. I surround myself with people who have positive mindsets and who are mostly ahead of me in terms of achievements – they

keep me motivated. I also love giving genuinely – not for recognition.

What are your non-work habits that help you with your work-life balance?I enjoy listening to business coaching audio clips and soulful music, which inspire my creativity and fuel my entrepreneurial spirit. Reading business/entrepreneurship articles, and researching fashion trends and the fashion industry as a whole, also keep me sane, relevant and motivated. For me it’s not just about fashion, designing and producing garments – I consider myself an entrepreneur that is in the business of fashion.

What is your three-year goal for your company?I want to open a ToVch bridal shop. I would also like to supply more high-end fashion boutiques and retailers. Currently we are not supplying to any boutiques, but we do have a few deals in the pipeline. After a few disappointments and setbacks with boutiques, we have decided to seek legal and business guidance from our consultants and mentors on how to engage boutiques moving forward. Lastly, I want to start an organisation that will motivate, mentor and coach young and up-and-coming designers. ■ [email protected]

finweek 2 June 2016 43

you came, you saw, you conquered the interviewing panel with your easy wit and impressive domain knowledge.

Now comes the really tough part: negotiating your salary.

Here are some fatal mistakes to avoid:

1. REVEALING YOUR MAGIC NUMBER. Whatever you do, avoid being the first to put an actual amount on the table. If your salary expectation is too high, the company might take fright and you could lose a job offer. If it’s too low, you end up being underpaid. Force the company to reveal what they are prepared to pay, and use that as the starting point for negotiations.

The prospective employer will, however, try to press you on your expected salary, or your current pay, throughout the interview process. Resist. Deflect questions about remuneration with noncommittal answers (“Pay is not my main consideration, I’m focused on finding the right position where I can deliver the best value”, “I would first like to learn about what the job will entail”, or “I will consider any reasonable offer”). Or answer the question with a question: “What do you pay people in similar roles?” Bottom line: Force the employer to make you an offer first.

Never bring up compensation during an interview as this sends the wrong message. Instead postpone all questions about pay until you are one of the final candidates. The further you have progressed in the interviewing process, the more time and effort the company has invested in you and the more leverage you have.

If the company is absolutely insistent and you can’t avoid offering a salary expectation, mention a pay range between two amounts that would be acceptable to you, but make it clear that you are flexible.

2. NOT PREPARING A DETAILED COUNTER-OFFER. Unless you are completely thrilled with the offer, always try to press the company for a better deal. In response to the company’s initial offer, prepare a

short document backing up your salary expectation with data on what your skills are worth in the industry. Do extensive research on salary levels and establish what people in similar jobs are earning in that city.

Importantly, demonstrate clearly to the company what value you can add to its bottom line. For example, if you have a diverse set of skills, show how the firm can save money by not having to outsource certain activities.

3. FOCUSING ONLY ON YOUR NEEDS. Don’t ever justify pay demands with your own financial requirements (for example, the fact that your salary needs to cover a student loan repayment, your large mortgage or alimony payments). In all your negotiations, the focus should be on how your prospective employer will

benefit from your appointment.

4. GETTING STUCK ON PAY. If the company clearly won’t budge on a salary offer, and you definitely want the job, negotiate other aspects of the offer to sweeten the deal. This can include extra vacation, flexibility on office hours and working from home, a commitment that your salary will be reviewed at an earlier date, support for future studies, bonus payments, relocation benefits and stock options.

5. BEING TOO EASY. Throughout the salary negotiations, be enthusiastic about the prospect of working for the company. Make eye contact, be polite and pleasant. Don’t talk too much, keep the ball in the prospective employer’s court as much as possible, and don’t be too dramatic: refrain from large gestures and overstatements. But importantly, don’t try to please the interviewers too much. Often, new recruits refrain from negotiating on pay because they don’t want to hurt the relationship they are building with key figures in the company. This is a mistake: make sure you defend your own interests.

6. THINKING SHORT TERM. It is important to think about your remuneration trajectory and future with

7 deadly sins of salary negotiation

on the money careers

By finweek team


It’s always a bit painful, but you have to ensure you get the best possible pay deal when negotiating with a prospective employer. Agreeing to an inferior salary package will undermine your earning capacity for years to come, and ultimately leave you feeling resentful.

Pieter Human Director of the labour

advisory service Labourwise

Unless you are completely thrilled

with the offer, always try to press the company for a

better deal.

the company. Pieter Human, director of the labour advisory service Labourwise, says uncertainty and potential disputes can be avoided by including a very clear performance agreement in your employment contract. The agreement should detail specific information about salary hikes and targets that will be rewarded. “These agreements have to be very clearly worded to exclude any uncertainties.”

7. NOT DOING A DRY RUN. Before participating in negotiations, first practise what you are going to say and make sure you are comfortable to talk about all issues that may arise. Role play the conversation with a friend beforehand and rehearse your responses to possible questions. ■[email protected]

1 Name the local bank that lost R300m to credit card fraud in Japan.

2 In which country are the Marange diamond fields situated?

3 Which company’s $62bn takeover bid was rejected by agricultural company Monsanto?

4 True or false? Pick n Pay recently celebrated its 40th year in existence.

5 What are the people who carry out forcible evictions, named after the company they work for, called?

■ Black Wasps ■ The Hawks ■ Red Ants

6 Which local university recently celebrated its centenary?

■ Sol Plaatje University ■ University of Cape Town ■ University of Fort Hare

7 True or false? Social media platform Twitter has announced that it will increase its character limit to 130.

8 Now that the El Niño weather pattern over the Pacific is coming to a close, which is likely to follow?

9 In which African country is the state of Kaduna, which has declared a state of emergency after 80% of its tomato crop was destroyed?

10 True or false? Last week’s cover story (26 May edition) was about telecoms companies.

on the money quiz & crossword


Have you been paying attention to the news this week? Did you pay close attention while reading this edition? Let’s find out. Should you wish to do this quiz online, it can be accessed via fin24.com/finweek from 30 May.

Solution to Crossword NO 632JD ACROSS: 1 Toffee; 4 Catnap; 9 Circumference; 10 Exempla; 11 Heels; 12 Afoot; 14 Spasm; 18 Pilot; 19 Debacle; 21 Chesterfields; 22 Essays; 23 Crayon DOWN: 1 Ticket; 2 Forgetfulness; 3 Equip; 5 Airship; 6 Nonsensically; 7 Please; 8 Offal; 13 Outstay; 15 Apache; 16 Adorn; 17 Reason; 20 Briar

ACROSS 1 Be in fear of arrest (9) 8 Part of speech unloved by sister (3) 9 Hugh and Tom out hunting partly

for fun and partly by necessity (4,2,5)

11 Asks rudely about how French can make pipes (7)

12 Direction of big band out east (5)13 Rising in the east (6)15 Stupid person about to go around

spinning top (1-5)17 Salmon caught off Plymouth

seafront (5)18 Droned on against Edward (7)20 Implement intended, we hear, for

prosecution (11)22 Not gout-causing tipple (3)23 Erratic, yet loving permanence (9)

CRYPTIC CROSSWORD 633 JD

DOWN 2 You get seed from most fruit (3) 3 Quote from court addendum (5) 4 Catch men involved with the

flighty girl (6) 5 Order first tweed jacket (7) 6 Take over an executive legacy (11) 7 Dressed in the dark, having lost

nightie first (9)10 Help crew start to get food (11)11 Slightly disable English horse –

by nobbling its food? (6,3)14 Necessary funds (7)16 Computer not first to make

minute measurement (6)19 Old person addressed in medieval

subject (5)21 Negative rate, by the sound of it

(3)

HOW TO GET A RAISE

Negotiating a salary increase with your existing employer is all about marketing yourself and justifying what you are worth to the company, says Pieter Human, director of Labourwise. “The more senior your position, the easier it should be to quantify your performance and justify your pay increases.”

Disputes about salary hikes usually arise when there is disagreement between the employer and the employee about the value the worker has added, says Human. “The employee should always be well prepared when discussing salary increases, backing up all demands with concrete evidence and numbers about how value was added to the employer’s bottom line.”

Importantly, your case for higher pay will only be realistic if you also acknowledge some of your own shortcomings when required, and by submitting concrete plans to address any problem areas in the near future. ■

“The employee should always come prepared when discussing salary increases, backing up all

demands with concrete evidence and numbers about how value was added to the employer’s

bottom line.”

The accounting lifePiker is not a big fan of the profession, but must admit that his accountant has gotten him out of a tax pickle or two over the years. But that is no reason not to poke fun at the grey suits:• What do you call an accountant with

an opinion? An auditor.• An accountant is someone who

solves a problem you didn’t know you had in a way you don’t understand.

• An economist is someone who didn’t have enough personality to become an accountant.

• What’s the difference between an accountant and a lawyer? The accountant knows he’s boring.

• A fine is a tax for doing wrong. A tax is a fine for doing well.

• What’s an actuary? An accountant without the sense of humour.

• What do actuaries do to liven up their office party? Invite an accountant.

SOURCE: Business Insider

The drunkA drunk leaned a little too far out of a second-floor window and fell out. He was lying on the sidewalk when someone ran up and asked what had happened.

The drunk looked up and said: “Hell, I don’t know. I just got here.”

The chaseQ: You are on a horse that is galloping at a constant speed.

On your right side is a sharp drop, and on your left side is an elephant travelling at the same speed as you.

Directly in front of you is another galloping horse but your horse is unable to overtake it.

Behind you is a lion running at the same speed as you and the horse in front of you.

What must you do to safely get out of this highly dangerous situation?A: Get your drunk ass off the merry- go-round!

Piker


VerbatimOn margin

“No man should escape our universities without knowing how little he knows.”− J. Robert Oppenheimer, American theoretical

physicist and professor of physics at the University of California (1904-1967)

Keith McLachlan @keithmclachlanHeard a good one a while ago: “Definition of a hedge fund = A sophisticated fee structure looking for AUM [assets under management].”

Darrel Bristow-Bovey @dbbovey Does the N in NPA stand for “non”?

Zwelinzima Vavi @Zwelinzima1 “We elect thieves! We elect hyenas into office; when goats are consumed we wonder why?” Prof PLO Lumumba

Max du Preez @MaxduPreez A clear conscience is usually the sign of a bad memory.

Peter de Villiers @Coachdivvy*I can’t wait for the day we get female referees in test matches. Women always know everything and they are never wrong.

Richard Poplak @Poplak Notice how every. single. protest in this country tends to turn violent? We are Uber-ing our way to a police state.

Binyamin Appelbaum @BCAppelbaumWhat is an “exclusive” interview with Donald Trump? You were the only media outlet to speak with him in that particular 15-minute window?

Sister Pettina @TheGirlintheAviWearing boyfriend jeans was a stupid idea. It’s raining, my knees are exposed. My ankles are unprotected. I’m a mess. I’m Rihanna’s vocals.

*Parody account

0861-697-827 [email protected]

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