Tag: South Africa

In addition to the inevitable jobs and livelihoods lost due to the Government’s ban on alcohol, South Africa has also lost R13.3-billion in investments.

SAB

  • SAB has put R5-billion worth of capital investment projects on ice
  • South Africa’s largest brewery is cancelling R2.5-billion in investment for 2020
  • An additional R2.5-billion in investment is being reviewed for 2021, due to the ban
  •  Distell has said that the industry had already lost 118 000 jobs, and projections showed that a nine-week ban now would cost another 84 000 livelihoods
  •  The tax loss from the first six-week ban on alcohol sales came to R15.4-billion
  • If the current ban remains in place for nine weeks, another R13-billion would be lost

Consol

  • Glassmaker Consol has suspended construction of a R1.5-billion glass manufacturing plant that it was due to build in Erkhuleni, Gauteng
  • In additon, Consol has halted R800-million worth of furnace upgrades
  • Consol maintains that the alcoholic beverages industry accounts for about 85% of glass sales, and that the South African glass industry will see a 15% decline over the next 12 months
  • The new manufacturing plant would have added 130 000 tons of glass production to Consol Glass’s capacity
  • It was anticipated to create 120 direct job and approximately 2 600 additional employment opportunities across the value chain

Heineken

  • Heineken, the world’s second-largest beer brewer, has shelved R6-billion in planned investment
  • A new brewery was to be built on the KwaZulu-Natal north coast
  • It was expected to create more than 400 permanent jobs

National Treasury now estimates that job losses could be between 690 000 and 1.79-million due to the impact of the Covid-19 pandemic on the South African economy.

The 690 000 job losses are likely in the event of a quick recovery; the larger figure is a worst-case scenario.

The sectors that will see the largest impact are likely to be:

  • Manufacturing;
  • Construction;
  • Trade;
  • Catering and accommodation; and
  • Financial and business services.

Avis Budget Rent-a-Car, part of the Barloworld Group, announced that a total of 978 employees would be affected by retrenchment, according to a Fin24 article. This is nearly half of the employees of the company.

Meanwhile, the Bidvest Group’s shares fell more than 5% on Monday after the diversified services and trading company warned of possible job losses as a result of coronavirus-related disruptions across its operations.

This is in addition to running list of companies in South Africa who have gone into business rescue, or foresee retrenchments and job cuts.

These include:

  • Phumelela Gaming and Leisure (currently in business rescue)
  • Afarak Mogale and Afarak South Africa (currently in business rescue)
  • SAA (currently in business rescue)
  • SA Express (currently in business rescue)
  • Edcon (currently in business rescue)
  • Comair (currently in business rescue)
  • Tiger Brands
  • Cell C
  • Pam Golding
  • Prasa
  • Flight Centre
  • SAB

Although the South African government has put a number of relief measures in place to help those adversely affected by the Covid-19 lockdown, the structures seem to be overwhelmed or not functioning at all.

The week before last, it was reported that not one of the channels for the application to the Covid-19 Social Relief of Distress (SRD) grant of R350 was functional. More than 4,9-million people have applied for the new grant but on Friday 22 May SASSA’s CEO, Busisiwe Memela-Khambula, confirmed that just ten people had been paid.

The TERS UIF application process caused headaches for many business owners in April. However, applications for the month of May have still not been opened, and the following message is displayed on the website:

A business contacted My Office News with the information that they had received an e-mail stating that:

Companies that are no longer in full lockdown from 1 May cannot apply for this relief fund. This option is only available if your company is still in full lockdown with no operations taking place.

This means that, although many companies will need financial assistance due to a lost of customers or rule changes during Level 4, they will not be able to access it.

The Reserve Bank partnered with National Treasury and large private banks to launch a R200-billion loan guarantee scheme, which aimed to extend loans to businesses with an annual turnover of less than R300-million for operational expenses.

However, businesses have to apply within a number of metrics set forth by the bank in question, and many are finding that the other available relief funds such as SAFT do not cover the salaries of employers, only employees.

By Marelise van der Merwe for Fin24

South Africa is likely to see long-term economic damage and “deep scarring” on unemployment numbers unless urgent reforms are implemented to attract foreign investment and improve ease of doing business.

This is because there simply isn’t enough money available locally for the country’s recovery to be driven by domestic consumption, according to Dr Morné Mostert, Director of the Futures Institute at Stellenbosch University.

Late in April, President Cyril Ramaphosa announced an unprecedented R500 billion support package aimed at mitigating the impact of the coronavirus on South Africa, with Finance Minister Tito Mboweni expected to be ready to table his adjusted budget after 24 June. R130 billion of the package will be supported by reprioritising funds from South Africa’s existing budget, while the rest must be funded externally.

That’s for the current year. The next remains to be seen.

In Mostert’s view, the Level 5 lockdown was initially successful, but the lifting of restrictions has been hamstrung by a focus on minutiae at the expense of a long-term recovery strategy. The key to a recovering job market lies in attracting foreign investment and improving ease of doing business, he argues, “not whether we can or cannot buy open-toed sandals”.

South Africa – like countries across the world – has seen job losses and a reduction in working hours since the start of the pandemic. Estimates for April suggested some 20 000 jobs were shed.

But SA is not alone. Elsewhere, there have been similar or even steeper declines. For the past nine weeks, the United States has filed a record number of unemployment claims, erasing the gains of the last decade and bringing the total to over 38 million jobless.

Economies that have historically boasted the lowest unemployment rates are beginning to waver – from Australia to the UAE and Thailand. Canada’s unemployment rate spiked to 13% in April of 2020 from 7.8% in the previous month. Jobless claims in the UK jumped 70% in April. China’s unemployment rate, described by critics as “suspiciously stable”, has been called into question in recent weeks.

The International Labour Organisation (ILO) has warned that nearly half of the global workforce is in immediate danger of losing their livelihood. That’s 1.6 billion workers worldwide. The first month of the crisis saw an estimated drop of 60% in the income of informal workers globally, while worldwide, over 430 million enterprises faced high risks of “serious disruption”.

This is bad news for South Africa, whose long-term prospects for economic recovery depend to no small extent on its attractiveness as a destination for foreign investment as well as the resilience of its trade partners.

The wellbeing of the US consumer, in particular, has a widespread knock-on effect, says Maarten Ackerman, Chief Economist at Citadel.

“The US is still the biggest economy, and the US consumer is still, to date, the most important consumer. Their consumption spending is significant,” he says. “If they are going to remain sick for much longer, that is going to have a big impact on not only SA, but the whole world.”

China, as a key trading partner for South Africa, has shown some resilience – which is good news, says Ackerman. But South Africa’s trade relationships with its African neighbours are also significant, so the economic recovery of the rest of the continent, as well as implementation of the African Continental Free Trade Agreement, remain critical.

As for the US, its sustained job losses are in line with what was seen during the Great Depression, which is bad news for spending power. Moreover, according to Mostert, the strategic response to Covid-19 in the US has also “created havoc”, with global knock-on effects.

A prolonged recession is more likely than a depression, because a major structural shift in employment is unlikely, Ackerman says – meaning jobs will not be permanently destroyed.

But the concern is that comparing cycles – the Depression, the Recession of 2008, and the coronavirus crisis – indicates that while the current decline is extremely steep, during each cycle, recovery has taken longer.

“Getting 50 million people back into the employment sector will take a lot of time,” he says.

Tough times ahead for SA

South Africa faces its own complexities. Its labour market is less flexible, which has its advantages for the consumer, but can also signal challenges for recovery down the road.

“The US has one of the most flexible economies in the world. They very easily fire people, but hire them again when the economy picks up. Companies can get lean and mean very quickly,” Ackerman explains. This is not true of South Africa, which means there may ultimately be fewer jobs lost, but these could be permanent.

“There are a couple of [estimates] but depending on how long the lockdown continues, we could have 3 – 4 million people losing their jobs that will push unemployment close to 50%.

“Unfortunately, in our case, some of that damage will be more structural,” Ackerman says. “It will be difficult to replace those jobs and get those people back into employment. We entered this in a recession and may lose some companies as a result.”

The other difficulty in South Africa is that many of its people are already struggling financially, employed or not. This bodes ill for both individuals and economic recovery overall.

Credit bureau TransUnion’s Financial Hardship Survey has been monitoring the impact of Covid-19 on consumers across the globe. Its latest South Africa Report suggested that while a comparatively smaller percentage of South Africans had, as yet, been impacted by the loss of jobs than in the United States and United Kingdom, their concerns over making ends meet were already even greater.

The South African report for the week of 4 May noted that while the minority of respondents had lost their jobs, the majority (82%) had had their household income impacted. There was an average budget shortfall of R7 542.90 when paying bills or loans, with the average respondent expecting they will not be able to pay their bills or loans in 7.3 weeks due to financial hardship.

Across the country, no province had fewer than 83% of respondents saying they were concerned about their ability to pay their bills or loans. In Limpopo, a staggering 100% were worried about their ability to make ends meet.

In the US, respondents concerned about making ends meet ranged from 45% – 62%, while in the UK, figures came in at 60% – 65%.

Rough ride

For Mostert, this is one more reason to call for urgent reforms: SA will need outside help in order to recover.

“We don’t predict the future, because that depends on what people decide. But if there is no course correction, we are in for a rough ride,” he says.

This “rough ride”, according to Mostert, which includes a very rapid decline and slow recovery; a sharp increase in inequality; “deep” and “unnecessary” scarring on the job market; total erosion of South Africa’s already poor savings track record; and exacerbated damage to unemployment numbers by the Fourth Industrial Revolution, the effects of which will be accelerated.

Course correction involves urgently focusing on a more business-friendly environment. Mostert cites South Africa’s sliding rankings on INSEAD’s Global Talent Competitiveness Index; it has also slid in the World Bank’s Ease of Doing Business report, dropping from position 32 in 2008 to 84th out of 190 countries in 2019.

“Jobs cannot come from government. That’s impossible,” says Mostert. “What are you left with?

“Business, in all its various forms. Unless you are going to dramatically accelerate a welcoming environment for business, including foreign direct investment, the current future will be utterly undesirable. We need something drastic to attract investment – and it has to be foreign.”

Ackerman agrees. “The trouble is that taxes are drying up, which pushes government into a debt trap. You can only borrow up to a point,” he notes. “It’s totally unsustainable.

“If we can institute some reforms we can start heading for recovery. But if not, then unfortunately we are likely heading for a bailout [from the IMF].”

To survive Covid-19, South Africa ultimately depends on spending and investment from resilient economies, says Mostert. “There is no way SA can pull itself up by its own bootstraps. We can’t do something like inspire consumer spending and hope that gives us a chance. There just isn’t money,” he says.

In a recent interview with MyBroadband, energy expert Ted Blom said he expects that as mining and smelting come back online under new lockdown regulations, the heavy demand increases could see Eskom face problems as soon as next week.

As the country heads into winter, a lack of maintenance due to hard lockdown and problems associated with reactivating disabled power units “will result in heavy load-shedding”, Blom said. He expects “transformers to blow up and boilers to malfunction”.

“I would not be surprised if we see the worst load-shedding we have ever seen by the end of June,” he said.

Eskom has a number of issues:

  • Under Level 4 regulations, heavy industries such as mining and smelting are coming back online
  • The utility will need to reactivate generation units which were turned off due to the significant drop in electricity demand – of 10-12GW – caused by the national lockdown
  • They have not conducted extensive maintenance on infrastructure during the lockdown period, and cannot increase its generation capacity
  • The utility is expected to need another bailout, which the country can ill-afford

Blom says that, although new CEO Andre De Ruyter stated the new maintenance model should take around 18 months, the Eskom executive has drastically misconstrued the scope of the problem – and that it would take longer than five years to resolve Eskom’s reliability issues.

Edcon files for voluntary business rescue

By Jan Cronje for Fin24

Struggling retailer Edcon, which owns owns Edgars and Jet, is set to commence with voluntary business rescue proceedings according to a letter sent by its CEO Grant Pattison to creditors and suppliers.

The letter is dated 29 April.

In the letter, Pattison writes that about R2bn in lost sales due to the nationwide lockdown caused by the coronavirus pandemic had consumed the group’s remaining cash.

The R2.7 billion in cash provided to the retailer during its last restructuring had been “substantially utilized” in funding the losses for the financial years ended March 2019 and 2020.

In a separate statement on the group’s website, Edcon states that while company stores will open on May 1 and trade in line with the “level 4” government regulations, they will have do so under business rescue.

“This decision was made in the best interest of our company and all our stakeholders. In the short time that has been available to us, we have been unable to raise the funds needed to pay the creditors for the March and April month-ends.”

“In this circumstance, South African law requires that the company either be placed in liquidation or business rescue. To provide us with a longer period to raise the money, the board has taken a decision to file for business rescue.”

By Lameez Omarjee for Fin24

The economy could contract by 10% and over 1-million people could join the ranks of the unemployed due to the impact of Covid-19, according to preliminary modelling by Business For South Africa (B4SA), an alliance founded four weeks ago in response to the pandemic.

The alliance of South Africa business bodies and organisations on Tuesday morning hosted a webcast where it gave details on its support for government’s efforts to combat the impact of Covid-19 on health, the economy and labour.

Speaking during the call, B4SA’s Martin Kingston shared more on the efforts of the economic intervention working group, which expects the SA economy to only recover in 2021.

A contraction of between 8% and 10% of GDP is expected in 2020, he said. Capital flows will also be restricted for the rest of 2020, he added. “[This] will fuel the number of people joining the ranks of the unemployed,” said Kingston.

So far B4SA expects over one million people to be jobless in the aftermath of the crisis. Government’s fiscal deficit is expected to balloon to 10% of GDP. According to the February 2020 national budget, Treasury expected the deficit to be 6.8% of GDP.

B4SA has also been in regular consultation with government, particularly the National Treasury, the SA Reserve Bank and the Presidency on plans to reinvigorate the economy post the crisis.

“[They are] highly receptive to our input and the stance business has taken to provide unconditional support to the national effort to combat Covid-19,” Kingston said. Kingston said he was hopeful that the “unprecedented level of cooperation” between the parties would be sustained, beyond the crisis.

B4SA is also working with government to determine how best to lift the lockdown restrictions, specifically in critical sectors of the economy.

“We are in dynamic discussion with government on the basis of which lockdown can be released; in whole or in part, regionally, sectorally or demographically or by age,” said Kingston.

There are a number of factors being considered – sectors are being assessed in terms of their contribution to GDP employment, level of exports, risk of transmission, among other things. Kingston added that any decision regarding the lockdown will not compromise the health of South Africans.

South Africa will have to restructure its economy in response to the impact of the pandemic, Kingston explained. The economic recovery anticipated in 2021 will require “significant fiscal stimulus,” he said.

In the interim, support must be provided to small and medium enterprises and larger companies who might face a liquidity crisis.

“We are in discussion with Treasury and the Reserve Bank on what structures are appropriate,” he said.

One such a financial support mechanism is available through the Unemployment Insurance Fund, which has made available a new benefit to employees during this time. The structure of the benefit was finalised last week through a process which involved discussions at National Economic Development and Labour Council (Nedlac), said B4SA’s Robert Legh.

When asked on B4SA’s views on an income or welfare grant for people to support their families, Legh said that the alliance was supportive of such a scheme and even tabled a proposal to Nedlac on this. “It is an affordability issue. The question is for Treasury to start answering on that one,” said Legh.

B4SA also pointed out that the Solidarity Fund established by government, and which already has raised R2.2 billion will also be used to support communities in distress.

SA jolted into a digital way of life overnight

On Sunday 15 March 2020, President Cyril Ramaphosa declared a National State of Disaster in relation to the novel coronavirus, and asked people and businesses across the country to take precautionary social distancing measures – working from home where able, increasing sanitary measures in shops and businesses, and asking those who were sick to self-isolate for 14 days.

The following Monday, on 23 March 2020, Ramaphosa announced a nation-wide lockdown, commencing at 23:59 on Thursday 26 March – an effort by the country to reduce the rapid spread of Covid-19.

As a result, businesses, service providers, shops and telecommunications companies across the nation have had to pivot quickly to embrace a new way of working and providing services.

Here are just a few of the changes we have seen and will see over the next 21 days:

  1. Spars in some areas are offering pack-and-deliver services – some Spar stores allow you to phone or e-mail ahead with an order, which you then are able to either collect curb-side or
  2. PnP is launching a drive-thru service – customers can e-mail your order to your local Pick n Pay store with a drive-thru service. Customers will receive a notice when their order is ready for collection. They can park a designated spot in the Pick n Pay shop’s parking lot. A Pick n Pay staff member will bring the groceries and load them into your car. Payment is made from within the car through a sanitised credit card machine. Items will be limited on a per-customer basis.
  3. Chemists are offering curb-side pick-up services – some chemists allow order-ahead and curb-side pick-up
  4. Some vets will be offering curb-side pick-up services
  5. Telecommunications providers are lowering the cost of selected data bundles, due to the recent Competition Commission ruling. However, this is sure to aid people working from home.
  6. DStv and SABC will be hosting free channels which will aid parents to teach their children from home
  7. DStv is offering a number of free channels: 100 – DStv; 180 – People’s Weather; 238 – SuperSport Play; 313 – PBS Kids; 320 – Channel O; 343 – TBN; 400 – BBC World News; 401 – CNN; 402 – Sky News; 403 – eNCA; 404 – SABC News; 406 – Newzroom Afrika; and 414 – Euronews Now.
  8. Many businesses across the country are conducting meetings and business as usual via a number of online videoconferencing platforms, including WhatsApp, Zoom, Facetime and Skype. They are also making use of productivity apps such as Slack and Trello.

The number of people who have tested positive for the coronavirus causing Covid-19 has gone up to 116 in South Africa.

On Sunday 15 March, President Ramaphosa announced a number of strict measures in order to curb the spread of the virus.

Social distancing and self-isolating are key aspects of the attempts to flatten the curve; however, these measures are having increasingly negative impacts on businesses both locally and globally.

The National Small Business Chamber has provided a number of strategies for brick-and-mortar businesses to stay relevant during this time:

  • Communicate openly with your customers and they will likely empathise during this time. Inform them of the steps you’re taking to mitigate risk within your business and the community at large
  • Offer alternatives to in-store visitations, such as online delivery or teleconferencing
  • If you do greet your customers in person, smile and wave, fist-bump, foot-tap or elbow-knock rather than shaking hands
  • When communicating about the Covid-19 virus make sure you get your facts from a reliable source. Don’t spread false news and add to the panic. Spreading fake news about the virus is now punishable by law in South Africa
  • Let customers know what you’re doing to prevent the spread of COVID-19. Send an email outlining the steps you have taken, or post signage in your stores. Offer your clients and staff hand sanitiser or disinfectant soap so that they can clean their hands as often as possible
  • Increase your social media presence. Customers are checking in much more frequently to get the latest updates on the virus, so it may be helpful to increase your posting frequency to ensure you are showing up in their newsfeeds. Make sure you are not forgotten
  • Offer online deals to remind customers that they can still shop for their favourite items on your website. It might even help to offer a coupon or discount to encourage online shopping, as most people are now staying at home
  • Service-based businesses like restaurants or salons may want to consider offering online sales of gift certificates. This will help maintain sales, while giving your customers something to look forward to
  • Minimise spending on items which are not critical for the operation of your business. It is time to cut down on the nice-to-haves and rather focus on the bare essentials. This will help to make your business run as efficiently as possible
  • Assist your customers through digital channels. Increase your customer service capabilities and ensure your customers can reach you, no matter where they are
  • Strategise with your team and create a contingency plan. Look critically at your business and make a business continuity plan. Use this time to think of innovative ways to get your product or service into the hands of your clients
  • Institute remote working, if possible, or some degree of flexi-time
  • Advise those who are showing the symptoms to stay home and self-isolate for 14 days
  • Consider how you will handle absenteeism and think about how you will communicate if people get sick. Try to be as understanding as possible and have a contingency plan in case you suddenly become short-staffed
  • Don’t panic!

Disruption is an inescapable and growing threat across industries in South Africa. Accenture’s (NYSE: ACN) 2020 Innovation Maturity Index shows that the majority of South African companies are vulnerable. That’s because they are playing it safe. It’s risky. The winners are innovating!

As the success of digital giants like Netflix, Google and Amazon illustrate, innovation is the source of the disruption. It is also the antidote to being disrupted. Accenture’s research bears this out. The companies that are beating disruption, just 7 percent of South African companies compared to 14 percent of companies globally, are innovating, using digital technologies to grow and reshape their core businesses into new businesses.

As part of its Innovation Maturity Index study, Accenture conducted interviews with 100 South African C-suite executives from 14 industries to understand how their businesses are preparing for, and are positioned to deal with disruption. Their responses are cause for concern:

  • 75% expect their industry to be disrupted by new innovations in the next three years, especially from new competitors and technologies.
  • 50% say they are not prepared for disruption.
  • The research indicates that all industries are facing disruption, but 85% (versus 70% of companies globally) of South African companies are highly susceptible to future disruption.

Why is innovation so important in South Africa right now?

“South Africa is facing enormous challenges, including high unemployment, low skills levels and declining productivity and competitiveness. To stimulate economic growth, it needs to address fundamentals like improving infrastructure, healthcare, education, and broadband reach and costs. Rapid advances in digital technologies offer both business and government a way to rapidly address key issues, introducing efficiencies and new business models, and opening up immense opportunities for value creation,” says Vukani Mngxati, CEO of Accenture in Africa. “But unleashing that value requires a strong innovation capability.”

“In South Africa, and globally, the gap between companies on the winning side of innovation and those being disrupted by it is growing,” says Rory Moore, Innovation Lead for Accenture in South Africa.

“When companies are in the middle of disruption, they typically make cautious moves, focussing their energies and resources on the core business that generates most income and profits. Unfortunately, as disruption escalates and business growth begins to moderate, companies that have not kept pace with change – by, for example, adopting new technologies to increase efficiencies and business agility, innovate and enter new markets – find themselves ill-equipped to compete. For them, the economic opportunity is often visible but unreachable; it cannot be attained with their existing business models or capabilities.

“Companies that aim to drive growth and thrive in the digital era have much to learn from the disruptors – the high-growth companies that are on the winning side of disruptors.

What do Innovation Champions do differently?

“Companies that thrive in the age of disruption actively innovate. They have, and are investing in innovation aggressively. And they take a focussed and decisive approach to innovation: it is change-oriented, outcome led and disruption-minded,” explains Yusof Seedat, Accenture Head: Global Geographies Research, Growth and Strategy.

These companies build deliberate innovation structures and they embed innovation in their everyday business by adopting seven innovation practices – they are hyper relevant, network-powered, technology-propelled, asset-smart, inclusive, talent rich and data-driven.

“Of these practices, becoming data driven is the alpha trend among Innovation Champions,” notes Seedat. “It powers a ‘wise pivot’, enabling these companies nurture and grow their core while also growing and scaling new business.”

“Playing it safe could cost companies in South Africa everything,” says Mngxati. “Companies must innovate, adopting new technologies and approaches to strengthen their core and pivot to the new if they hope to hold their position in a disrupted market. Taking the first steps now can help them build a foundation that will enable them to grow, compete and thrive in a digital era.”

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