Tag: economy

The increasing migration of flexible office space and co-working locations to areas outside of major metropolitan cities globally is creating a ‘flex economy’ that could contribute more than R3.8 trillion to global local economies in the next decade, according to the first comprehensive socio-economic study of second-city and suburban workspaces. It also revealed that in South Africa, on average 265 new jobs are created in communities that contain a flexible workspace, with an extra R30.8 million per workspace going directly into the local economy.

This rise in local working is being largely driven by big companies adopting flexible working policies; moving away from relying on a single, central HQ and increasingly basing employees outside of the major metropolitan hubs in flex spaces. Most are doing so to improve employee wellbeing by allowing their people to work closer to home, and also to save money and boost productivity.

Jobs creation and the ‘sandwich economy’

Across the 19 countries analysed, the average individual workspace sustains 218 jobs. This includes temporary jobs created during the fitting-out stage of the office space, permanent jobs to run the office, including reception, maintenance, cleaning etc., plus the jobs associated with the occupancy of the workspace.

Economic impact

As well as direct job creation, flexible workspaces benefit the local area through an uplift in Gross Value Added (GVA), the measure of the value of goods and services produced in an area.

For the greater good

Aside from the direct financial impact, local office space has been found to benefit workers and local regions in other, societal ways.

The next 10 years

As well as assessing the impact of individual centres, Regus also looked at the estimated potential of each market to host a larger, national portfolio of local flexible workspaces.

Mark Dixon, CEO for Regus’ parent company IWG, said: “When people commute into major cities their wallets commute with them. Working locally keeps that spending power closer to home. What this study shows is that providing more opportunities for people to work closer to home can have a tremendous effect, not just on them, but on their local area too.”

Black Friday is not a charity, consumers warned

Source: Supermarket & Retailer

Black Friday, which falls on 29 November this year, may feel like an annual treat for thrifty shoppers, but it has little to do with altruism. For retailers it is all about maximising consumer spend.

Some Black Friday bargains will save you money, with some items selling at or below cost price, but profit-starved stores, especially those in South Africa under extreme pressure, do not plan to come in at a loss for the day.

Rather, online and brick and mortar stores use the annual shopping day to manipulate consumers, get feet through doors, win hearts and minds, and generate additional revenue.

In South Africa, shoppers spent close to R3 billion at stores on Black Friday 2018 – a leap in spending so high that it even helped ‘save’ the country’s economy after a torrid year. And with South African consumer spending habits often dictated by pay day deposits, it’s an expense that few local consumers can actually afford.

In order to get consumers parting with their cash, and then, ironically, thanking the stores while doing so, retailers employ several tricks and techniques – many of which are refined each year as the shopping day continues to gain traction in South Africa.

This is how stores will try to trick you into spending more money than you probably should on Black Friday 2019.

Stores will build up your bargain-seeking arrogance – to your detriment.

The psychological manipulation starts long before anyone bangs on the store doors early on Black Friday morning itself, and all the retailers taking part are conspiring against you.

Stores use several psychological tricks to manipulate shoppers, but one of the most important is boosting your certainty of finding a great deal on days like Black Friday, according to brand and consumer specialist Martin Lindstrom.

He argued on Bloomberg that most of what we do while shopping is irrational and subconscious, and calls the mall “the soul of seduction”. The more rational shoppers think they are, he says, the more likely they are to be manipulated.

In other words, you might think it’s entirely rational, and even pretty genius, to be tracking down that amazing deal on Black Friday – but if anything, this confidence just means you’re more likely to fall prey to their tricks.

Building up the hype prior to Black Friday reinforces the idea that great bargains are to be had. Also watch out for messages that tease limited availability and the need to pounce on deals while they are available, rather than sitting on the idea of buying that brand new washing machine until it is “too late”.

“Limited stock” is just that – especially if the numbers aren’t specified.

Mainstream stores will not risk being caught for fraud; if they advertise a once-in-a-lifetime discount of tens of thousands of rands, they really will sell at that price. But there is no requirement for them to have enough stock to make sure you too can get that item at that price.

Be especially worried when the level of stock is not specified, because “limited” can mean “one”.

Stores count on the fact that the adrenaline rush of Black Friday will make you grab a “deal” you haven’t properly researched when limited stock means you can’t get exactly what you want – especially after you’ve camped out on a cold floor all night or obsessively clicked “refresh” on a web page.

Retailers lure you in with great deals, and then subtly tempt you to buy stuff that is not on sale

The concept of loss leaders – items that aren’t necessarily profitable, but sold to attract customers to other items – is nothing new, and not exclusive to Black Friday, either.

Between online research and social media, retailers have to offer genuinely good deals to get feet through their doors rather than those of competitors. If they draw enough traffic they may be able to offset the losses with higher volumes on regularly-priced goods, and they tend to do everything in their power to convince you to buy those.

In some cases it seems as if stores also subtly mark up items they think shoppers may not know the value of, and let the halo-effect of Black Friday give the impression that these too are really good deals.

Loss-leading is not a failsafe way for stores to generate profits, but they do work – to the extent that they’re banned in many US states and European countries.

The products on sale may be old….

Check the model numbers of the hot ticket items that are deeply discounted, and you may find that the products are anything but new.

Events like Black Friday are a great way to move old items that haven’t sold through the year, and probably won’t move during Christmas shopping either – and which will only drop in value as they are outpaced by newer models with new features or technologies.

These can still be great deals if you know what you are in for, and if you are happy with last year’s model, or one with limited features. Just don’t be caught with a “new” TV that isn’t quite what you expected.

… or inferior

Because American consumers can now be counted on to flood into stores for Black Friday, some manufacturers create products especially to capitalise on that spending.

In at least some cases, these special product lines are cheaper to make, and inferior, to mainstream product lines that carry the same name. Because of this, Forbes suggests that the very bastion of a Black Friday deal – the not-so-humble flat screen television – is better bought at other times of the year to avoid buying “toned down, derivative models”.

If you can’t find the model number for a common item from a big name with a simple Google search, beware.

You are not being paranoid: some stores will quietly increase prices before Black Friday to claim bigger discount levels.

As with some online stores in South Africa, those dramatic double-digit percentage discounts on offer come 29 November will not necessarily be as attractive as simple math would suggest.

That’s because in order to hit the advertised discounts, some retailers quietly increase the retail price of sale items a few weeks before the event.

That way they can genuinely claim a discount compared to what they were charging before, even though that is not necessarily the price that was generally charged.

Chances are you’ll get the same thing at the same discount later – and you may do even better.

It’s easy to fall into the temptation trap of Black Friday and think it’s the only sale of the year. But, in the US market at least, CNN claims that there are the same – if not better – deals to be had at other times of the year.

And the South African seasonal retail cycle is looking more and more like that of America, as Black Friday and Cyber Monday take hold here.

Sales on things like clothes and outdoor equipment are often dictated by the changing weather, so if you’re after summer fashion items, you may be better off waiting a few months after Black Friday.

Likewise, South African electronics stores increasingly release items like smart phones and televisions soon after they launch elsewhere. Those launch dates are often linked to big international events, such as the Consumer Electronics Show in the US.

So if you lust after a big-ticket item such as a new iPhone or a large TV, you might be better syncing your sales clock with, say, Apple’s international releases, and waiting for the fire-sale price drops that come when that now top-of-the-line phone suddenly becomes a previous model.

South Africa’s economy is in bad shape

Source: FNB

The Medium-Term Budget Policy Statement (MTBPS) is an update by the National Treasury of the South African government’s financial health relative to what was proposed in the main Budget Review tabled in February.

In his opening remarks Finance Minister Tito Mboweni presented an Aloe ferox to the House, which he highlighted had survived a bitter cold winter during which the ground had become hard.

The Minister likened this plant to the toil that the average South African has been enduring through these challenging economic times.

While the 2019 MTBPS provided a reasonable framework given the challenging circumstances, Minister Mboweni emphasised that the timely implementation of much-needed structural reform was the silver bullet that would provide the fundamental support required for the South African economy to grow meaningfully and sustainably.

In sum, the MTBPS highlighted that chronically poor economic growth is putting pressure on tax revenue collection, while expenditure pressures continue to mount as the government continues to offer assistance to ailing state-owned entities (especially Eskom). Indeed, the combination of these factors has put the government between a rock and a hard place, as sovereign debt continues to rise at increasingly unsustainable levels.

Highlights of the budget:

  • In line with expectations, there was a material deterioration in the fiscal deficit. The estimate for the main budget balance widened to an average of -6.2% of GDP in 2019/20, compared to the -4.7% estimate from the 2019 Budget Review.
  • There were no announcements of tax increases. The Treasury acknowledged that tax measures implemented in recent years have not translated into stronger economic growth. However, given the severity of revenue under-collection, they will still consider additional tax measures in the 2020 Budget Review.
  • Encouragingly, the expenditure ceiling (which excludes Eskom) was lowered for this year and the next two years.

Key takeaways:

  • The reaction of the rand has been largely negative, with the R186 bond yield spiking by roughly 16bps from yesterday’s close on release of the budget.
  • A wider fiscal deficit combined with a higher debt-to-GDP ratio through the forecast horizon will be credit negative for Moody’s sovereign rating decision. However, we remain of the view that South Africa will maintain its investment grade rating status, although the possibility of being placed on a negative outlook has increased.
  • Equity prices have also been adversely affected, with the JSE All Share Index falling by approximately 0.3% from yesterday’s close. In all, much needed structural reforms that lend support to lifting potential economic growth and consequently equity prices will need to be announced in the February 2020 Budget Review.

‘Cheap’ housing in high demand

Source: Business Insider SA

Properties priced between R250 000 and R500 000 are experiencing a strong third quarter, a new report by FNB showed.
Due to increased demand, 5% of properties in that bracket is sold above asking price.

FNB said there is a lack of supply in that bracket which leads to strong house price growth.

The FNB Affordable Housing Insight for the third quarter of 2019, released on Tuesday, showed a third of properties in the R250 000 to R500 000 price range sold below initial asking price.

The average discount offered for the market, also known as the gap market, was 12.7%.

In contrast, over 95% of properties in the higher end of the market sell below-asking price, at approximately 10% discount, the report said.

On average, properties in the R250,000 to R500,000 bracket remained on the market roughly 6 weeks, with 13 average viewings.

In the higher-end market, properties spend 16 weeks on the market with 9.6 average viewers.

The report showed that in South Africa 35% of transactions are typically for buy-to-let, compared to 50% of transactions in the R250,000 to R500,000 bracket.

FNB Home Finance CEO Lee Mhlongo said there is an inadequate supply of lower-end residential properties which contributes to strong house price growth.

“Prospective home buyers are looking and finding value in affordable housing. We believe that a better pipeline of supply, especially within the gap market, will go a long way to improving home ownership in our country,” Mhlongo said.

Mhlongo said emigration and relocation-related sales remain low in affordable housing bracket but is more prominent in higher price segments.

The FNB Affordable Housing Insight was compiled through surveys with the country’s top real estate agencies in Gauteng, Western Cape, Eastern Cape and KwaZulu-Natal.

Black Friday sales expected to soar in SA

Source: African News Network

South African business have begun preparing for what looks to be another bumper Black Friday trading day, with sales predicted to be up 30% from last year, online largest payment service provider PayGate said.

South Africa has like several other countries adopted “Black Friday”, the informal name for the day after Thanksgiving in the United States which marks the beginning of the Christmas shopping season. This year, it will fall on November 29.

Data from retail tracker Black Friday Global shows interest in Black Friday deals in South Africa has grown by 9,900 percent over the past five years, PayGate said in a statement on Tuesday.

“PayGate’s tracking of payments for Black Friday, meanwhile, shows the number of transactions doubling every year for the past three years, and payment clearing house BankservAfrica says it saw a 55 percent growth in transactions in 2018 compared to the previous year,” it said.

“PayGate expects 2019 Black Friday transactions to grow by 30 percent this year.”

It however said South Africa’s e-commerce growth was generally coming off a very low base, having really taken off only in the past three years or so.

The company said it had processes some 64 percent of Black Friday transactions last year, and expected this to rise to as much as 70 percent in 2019.

South African business have begun preparing for what looks to be another bumper Black Friday trading day, with sales predicted to be up 30 percent from last year, online largest payment service provider PayGate said on Tuesday.

By Charlotte Mathews for MiningMx 

The under-performance of Eskom’s fleet of coal-fired power stations is currently being concealed by falling demand. Even a 0.1% uptick in GDP growth would result in a resumption of load-shedding, Nelisiwe Magubane, chairperson of Matleng Energy Solutions and a member of the Eskom board, said on Wednesday.

Nelisiwe said Eskom was reviewing its system availability. The previous energy availability factor report of a few months ago predicted 75-80%. At this point availability was 69-70%.

Mike Rossouw, CEO of Independent Energy Thought Leader and a former chairman of the Energy Intensive Users Group, said if demand picked up, South Africa would experience loadshedding twice a day.

Magubane and Rossouw were speaking at the Afriforesight Future of Coals & Bulk Commodities Conference in Sandton.

Rossouw said the root of the problem facing Eskom was that its pricing policy was wrong. It was devised when Eskom was stable and smaller and not building new power stations. “Today it is the worst medicine for Eskom. The good news is that it can be changed overnight, without parliamentary processes, and things will start improving,” he said.

He said price and demand were inextricably linked. About 75% of Eskom’s income was derived from industry and mining, who were paying too much for power. A comparison of South Africa’s industrial and mining tariffs (rather than its average price) with the same sectors globally showed Eskom’s prices were far higher.

For some smelters, 60% of costs are electricity. At the moment 47 South African smelters were shut. Several South African mines were now smelting offshore because they could get better prices elsewhere.

As Eskom increased its tariff, demand for electricity was falling. As a result, Eskom did not have the revenue to pay for its current scale of operations, which were 500% bigger than they were in 2001 measured in number of plants, Rossouw said. The tariff allowed Eskom by the regulator should reward the utility for good behaviour and punish it for bad behaviour.

Rossouw said Eskom’s average price should not be more than 90c/kilowatt hour (kWh), and ideally it should be about 80c/kWh. Eskom has some power stations that can produce at 30-35c/kWh, but others were generating at a cost of 90c/kWh.

A price of 80c/kWh presupposed that Eskom could bring costs under control. “It makes no sense to raise prices because costs are not under control,” he said.

Rossouw said Eskom’s high costs resulted from three main factors. Firstly, it was paying excessive costs for coal as a result of too many small operators supplying bad coal intermittently and destroying road infrastructure at the same time. “(Former Eskom CEO Brian) Molefe’s ‘I don’t want the bakery I just want the bread mantra’ is nonsense,” Rossouw said, because coal and power stations were inextricable.

A second problem was that Eskom had too many assets. Breakdowns were now 20% of capacity from 3% in 2001 and fixing breakdowns required three times as many resources as planned work.

The third problem, Rossouw said, was staff and other costs. Eskom could address those costs, if it was allowed to do so. It should not be stopped from retrenching. “Every company in the world that is in trouble cuts back operations and staff,” he said.

What unemployment looks like in South Africa

South Africa’s unemployment rate is getting worse. The latest stats from Stats SA, as well as the opinions of leading economic and labour experts, paint a very dire picture:

  • The unemployment rate increased by 1,4 percentage points from 27,6% in the first quarter of 2019 to 29,0% in the second quarter of 2019
  • The number of people unemployed grew by 455 000
  • The number of people employed grew by just 21 000
  • Government’s failed Industrial Policy Action Plan (IPAP) was supposed to create 350 000 manufacturing jobs
  • 320 000 manufacturing jobs have been lost since 2008
  • Gang violence on the Cape Flats is a direct result of the loss of jobs in the textile industry in the areas
  • 6,7-million people are currently unemployed in South Africa – the size of the entire country of Bulgaria

According to a Business Tech article published recently, chief economist at Efficient Group, Dawie Roodt believes that state spending has increased relentlessly since 2009, at a time when tax collections collapsed – and that the South African economy “doesn’t have a long time”.

“Even if we can somehow wave a magic wand and get rid of all the corruption and incompetence in the state and SOEs overnight, the perilous condition of the state’s finances will need an extraordinary attempt to save us from further economic collapse,” Roodt was cited as saying.

South Africa’s faltering economy can be attributed to:

  • Eskom’s dire financial results, with a record reported loss of R20.7-billion
  • The potential for load-shedding making a return in late August
  • The latest unemployment data: the Quarterly Labour Force Survey for Q2 2019 showed that the unemployment rate increased by 1.4 percentage points from 27.6% in the first quarter of 2019 to 29% in the second quarter of 2019
  • Rumours that international ratings agency Moody’s could downgrade South Africa’s sovereign debt to junk status abound
  • A collapse of fiscal accounts
  • Lack of economic growth – it needs to be at 6%

There are a few ways to remedy this, including:

  • Increasing taxes, such as VAT, by 11 percentage points will get in approximately R250-billion
  • Cutting state spending by a similar amount, and do away with cash-heavy initiatives like the NHI

Nedbank look to retrench 1 500 employees

Source: eNCA

Nedbank Group is in talks with about 1 500 employees over potential job cuts at the South African lender’s retail and business-banking division to cope with a struggling economy and increased competition.

The company forecasts that “between 50 and 100 employees are at risk of not being placed in a role,” Johannesburg-based Nedbank said in an emailed response to questions on Friday.

“Unplaced employees will then be assisted by the bank to either secure available alternative positions within the bank, which is our first prize, or be equipped for opportunities outside the bank.”

South African lenders are battling to grow revenue faster than costs as they contend with an economy that has shrunk for three of the past five quarters.

Consumers have been battered by rampant unemployment, rising taxes, fuel prices and utility bills, pushing them to explore cheaper banking alternatives or digital services.

Companies aren’t investing amid uncertainty over electricity supply and surging government debt levels.

“Nedbank is being forced to reshape our operating models and businesses,” the company said. “In doing this, Nedbank actively makes use of natural attrition and a redeployment and reskilling pool. Non-voluntary retrenchments are always the last option.”

The company, which employs 30,577 people, has also been reducing the floor space used by its branches and increasing the use of automation to lower costs.

Nedbank expects the process to be concluded after the final meeting with the labor union Sasbo at the end of this month, it said.

SOE bailouts loom in South Africa

By Gaye Davis for EWN

Finance Minister Tito Mboweni said cash injections for state-owned entities like the South African Airways, the South African Broadcasting Corporation (SABC) and Denel wouldn’t be handed over all at once but in chunks, as certain conditions are met.

Mboweni was on Tuesday replying to debate on the Appropriations Bill, which was before the National Assembly.

The Appropriations Bill provides for budget allocations to all departments and entities and was tabled by Mboweni along with his February Budget.

It included provision for R3.2 billion for the cash-strapped public broadcaster.

The bailout money for the SABC, Denel and SAA would come from the contingency reserve account but Mboweni said it came with strings attached.

“We would not just make that available tomorrow, it would be a mistake but we will release in chunks as certain conditions precedent are met, to make sure there’s progress in improving the organisation.”

Mboweni said chief restructuring officers for each entity would be announced on Wednesday. They would work with the management of the SABC, SAA and Denel to get them back on track.

The minister has warned that the country’s debt to GDP ratio was at an “unacceptable level”: “Thus providing the basis for a serious crisis in the country.”

He said financial management needed to be improved across government and people needed to accept the principle of paying for the services they use.

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