Daan's Snippets

Economy

South Africans are awash in grim economic news led by a faltering GDP, burgeoning population growth and political incompetency. Some notes on green shoots were published this week past:

  • Citadel reports on high 2018 FDI investment which it believes signifies a turnaround in our economic fortunes; 
  • our weekly bond auction was only 2.3 times oversubscribed, compared with a ratio of 3.34 the previous week and an average of 3.6 for the prior four auctions. Whilst down, there are at least more buyers than bonds available;
  • Moneyweb cited an article by Cairns in which he says that our economy is not collapsing. We should not equate low growth with decline. Our economy is twice the size that it was 20 years ago.

Au contraire:

  • the IDC is said to be struggling with an income of R720m, down from R3.2bn implying that another parastatal is in trouble;
  • the premium on SA bond yields, over developing nation peers is now high, suggesting that investors are positioning themselves for our impending fiscal deterioration and downgrade;
  • Saunderson-Meyer quoted Mbeki on population growth: SA does not have an unemployment problem but an un-employability problem. We are not dealing with the supply-side of the unemployment problem: our population increased by a million just in the past year (yes he concedes that some of this is attributable to illegal immigration. As an aside: Jammine estimates our inflow of  immigrants at approximately 225000 per annum). What I did find enjoyable was his statement that radicals have weaponised baby-making! Also interesting was him quoting a University of Bath study which suggests that, in Africa, greater economic development could cause population growth to accelerate and not slow.
  • Engineering News drew on Bloomberg and reported that investors have been dumping SA bonds at a rate of almost 2bn per day this month.
  • In dollar terms, SA bonds have underperformed those of all major emerging markets in August, except that of Argentina.

Whilst, according to Kganyago, we are not yet at the point where the IMF may intervene, one wonders whether intervention by Dr IMF may not be welcomed: such intervention would be a-political and would be straight down the line with no deviation tolerated. Perhaps just what is needed?

The Rand’s woes have been attributed to external factors such as the threatening trade war between the US and China and so on. I am less convinced, although I hasten to add that I’m no economist. Much of our financial woes are of our own making: high wage bills and a higher debt burden makes us, in Moody’s terms, susceptible to financing shocks and thus a higher risk to investors.

Ryk de Klerk, describes himself as an analyst-at-large and writes for The Mercury. He says that South Africa is desperate to attract foreign investment and cannot allow scarce capital to leave our shores as disinvestment by local institutions. He therefore proposes that a moratorium needs to be placed on further offshore investments by SA pension and retirement funds. Desperate times…

I have heard from several sources that emmigration has picked up dramatically. This week Jammine took up this topic and suggests that the emigration of skilled persons from SA is accelerating, which emigration is not confined to whites. Interestingly, he says that such emigration will present SA with a huge fiscal challenge owing to those who leave having high skills levels thus diminishing the kernel of elevated wage earners locally. Diminution in their representation within our workforce will result in a decrease in income and eventually erode our tax base quite severely. Take a look: https://www.biznews.com/global-citizen/2019/08/13/accelerated-emigration-azar-jammine

Business

Health and education are basic human rights? With health heading towards NHI there has been no similar drastic intervention in schooling: it appears that Curro is betting against centralised education in that it has announced that it will be opening another four campuses and has seen a 44% rise in half-year headline earnings.

One never loses money until you sell the shares that you bought at a premium, right? If you agree, then so would Mr Matjila, the former CEO of the PIC. The mere fact that the AYO shares bought by the PIC were overvalued, does not seem to bother him much. Perhaps it is just as well that is no longer in office.

Shorts:

  • some months ago it was reported that a beetle was infesting trees in South Africa and that no method of control had been found. Pan African Farms has created a non-toxic product that kills the fungus on which these beetles live;
  • the Stellenbosch MBA programme has been rated the best in Africa by Eduniversal;
  • a Saudi Arabian onshore wind power project now delivers electricity at 1.99c/kWh – costs are dropping;
  • the CIBC has successfully had Mr P Zwane declared a delinquent director, following on his term at Necsa. This gentleman is currently the CFO of Unisa and director of some Unisa companies;
  • Busa (uncharacteristically) has called for aggressive fiscal consolidation of our state finances, particularly when it comes to SOE’s. 
  • Fitch says that the global primary aluminium market will remain under supplied until 2026 as the construction and automotive sector growth outpace production. Hulamin must be overjoyed;
  • Ford has initiated settlement negotiations with the NCC over plans by that body to prosecute Ford for contraventions of the CPA (think the Kuga saga). If this is how this affair ends, one wonders why that company did not acknowledge the problem and get on with fixing it right away when the problem surfaced;
  • The DUT is researching the production of agrimats; soil toppings comprising algae, bagasse, wood chips and and such, to form mulching material which will release nutrients progressively into the soil; and
  • If methods of education interests you, you might want to take a look at the following site: https://nintil.com/bloom-sigma/ . The study differentiates between the results obtained from direct instruction, mastery learning and tutorials.

Property

The Cape Town luxury home market is experiencing a carnage as prices crash. Seef says that prices for the Atlantic seaboard and city bowl are between 20 and 50% below the asking price. Apparently that market is, on average, some 40% down since 2016/17. Furthermore, such properties are now taking some 18 weeks to sell. Apparently rentals have also dropped.

A further nail in this coffin, from FNB, is that this price pressure is spilling over to middle-priced areas also.

 Buy now!

57% of all new residential buildings completed in SA, in the first quarter of this year, are sectional title units. A shift to sectional title is attributed to would-be owners seeking smaller homes (affordable?) In more convenient locations.

A discussion, which has been trending for a while, is e-agencies which took our market by storm with disruptive fixed fee models and which are now forced to adopt a more traditional approach to pricing. As example, the Property Professional reports that Leadhome has dropped its R40k fixed fee model in favour of a more traditional commission structure.

Practice

A lovely note by Prof Leeson on Trial by Ordeal as a test of guilt between the 9th and 13th centuries, concludes that if an accused chose ordeal rather than confession, the odds were that they were not guilty and that the priests, who administered the ordeal, fudged the results such as cooling the red-hot iron, boiling water and the like before administering the test. The thinking was that if you were guilty and chose ordeal you would end up being burnt and have to pay the fine whilst if you confessed you would only pay the fine. Only the committed would plead not guilty. I suspect that all of this worked as long as no one understood how the test was administered!

A note on GoLegal by Eversheds cautions that when you change your MOI you should be careful that it is not in conflict with your existing shareholders agreement, as the MOI overrides the provisions of a shareholders agreement. https://www.golegal.co.za/shareholders-agreement-moi-cancel/

I was sent a Linkedin invite by this gentleman: http://www.bobroffronald.com/ which, given his reputation I have not taken up.

Do take a look – his allegation that no claims have been made against the Fidelity Fund owing to funds allegedly stolen by him, is certainly startling. He attributes his practice demise to a vendetta by Discovery against him.

Can shareholders hold the directors, of the company owned by them, liable for share price losses owing to their negligent conduct of the company business? No: https://www.bakermckenzie.com/en/insight/publications/2019/08/reflecting-on-the-concept-of-reflective-losses

Quotables

The true sign of intelligence is not knowledge but imagination.

Albert Einstein

Everything you can imagine is real.

Pablo Picasso

Comment:

I believe that those who can imagine future practice beyond what is in use pave the way to development. Both pragmatists and idealists are needed in a practice; the former makes things work in the latter engender change.

When I first did research on the composition of attorneys’s firms some 25 years ago, there were virtually no large black practices. Yet today, there are: why? I suspect that the answer lies in the type of work done by practitioners: if one does criminal work only (I suspect the mainstay of black attorneys 25 years ago) it serves little purpose to run a partnership. Specialist practitioners, such as commercial law practitioners, fancy property work and so on, requires reassuring bulk and reputation. As black attorneys move into this space, I suspect that the size of the practices will increase. Comment?

Contributed by:
Daan Steenkamp Attorneys
LinkedIn Profile

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