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How the coronavirus is killing SA’s economy, one small business at a time CONTRIBUTORS: Sipho Pityana Justice Malala Natasha Marrian Bernard Swanepoel Bruce Whitfield Fred Khumalo

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features

money&investing

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Code red

A Ramaphoria rerun?

It’s not going up in flames

Read between the line-outs

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cover story REGULARS 6 Editorials 7 Editor’s Note 8 State of Play 9 Pathfinder 10 At Home & Abroad 40 In Good Faith 61 Crossword 62 Backstory FM FOX 11 Farmed Abalone 12 Another Week 13 Trending 13 Dinner Party Intel 14 Diamonds & Dogs 14 Hot Property 15 Gimme 16 Digital 17 Pattern Recognition

18 Telemedicine 18 Numbers FEATURES 20 Coronavirus 29 Voice of Small Business 30 Cyril Ramaphosa 32 Comment: Coronavirus 34 Economy 36 Apartheid’s Legacy 37 Sol Kerzner AFRICA & INTERNATIONAL 38 Covid-19 in Africa MONEY & INVESTING 41 Capitec 43 AB InBev 46 Old Mutual 48 Remgro’s Unlisted Assets

49 50 51 52 52 53 54

Airline Retrenchments The G Spot Investor’s Notebook Market Watch Global Markets Economic Indicators JSE Top Stocks

Locked d00 own How Covid-19 is fuelling Ramaphoria 2.0 P30

ADFOCUS 56 Coronavirus Fallout

‘Schadencovid’: will antivaxxers shun a cure? P32

Sun goes down on King Sol P37

Feeling unsecured: Capitec’s wild ride P41

www.financialmail.co.za March 26 - April 1 2020

THIS WEEK WITH FM

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How the coronavirus is killing SA’s economy, one small business at a time CONTRIBUTORS: Sipho Pityana Justice Malala Natasha Marrian Bernard Swanepoel Bruce Whitfield Fred Khumalo

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SPECIAL PROJECTS Loose Investors Monthly

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By Claire Bisseker, Rob Rose, Adele Shevel, Joan Muller and Anathi Madubela

Cover: Rajesh Jantilal/AFP via Getty Images)

March 26 - April 1, 2020

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editorials LOCKDOWN: THE PANIC IN CYRIL’S EYES

Editorial

financialmail.co.za Financial Mail is a wholly owned subsidiary of:

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Editor: Rob Rose. Deputy editor: Natasha Marrian. Managing editor: Kevin O’Grady. Writers: See bylines for writers. Assistant editors: Sarah Buitendach, Shirley de Villiers, Razina Munshi, Giulietta Talevi. Contributing editor: Bruce Whitfield.

March 26 - April 1, 2020

123RF/Natasha Gusarova

n Monday, when President Cyril Ramaphosa stood up to announce a 21-day national shutdown, there was panic in his eyes. The president, renowned for his serenity, spoke of the possibility of “hundreds of thousands” of coronavirus infections, and plans to bring in the army to ensure the lockdown is enforced. Ramaphosa appeared presidential, and this crisis has strengthened his legitimacy. Even political rivals are backing him. It makes you shudder to imagine what would have happened had his predecessor been in charge: the Gupta-run VR Immunology would have scooped the tender for Covid-19 tests, appointments to the National Institute of Communicable Diseases would be decided in Saxonwold, and infection rates would be announced at a daily New Age breakfast. But while Ramaphosa seems in control, this isn’t exactly true. Confirmed cases are rocketing — from 274, to 402, to 554 in three days — and there aren’t enough testing kits in the country, which means people don’t know if they’ve got Covid-19, and aren’t being stopped from spreading it. This is a problem since the evidence from South Korea suggests the one way to stem a pandemic is to test widely and ruthlessly. The lesson from South Korea, as The New York Times put it, is “swift action, widespread testing and contact tracing, and critical support from citizens”. Testing is ramping up — it’s now 3,500 tests a day — but it’s behind the curve. Health minister Zweli Mkhize says he expects by mid-April, SA will be conducting 30,000 tests a day. The question is whether the NICD, underresourced and understaffed, can keep its hand on the pulse of the infections or whether it’ll be swamped. As it stands, SA is now at the stage where clusters of outbreaks are happening in the general population, and the growth is scary. This is why Ramaphosa imposed a lockdown, even though it’ll strangle an economy already

gasping for breath. You don’t want to be the president who (and here, we’re looking at you, Boris Johnson) carelessly sacrifices lives because you’ve got a mate in immunology who made a great case for “herd immunity” over a pint. But if these are the challenges, it only becomes more imperative for Mkhize to improve his communication. He has an anxious population, so there can’t be days with no update on infections. Last week, News24 reported that the government had effectively “gagged epidemiologists, virologists, infectious disease specialists and other experts on Covid-19”, instructing that all requests for comment should be directed to the NICD. Oddly, the NICD denied this, saying it has “no authority” to make such a call — which shows how garbled the government’s messaging is. The fact is, Mkhize’s spokesperson Lwazi Manzi had confirmed that “all communication should be centralised” to just a few people. This was the FM’s experience too, when we posed questions to Gauteng’s health department. As Wits University’s Schalk Mouton says, if you gag the experts on virology, epidemiology and infectious diseases, you’ll inevitably get some crackpot pseudo-expert popping up to fill the space. “When you start gagging scientists in a time of disaster, you are going down a slippery slope. Who will be the next to get gagged?” It’s an important question, especially as the army starts rolling into our suburbs, and a possible state of emergency looms. So far, Ramaphosa has acted as a statesman befitting his office. He realises what’s at stake. But he can’t afford to indulge the more autocratic-minded officials in his midst — or the crisis will become about so much more than Covid-19. x Subeditors: Dave Landau (Chief), Magdel du Preez (Deputy), Dynette du Preez. Proofreader: Norman Baines. Creative director: Debbie van Heerden. Contracted artists: Colleen Wilson, Vuyo Singiswa, Keith Tamkei. Graphics & statistics: Shaun Uthum. Photographer: Freddy Mavunda. Personal PA to the editor: Onica Buthelezi. Office assistant: Nelson Dhlamini.

THE BOJO OPTION CRASHES

t’s not entirely clear why UK Prime Minister Boris Johnson imagines Britons will suddenly support him and his newfound passion for social distancing, given the loathsome disregard he’s shown the nation in his management of the coronavirus crisis. While watching the horror show in Italy, Johnson was happy to pursue a policy of benign neglect, or what he called “herd immunity”. Only, this wasn’t herd immunity of the vaccination kind (if enough people are vaccinated, those who cannot be vaccinated will still be protected from disease). Rather, it was based on an assumption that the population would develop immunity through exposure to the virus. It would have required 60% of the population to get sick and recover, and so benefit from some kind of immunity. Great for those who recovered; less so for the elderly and vulnerable. They’d simply get sick and die. Ho hum. So it’s no great surprise that the country’s health system is now overwhelmed. This week, the UK recorded its largest single-day death count (87) and at the time the FM went to print, more than 8,000 people had tested positive for the virus. It has, at last, spurred Boris the Callous into action: he’s ordered bars, clubs and restaurants to be closed, and gatherings of more than two people banned. Pity the more than 400 people who had to die to bring him to this point. x

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editor’s note by Rob Rose

AN UNLIKELY TALE OF 1918 In predicting what a post-corona SA economy will look like, the Spanish flu suggests the recovery can begin in the most unlikely places @robrose_za roser@fm.co.za

T Industries you’d expect to come out stronger may be those slanted to telemedicine, education or technology

he Covid-19 outbreak, if history is any solace and if President Cyril Ramaphosa’s lockdown gets traction, will hopefully begin ebbing within a few weeks. In that (best case) scenario, we will emerge from our houses to see a devastated economy. With SA’s economy estimated to be set for a 23.5% contraction in the second quarter and a number of our 2.3-million small businesses on their knees, you can expect unemployment — already at 38% — to have soared to an even more frightening level. Nor, in fact, are we entirely clear what a “postcorona” economy will look like. In terms of post-pandemic economies, we have the example of the 1918 Spanish flu, which swept through SA like a biblical plague, killing 300,000 people within two months, roughly 4.3% of the 6.8-million population at the time. As I discussed in this column last week, University of Cape Town professor emeritus Howard Phillips is the expert on that outbreak, having written a 535-page thesis and two books on the subject. “For years after 1918, the economy was deeply disrupted,” he told the FM last week. “It changed many industries forever, including agriculture and mining.” There were some intriguing aspects to the post1918 recovery that suggests the companies that will thrive aren’t necessarily the ones you’d bet on. In particular, that Spanish flu outbreak proved, as unlikely as it sounds, to be the making of SA’s insurance industry. It began, as many victorious stories do, in tears. In February 1919, the journal Insurance bemoaned the fact that flu claims had led to a £1.3m spike in life

insurance claims during the previous four months. Old Mutual chair John Merriman said this caused “a good deal of anxiety as to [the] future”. But in this gloom, life insurers saw opportunity. They began advertising heavily. One novel result of the 1918 virus was that as South Africans began venturing back to the “bioscope” the next year, they saw something they’d never seen before: cinema adverts, jointly sponsored by SA’s insurance firms. One advert showed a widow, with children climbing all over her. It read: “Insurance companies operating in SA have paid over £1m during October and November to the widows and orphans of breadwinners who died in consequence of the flu. The epidemic may return. Be prepared. Insure to the hilt. Do it now.” An Old Mutual advert was even less subtle: “The anguish and suffering from the toll of lives in Black October, 1918, are reflected in the hundreds of widows and orphans left almost helpless in our city. REASON: Life assurance neglected — no endowments fixed for children — in one word, Moneyless, and stranded … Untold misery to the living for years to come. Can any husband or father hesitate today?” Manipulative? Sure. Unethical? Possibly. But it worked like nobody’s business. Life insurance premiums boomed. As Phillips wrote in his 1984 thesis: “In 1919, new life business alone was estimated as worth £20m — easily a South African record.” The Insurance journal lauded this marketing blitz, gushing that people “who as yet hardly know the meaning of life insurance will read, mark, learn and inwardly digest the truths in question, with the wished-for result that they will be ready and willing to sign the application.” Funeral insurance also exploded. Phillips says this, to him, was “one of the most astonishing economic stories” that emerged from 1918. Had you bet on who would win commercially from that outbreak, you wouldn’t have picked a firm that had had to pay out vast sums in insurance claims. Right now, as we stare down the coronavirus, a few obvious stocks are the flavour of the month in the US. The shares of Nasdaq-listed teleconference company Zoom soared 105% this year, while Clorox, which sells hand sanitiser and disinfectant wipes, has gained 12.5%. Pharmaceutical firm Gilead has gained 13% this year as its remdesivir antiretroviral has been touted, prematurely, as a “cure” for Covid-19. In a post-corona world, the industries you’d expect to come out stronger would probably be those with either a telemedicine, education or technology slant. Which isn’t to say you can expect SA business to charge out of the blocks once Covid-19 has been defeated. After 1918, the SA economy lapsed into a grim recession during the early 1920s, and then again in the 1929 Great Depression. It was only after 1933 that the economy began to grow — largely due to gold. But still, what the unlikely story of SA’s life insurance companies does show is that sometimes, the recovery begins where you least expect it. x March 26 - April 1, 2020

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state of play by Natasha Marrian RADICAL CIRCUS SIDESHOWS

t is crucial in these dark times to retain a sense of humour. Fortunately the radical economic transformation cabal has provided plenty of amusement in recent weeks, with its queen, Busisiwe Mkhwebane, suffering yet another court-inflicted bloody nose this week. The latest slap-down for the public protector followed an application by the commissioner of the SA Revenue Service (Sars), Edward Kieswetter, to block Mkhwebane from obtaining former president Jacob Zuma’s tax records from the revenue service. She had subpoenaed Kieswetter to provide the records, which he argued he could not do because of taxpayer confidentiality provisions in the law. Her stated motive was to obtain information for an investigation requested by former DA leader Mmusi Maimane into whether Zuma had received bribes in the form of a salary from a company owned by one of his benefactors, businessperson Roy Moodley. The Sars judgment again shows that Mkhwebane is far from impartial — Zuma had provided her with an affidavit saying he wanted Sars to furnish the information she sought, but, according to the judgment, her own legal team all but ignored it. The judgment shows Mkhwebane litigated in “bad faith” after she had agreed with the tax agency to obtain an independent legal opinion, from mutually agreed experts, on the confidentiality issue. When this opinion went against her position, she rejected it. Mkhwebane then set about obtaining a second, more favourable, legal opinion without informing Sars, it was revealed in the court papers. She obtained one from advocate Muzi Sikhakhane SC, who represented Zuma at the state capture inquiry and in other matters. Sikhakhane also conducted the internal investigation at Sars which claimed to find evidence of a “rogue unit”, a narrative now largely discredited. Judge Peter Mabuse found that Mkhwebane was

@NatashaMarrian marriann@fm.co.za

Mkhwebane is not the only member of the Zuma cult who is rapidly running out of road

good week If you’re looking for calm in the storm, Dr Anthony Fauci would be the lighthouse. As the head of the US National Institute of Allergy & Infectious Diseases, he’s been the voice of sanity who, for his sins, has had to stand next to the intemperate and reckless President Donald Trump, and watch the carnage as Trump piles up lie after misleading claim. Fauci, 79, has quietly corrected those “facts” and spelt out the reality without drama. No wonder panic grew when Fauci skipped one of those briefings. x 8

financialmail.co.za

March 26 - April 1, 2020

“not honest”. “She only sought the initial legal opinion to support her own opinion and when it did not support her opinion, she rejected it and only supported Sikhakhane’s opinion because it resonated with her own,” the judge said. The judge had other colourful phrases to describe Mkhwebane’s conduct; her attitude to the law was “devil may care”, and her conduct was irrational, unreasonable and unlawful. Mkhwebane is not the only member of the Zuma cult who is rapidly running out of road — another is the Twitter-happy Ekurhuleni mayor Mzwandile Masina, who was exposed by the Sunday Times this month as acting in cahoots with a German shareholder in the Reserve Bank, Michael Duerr, who is pushing for the bank to be nationalised so he can cash in. The report went a long way to explaining Masina’s sudden and ardent lobbying for nationalisation of the Bank. This week Masina was campaigning to procure a “vaccine” for Covid-19 from the Cubans using emergency state funds, even though no such vaccine exists. Another report over the weekend elicits a giggle at the expense of Zuma-aligned ANC secretary-general Ace Magashule, who City Press said had withdrawn a defamation case against Buyisile Ngqulwana, a leading light of the African Transformation Movement (ATM). Ngqulwana had named Magashule as having been behind the formation of the ATM ahead of the 2019 elections in a bid to weaken President Cyril Ramaphosa. Apparently Magashule thought better of proceeding with his case after Ngqulwana produced a bank statement and e-mails as evidence of Magashule’s role in launching the party. What is even more amusing is that the ANC announced six months ago it would investigate whether its members had been involved in setting up the ATM — strangely, nothing has been heard since. x

bad week As Tanzania’s neighbours increase restrictions to prevent the spread of Covid-19, President John Magufuli has taken recklessness to a new level. On Sunday, he said he would not shut down places of worship, and instead encouraged people to attend church, claiming it is the only place of true healing. “Coronavirus cannot survive in the body of Christ,” he said. “It will burn.” Quick off the mark, opposition politician Zitto Kabwe responded: “Let’s not argue with science.” Can’t argue with that. x

pathfinder by Sipho Pityana FLATTENING THE SME CURVE Tourism, restaurants, aviation and retail sectors are taking the biggest hit

Urgent, focused and agile interventions are needed

mall and medium enterprises (SMEs) are at the heart of the SA economy — and for this reason, they are firmly at the centre of the response team set up by Business Unity SA (Busa) to deal with the Covid-19 threat and its impact on the economy. The next 100 days are crucial. The sector — already buffeted by the downturn in the economy before Covid-19 reached our shores — will be decimated unless the situation improves by midyear. Urgent, focused and agile interventions are needed to avoid this happening, particularly given the massive job losses that will surely accompany it. At Busa, we have a dedicated work stream specifically looking at interventions for small companies. We believe this — along with the government’s commitment to provide financial aid to affected SMEs, and the steps announced by President Cyril Ramaphosa on Monday — will provide a safety net during the pandemic. But equally critical: once we have beaten the pandemic, organised business’s interventions should enable small businesses to get back on their feet in the shortest possible time. Of course, it’s not simple. There is no silver bullet to ensure zero losses — either financial or jobs — in the sort 123RF of volatile situation we find ourselves now. Some businesses, particularly in the leisure industry, have already felt the crunch and laid off large numbers of part-time workers. If there are further restrictions on movement and trade, the situation could become even more dire. As each day goes on, economic survival becomes more challenging. It illustrates that the deeper we slide during the pandemic, the higher we’re going to have to climb to get back on our feet. This is why it’s crucial to protect the small business sector, and ensure it lives to fight another day. As organised business, we have working groups looking at the economic impact of Covid-19, its impact on the health-care system, and implications for labour. We’ve identified the sectors most vulnerable to the first wave of health, economic and social impacts of Covid-19: tourism, hotels and accommodation, fast food and restaurants, retail trade and aviation. What is

particularly worrying is that more than 40% of our small businesses fall into these categories. So, to address this, we’ve initiated a number of responses — some of which have already been taken on board by Ramaphosa: ● Establishing a solidarity fund to solicit and manage financial and other contributions, from both local and overseas sources, which will be used to support small business, among other things. ● Identifying potential supply chain disruptions arising from import restrictions and identifying import substitution and local manufacturing potential. ● Engaging public and private sector infrastructure providers to ensure the integrity of supply of water, electricity and other essentials. ● Working with the banks and real estate sector to support liquidity and promote forbearance. ● Identifying opportunities, in collaboration with the government, to provide tax relief for SMEs. ● Providing best practice guidance on mitigation strategies and workplace adaptation. ● Developing proposals on fiscal support for SMEs. ● Communicating the required steps to access Unemployment Insurance Fund benefits for affected workers, alongside the department of employment & labour. ● Assessing legislative and regulatory changes required in terms of the Unemployment Insurance Act, the law addressing compensation for occupational injuries, and other laws. In the coming days, business organisations led by Busa will initiate a campaign to mitigate the impact of Covid-19 on small business. Large business and the government will be encouraged to do their bit too by extending longer credit periods, paying suppliers in full, on time, as quickly as possible to help their cash flow, placing orders early, paying in advance, and paying more regularly. It’s critical that this happens quickly. Thousands of businesses are at stake, as are millions of jobs. Just like with Covid-19 itself, we need to flatten the curve as quickly and efficiently as we can — in this case, flattening the curve for SMEs can prevent them going out of business. x Pityana is president of Busa March 26 - April 1, 2020

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at home & abroad by Justice Malala SA CAN EMERGE A STRONGER NATION The winter of our discontent is here, yet we must not despair. Out of devastation there is a chance to remake ourselves

hrow out the rule book. It is useless now. These are uncharted waters. Everything we know has been turned on its head. When we finally emerge on the other side of the Covid-19 pandemic, battered and bruised, we will be a different country. The only quality that will matter over the next few months, and the years of recovery and rebuilding, will be leadership. President Cyril Ramaphosa’s decisive action this week — locking down the country and announcing a raft of measures to cushion the economy against the impact of the spread of the virus — shows that at the very least we are still doing well on the leadership front. We should be grateful for that. Testing times lie ahead. The month ahead will be challenging and painful. The three months ahead will be filled with pain we have not experienced before as jobs are lost, businesses fold and a tsunami of bad news ripples through our country and the world. It may seem hyperbolic to say this, but this looks like a war. It feels like a war. This time we are fighting not man but an enemy we cannot see, a virus that moves around and between us and replicates so fast that we are always several days and steps behind it. A lockdown may starve it. The lockdown is the only scientific tool we have against the virus right now. Ramaphosa is correct to lead the nation in trying to defeat it this way. Yet we have to prepare for a troubled future.

@justicemalala

When we finally emerge on the other side of the Covid-19 pandemic, we will be a different country 10

financialmail.co.za

March 26 - April 1, 2020

There are 10.3-million South Africans without jobs today. There are millions more whose salaries or wages run out within hours or days of payday. Living hand-to-mouth is not a fancy expression. It is a reality for many people every day. This is the challenge of the next three months or more as Covid-19 rips through our world and our country. When we tell people to stay at home, for many this is that one little

123RF/Sri Nur Handini

but significant push towards falling into a deep trough of poverty. Many workers do not get paid leave. Many employers, such as families who employ a domestic worker, are laying off their workers to self-quarantine but also to preserve the little cash they have. That domestic worker moves from some income to zero revenue in a heartbeat. Millions of us will at some point be infected by the virus. Health

minister Zweli Mkhize puts the number at 60%-70% of the population. The only way to avert some of this is the lockdown, if we adhere to what we are being asked to do. Our children will emerge into a devastated, post-war type of economy. Our national debt will have soared. The reconstruction and development programme I have been banging on about these past few weeks will be even more necessary and urgent than it is today. We will need a New Deal in many ways. We will need to do things differently. We cannot afford the laziness, incompetence and corruption that have become the norm in SA in recent years. But to reach that stage where we rebuild, we will need to ensure that SA passes through the dark tunnel it finds itself in right now. Many in our industries will not survive this lockdown or the extra measures that may need to be taken in future. The hospitality industry is mothballing hotels because there is just nothing coming through the pipeline — so how long will it take for the Germans and Chinese to return? The winter of our discontent is here. Yet we must not despair. Out of chaos and devastation there is a chance to remake ourselves into a country that is more focused, more agile, more industrious and more prosperous. If Covid-19 has taught us anything, it is that we should never again allow ourselves to be caught unprepared financially and systemically. We need a country that works. Even if these are hard and painful times, this is an opportunity to build that country of our dreams. x

Digging up unusual, interesting tidbits in and around the business scene

Demand for exotic seafood in Asian countries sinks, jeopardising the future of SA’s export industry Marc Hasenfuss hasenfussm@fm.co.za

ý Covid-19 could push abalone farmers — and many other local exporters of exotic seafood — into a battle for their very survival. Recent reports from listed fishing companies Sea Harvest and AVI-controlled I&J showed that demand for abalone — a sector where many hundreds of millions of rands have been pumped into to increase production capacity in recent years — had a marked drop from key Far Eastern markets hit by the pandemic. This is on top of earlier market disruptions as a result of the political unrest in Hong Kong. The slack demand comes at a bad time as some local abalone producers have only just started to recover from red tides — decaying algal blooms that turn water red and make it toxic. Aside from Sea Harvest and I&J, JSE-listed Premier Fishing & Brands also has a sizeable abalone farm (that is being expanded) at Gansbaai. Smaller unlisted players, like food group Terrasan, also hold substantial aquaculture interests, while individual players like Abagold rank among the bigger standalone producers. Abagold, which has worked hard at recovering from a red tide event at the start of 2018, recently issued its financial report for the six months to end-December, posting a 2% increase in revenue to R117m which was whittled down to an R8.8m bottom line loss. Abagold is fortunate to have managed a rights issue to raise R21m in fresh capital in November, which should tide the

FARMED ABALONE

Market disruptions: Abalone farming at Buffelsjags near Gansbaai

Code red business over through the Covid19 disruption. Cash flow was also positive to the tune of R14.6m after Abagold stopped buying abalone from other farms, which it usually does to meet demand, in September. Abagold chair Hennie van der Merwe says the company’s farms will continue their recovery in the second half of the fiscal year (January to June). However, he says Covid-19 has already negatively affected sales. “If this were to continue, we expect a negative impact on cash generated from operations.” Sea Harvest CEO Felix Rathebe

Sunday Times/Esa Alexander

fears there may be many casualties in the local aquaculture sector. “It’s likely the abalone segment will consolidate … there are too many small players that don’t have the scale.” Sea Harvest is planning to increase its spending in its abalone production facilities but will also look at opportunities for acquisitions. “We are definitely looking around — especially if parts of the abalone industry are brought to their knees. “For small operators it will be difficult to feed animals and pay salaries when sales are curtailed. Only the companies with deep

pockets will survive.” The FM has previously reported that JSE-listed Oceana group — Africa’s largest and most diversified fishing company — had signalled its intention to look for aquaculture opportunities. Oceana will most likely buy into or partner with an existing aquaculture player rather than start its own seafood farming venture from scratch. But there seems no point in rushing into dealmaking with uncertainty still prevalent. In recent financial results, AVI CEO Simon Crutchley said there was uncertainty about the length of time that Covid-19 and even the

March 26 - April 1, 2020

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Getty Images/Clive Rose

ANOTHER WEEK

BOLD BLOSSOM VIEWERS Sightseers, runners, photographers, people with dogs and people pushing baby carriages thronged to enjoy Japan’s cherry blossoms, in defiance of social distancing guidelines. In response, the district and the National Park Service essentially shut off access to the area on the weekend, to prevent the spread of the coronavirus

BY THE NUMBERS

March 26 - April 1, 2020

TOP 10 MOST EXPENSIVE CITIES IN THE WORLD Average prices, $

1 Singapore

2 Hong Kong

3 Osaka

6 Zurich

7 Tel Aviv

8 Los Angeles

9 Tokyo

$66

$103

$124

$72

$200

$210 $56

$113

$96

$960

$1,607

$506

$1,979

$689

$1,483

$1,724

$1,639

Women’s haircut

$3,073

Mens business suit

$1.37

$1.91 7

$2.47

$3.27 $2.55 $1.86

$2.49

$7.41 9

$1.57

$2.25

New York

$93

$5.62

$5.20 4

$4.70

$4.69

$6.82

$8.62 $3.60

$5.63 $3.35 1

Bo le of beer

$3.50

Loaf of bread

$1,167

protests in Hong Kong would disrupt abalone demand. “But it is very likely that the contribution from this business will be lower than last year.” Sea Harvest — predominantly a hake player — shifted into aquaculture after its mid-2018 acquisition of Viking Fishing when a 51% stake in Viking Aquaculture came with the deal. Recent results from For small Sea Harvest operators it for the year to will be difficult end-Decemto feed ber showed animals and revenue from aquaculture up pay salaries when sales 26% to R69m, are curtailed. but operating Only the profit swung companies from a R3m with deep profit to a pockets will R30m loss. survive The overall performance Felix Rathebe was negatively affected by lower abalone sales as a result of an extended red tide event in 2019. Though no animals were lost, the red tide hampered export sales. Sea Harvest also reported extended market issues in Hong Kong and China, where business was disrupted by geopolitical issues within the region as well as increased competition from other abalone-producing nations. Rathebe, though, did report that both Viking’s abalone farms reached their design capacity in terms of biomass. He also offered some hope for the SA aquaculture sector — noting that market issues in Hong Kong, which negatively affected sales volumes during 2019, last year. He said the sales rate of abalone into the region was slowly improving, though pricing continued to be under pressure. But he conceded that Covid-19 had a further negative impact on abalone sales into China and the region since January 2020. “It is expected that this will continue to have a negative impact on sales volumes and price through the first half of 2020.” x

10 5 Paris 10 Geneva

The cheapest cities: Damascus, Tashkent, Almaty, Buenos Aires, Karachi, Caracas, Lusaka, Chennai, Bangalore and New Delhi

Source: Cost of Living 2020, The Economist Intelligence Unit

DINNER PARTY INTEL... “The Games of the XXXII Olympiad in Tokyo must be rescheduled to a date beyond 2020 but not later than summer 2021, to safeguard the health of the athletes, everybody involved and the international community.” The International Olympic Committee and the Tokyo organising committee

TRENDING

A case study in selfishness

1. Pilots can’t find parking The global aviation network is turning into a frantic game of musical chairs, CNN reports. Before the coronavirus altered the world’s airspace, there were as many as 20,000 planes swirling around the planet at any given time. But the system isn’t designed for that number of planes to be anywhere else apart from in the air. Parking at airports is also pricey. And there are technical complexities. To ensure planes are stored in a way that enables them to return to service, airlines need to drain their fluids, cover the engine intakes, protect external parts, and even cover windows and tyres.

2. Rush-hour goes digital

Many people just don’t give a damn, and that seems hard to explain in a crisis of this magnitude Paul Ash

ý “Without co-operation, lockdown is a waste of time,” a doctor told an FM reporter. The anonymous doctor was commenting on a video showing a woman at Charlotte Maxeke Johannesburg Academic Hospital refusing to wait for her test results, even though she is suspected of having Covid-19. Then there was the family who refused be quarantined at a Gauteng hospital, despite having tested positive for the virus, until compelled by court order to stay put. From Australians flocking to Bondi Beach to Britons descending on the seaside resort of Skegness to young Italians using the closure of their universities as a bonus holiday to hang out with their friends, one thing shines through like a shooting star: many people don’t give a

The topics you have to be able to discuss this week

Risky business: Sunbathers on Bondi Beach in Sydney AFP/Farooq Khan

damn. How do you explain such selfishness? It’s not like the coronavirus disaster has unfolded out of the public eye. Social media is now swamped with enough memes and videos of sneezing people freaking out their cats and people doing bizarre things in self-isolation to surely plug the gaps that doctors and nurses and epidemiologists and reams of newsprint and oceans of digital ink have failed to fill. It’s the kind of behaviour that makes the profiteers trying to make money out of it look virtuous.

Almost. At least they have grasped the simple idea that this coronavirus is stalking humanity. That it has killed more than 17,000 people. That country after country is willing to bomb its own economy if it’ll mean getting a grip on the biggest human disaster since World War 2. Confronted with pictures and videos like that, is it any surprise that people are willing to give up hard-fought civil liberties, to be tracked on their phones and have the army in the streets if just to make the selfish ones stay at home? x

Thierry Breton, an EU commissioner, has called on media platforms to switch their video streams to standard definition to help cope with the surge in internet usage as more people work from home. European countries have implemented strict social distancing measures, with some countries in total lockdown after the continent became the centre of the spread of the epidemic. Facebook will reduce video streaming quality in Europe to avoid straining the internet. It will temporarily lower bit rates — which measure how much data is being transferred — following similar moves from YouTube, Netflix and Amazon.

3. Next, 3D-print a cure An Italian engineering and design consultancy, Isinnova, has developed and successfully tested a 3D-printed device that adapts the valve on a snorkelling mask so it can be used as a mask to connect Covid-19 patients to ventilators. The company, which has helped bring such products as earthquake sensors, silicone bandages and innovative bicycles to market, heard that doctors at a nearby hospital were running short of masks because of the deluge of Italians who have contracted Covid19. So it set about designing and printing the adapter — and it works. It has shared its designs online. March 26 - April 1, 2020

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DIAMONDS & DOGS BY JAMIE CARR

HOT PROPERTY THE WOW HOUSE

You can be glad that you’re not enduring the crisis with only the SABC to distract you 14

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Netflix

Capitec

Whiling away endless hours

Calm response to the chaos

With global markets crashing around our DIAMOND ears and the average punter’s savings taking a military-grade haircut, it can be hard to look for silver linings. It hasn’t been the worst of times for UK hedge fund manager Crispin Odey, whose shorts have bulged to the tune of £115m in three weeks, an announcement that may have raised the likelihood of bricks getting chucked through the windows of his country house by the massed ranks of the recently dispossessed. Shares that have prospered include Peloton, the vendor of aggressively priced stationary bikes that allow you to work up a sweat in the comfort of your own home while being yelled at by a hyped-up millennial. Then there’s Netflix, an increasingly compulsory purchase as the reality of long months stuck in the bosom of the family unit starts to sink in. The streaming giant’s own content may be of decidedly mixed quality, but at least there’s a lot of it to while away the endless hours before some sort of a return to normal service is possible. The lack of televised sport is putting further pressure on already stressed marriages, as afternoons that would have been spent contentedly watching the rugby descend into battlegrounds in front of Jennifer Aniston’s mushier work from the 2000s. As least, while you are delving deep into the Foreign Art House section in search of some hitherto undiscovered masterpiece of the broader Mexican narco genre, you can console yourself that you’re not going through the crisis with only the SABC to distract you. That would have been cruel and unusual punishment indeed. x

Holy guacamole, as the caped crusader DOG used to suggest, you can definitely say there’s a bit of volatility in the market when a share of the calibre of Capitec starts flying around like a plastic bag in a hurricane. Fear of the unknown has gripped investors by the short hairs, and it’s a bit like being a character in Hilary Mantel’s latest Tudor doorstopper of a novel, lurking around town waiting to be carried off by the sweating sickness while the nobles disappear to their country estates at a full gallop. Capitec issued a typically measured response to the chaos, pointing to the resilience and diversity of its business model and revenue streams, and reminding the market that its guidance of headline EPS rising by around 20% remains unchanged, a performance that would normally have prompted pats on the back and trebles all round, rather than heralding a plunge into the abyss. It stressed that a mere 9% of its active clients have credit with the bank, and that its liquidity position remains strong. The bank pointed to technical issues that may have exacerbated the decline, as well as the tendency of international investors to disappear from emerging markets at pace the moment they get spooked. Its statement prompted a reversal of the previous days’ falls, and Capitec’s sure-footed performance over the years suggests that while it won’t be immune to whatever economic disruption is coming rapidly down the tracks, it will do a good job of mitigating the worst of the downside. For all of us, however, it’s going to be a bumpy ride. x

March 26 - April 1, 2020

WHERE: Woodhill, Pretoria PRICE: R8.995m WHO: Pam Golding Properties Set in one of Pretoria’s most desirable golf estates, this luxury home offers grand proportions and comprises six bedrooms, 4½ bathrooms and various living areas. Additional features include a basement wine cellar, a games room, study, pyjama lounge and garaging for four cars. Residents have access to an 18-hole Peter Matkovich golf course and various lifestyle amenities.

WHERE: Parkhurst, Joburg PRICE: R6.65m WHO: Pam Golding Properties This newly renovated family home is set on an unusually large stand of 2,500m², compared to the suburb’s average 500m². The house has four en suite bedrooms, open-plan reception areas and a gourmet kitchen that flow onto an expansive outside entertainment area and pool. In addition, the property has a separate one-bedroom cottage, large staff accommodation and garaging for two cars.

NurPhoto via Getty Images/Adryel Talamantes

GIMME

Coronavirus facts ý In an age where misinformation is rife, sifting through daily updates about the Covid-19 pandemic can be challenging. From instant messaging platforms to social media, there’s been a spike in the circulation of false and sometimes malicious information. Now the government says anyone who publishes false information about a person’s status or about the virus itself will be made to pay a fine or face imprisonment for up to six months — or both. For business, new challenges will come up daily. It may not be possible to have a perfectly smooth workflow any longer, but new tools can help with interruptions. With that in mind, below are six resources to make use of. SAP Ariba The Covid-19 outbreak has affected the supply chain industry globally, prompting SAP to open access to its Ariba Discovery tool for 90 days to help minimise the impact on businesses and consumers. A buyer can post whatever they need to source immediately and a supplier can respond if they can deliver; all postings are free. Ariba

is one of the largest digital business networks in the world, used by over 4-million suppliers in 190 countries. www.ariba.com/ariba-network

TripIt Travelling during the pandemic can be stressful for any passenger, especially if the trip is urgent. Airlines are grounding flights and temporarily halting routes, with limited international flights taking off. To take the burden off your shoulders and keep you up to date with sudden changes under one portal, TripIt has opened its Pro subscription package to all for six months. You can track changes, find alternative routes, track fares and update your inner circle of contacts about any change in plans. Existing users and new sign-ups have until March 31 to claim the offer online. www.tripit.com/pro

Government website The health department has created sacoronavirus.co.za, a portal to share information about the spread of the virus in SA. It is updated daily with new cases, statements

from the minister, travel advisories and preventative advice to keep you Covid-19-free. It includes a toolkit with myths and facts about the virus, social distancing guidelines, how to self-quarantine and what to do should you come into contact with someone who has been diagnosed with Covid-19. The website can be accessed even if you have no data. coronavirus.datafree.co

free and aggregates content in one place. At the touch of a button you can contact the local hotline, the SA government WhatsApp channel, or find free educational portals while schools are closed. It also links to other information including Mediclinic self-assessment tools, ER24’s dedicated page, Lancet Labs testing centres, a Covid-19 policy for the workplace and a first aid e-book. shor.by/covid19

Visual data resources Websites Worldometers and the Johns Hopkins University page display graphs and charts of global Covid-19 cases, including summaries of the number of deaths, recoveries, active cases, interactive maps and a breakdown by each country. And the mediahack.co.za website is also updated daily, with data specific to SA. It has the age breakdown of patients, their gender, home province and countries they have travelled to. Information power page Local innovation agency Idea Pioneers has created a portal as a public service initiative that is ad-

Health systems support Software company Salesforce is providing free access to technology for emergency response teams, call centres and care management teams for health systems affected by the pandemic for six months. This will help health-care systems experiencing an influx of requests. It includes Health Cloud for organisations managing higher volumes of calls or chats; Shield for encryption, audit trails and monitoring to help organisations ensure the privacy and security of their data; and myTrailhead which helps to distribute safety and testing protocols to staff quickly. x Nafisa Akabor

March 26 - April 1, 2020

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123RF/Antonio Guillem

Marcé Bester

ý Now more than ever, humanity has the technological tools to keep itself sane in isolation. As the novel coronavirus spreads in SA and the world, people are being forced to change their habits. They are practising social distancing, the term that refers to keeping yourself and your family away from others to avoid contracting the virus and passing it on. For children, that means no school. But it also means no playground or cinema visits, no sports events to attend and no playdates with friends. For adults marooned at home, it means no in-person work meetings, no gym or park visits and no music or sports events. But that doesn’t mean life has to grind to a complete halt. Driven by the need to continue moving, people (or at least those who are lucky enough to have stable access to an internet connection) are turning to technological aids. Technology makes it possible to watch a live concert from your couch — and the platforms for that have already recorded spikes in users. The most relevant is Twitch, the platform used by children and adults to livestream video games. Streamers make money from the platform by making it possible for others to watch them playing video games. Bizarre, yes, but the platform is also being used by musicians or performers to reach fans who are stuck at home. And it is working for them as a revenue stream. The performers earn a percentage of ad sales and receive tips from viewers. Once performers are established on the platform, they are able to limit their videos to fee-paying subscribers. Other platforms for performers include StreetJelly, Facebook Live and YouTube. On a simpler level, making calls to the loved ones you are unable to meet is now easier than ever for those with an internet connection. Being stuck at home doesn’t have 16

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Tech how-to guide: surviving isolation with roommates, partners and children need not be as stressful as it sounds

DIGITAL

Clever tools to help you beat the long days ahead to be isolating. Facebook, Skype and WhatsApp make voice and video easy, accessible and cheap. For parents, audiobook seller Audible is making its collection of children’s stories free to stream, for as long as schools are closed. And — if you can fend off the kids — managing a full-time job from home is also made easier by a host of online tools. Some of the best options include Microsoft Teams (which is used widely inter-

March 26 - April 1, 2020

nationally), the professional chat platform Slack, and the use of Kanban boards. These are agile project management tools, specifically designed to help visualise work, limit work in progress, and create a workflow — even when your team members are spread across the world. These tools aren’t new. Programmers have been using them for a long time. Coenraad Human, a software

engineer at Entelect, has streamlined his at-home setup using some of these tools. “As professionals in the field of software development we constantly use tools that keep us in touch with our team members. This is vital to the success of a project. A majority of the tools allow us to communicate effectively while working in remote conditions.” Others useful tools include video-conferencing platforms

Zoom, BlueJeans and Skype. These allow callers to show presentations on-screen to the rest of the team, and can replace meetings, conferences, briefings and demos. Another useful addition to any remote team is a good project management tool. There are a few great free tools, like Trello and MeisterTask, which are basic online Kanban boards. Living online has also advanced to such a point that it is now possible to enjoy — and pay for — your usual “personalised” yoga class from the comfort of your home. Joburg-based The Yoga Republic is making use of the Zoom conference-call system to offer its clients remote classes. “We have decided to close the studio during this volatile time,” says studio owner Claire Smith, “and are offering clients all of our classes online where they can decide to join a live class, or receive the video file after it’s done. We want to accommodate people’s new schedules.” In addition, The Yoga Republic is developing its own video-streaming service within its app. This will allow students from areas outside Joburg to join in classes and become members. This is a brilliant example of the evolution that businesses have been, and will be, forced to resort to. There are a number of online alternatives to staying fit. The most obvious solution is YouTube, which hosts a huge selection of self-practice guides and videos. Most of these videos are monetised, so the creators make some income. Meanwhile, the Down Dog app has high-intensity interval training workouts that will be made available for free. Many other fitnesstracking and muscle-building options are available for download as apps. At-home practice guides have never been more accessible. All this makes it far easier to continue a reasonably “normal” life in 2020 than it was in 1918 with the outbreak of the Spanish flu, which infected 500-million people. We have more resources and tools to keep our minds busy, while practising a reasonably healthy lifestyle, than ever before. x

PATTERN RECOGNITION BY TOBY SHAPSHAK

We may never need to de-isolate @shapshak

Forced to work from home by the coronavirus, we are finding technology can revolutionise our lives more than we realised

We’re embracing all the technologies that enable us to isolate, while staying connected

or the past three mornings my wife — a mergers & acquisitions lawyer — has logged into video-calling service Zoom. But instead of the usual conference calls about a deal, she’s using it for an early-morning yoga class. As this period of self-isolating against Covid-19 begins in earnest, those of us who can shut ourselves away are finding novel ways to use technology to carry on doing the things we normally would. This smart way that yoga teachers have found to repurpose business conferencing technology to replicate the immediacy and intimacy of a yoga class is why I love humanity. We’ll find a way to do what is important; that’s how we evolve. There’s a surge of interest in workfrom-home tech that’s being punted to “flatten the curve” of new infections by “self-isolating”, two of the phrases that this pandemic has imprinted in the language. The laptop, the iPad and superfast connectivity via fibre and wireless broadband have made it profoundly easy to work remotely. For some. Who can. And we need to remember that. The middle classes in SA can self-isolate but we need to help all those who can’t. I sincerely hope everyone is doing what they can to help the people in their network. All of this seems like we are reaching a tipping point in our evolution, doesn’t it? Because we absolutely have to, we’re shifting to online meetings and group calls. We’re embracing

all the technologies that enable us to isolate, while staying connected. There is an abundance of ways to work from home. There are great document-sharing services like Dropbox, Microsoft’s OneDrive, Google Drive and plain old e-mail. We’re all using messaging apps more and more, from simple WhatsApp groups to Slack channels. Kids who can are logging on using classroom management software from Microsoft and Google, while online education is available from services such as Khan Academy and YouTube’s plethora of instructional videos. When this all settles in a few months, or however long it takes, I foresee a drop in corporate travel and business meetings around a physical table. If they can make it work in this crisis, companies that host big conferences will realise that they can turn to online all the time. Emerging technologies such as augmented reality and virtual reality (VR) will come into their own in the next year. I’ve been playing with the Facebook-owned Oculus Quest VR system, and it’s impressive, especially for gaming. Its use as an educational tool is about to accelerate, and it will be recruited for formerly group-orientated activities such as yoga or spinning classes. Covid-19 has thrust technology into a leading role in adapting to a time of crisis. There might be future spin-offs and new ways of working that we never expected. x Shapshak is editor-in-chief and publisher of Stuff magazine (stuff.co.za) March 26 - April 1, 2020

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123RF/Elnur Amikishiyev

TELEMEDICINE

announced last week that it was expanding Medicare services to pay doctors for telemedicine. Medicare provides cover for people over 65 and for the disabled. At a meeting with health minister Zweli Mkhize last week, members of Sama appealed to the department to ensure the HPCSA relaxes its rules. And Ames Dhai, head of the Steve Biko Centre for Bioethics at Wits University, who was instrumental in writing the regulations that prevent video consultations, now says an exception should be made for Covid-19 cases. “The virtual consult is not for all illnesses but for patients that suspect that they could have Covid19,” she says. Remote doctoring would also offer protection for health workers. And doctors who are exposed to infected people and then self-isolate are at least temporarily lost to the health system. Karin Morrow, a Durban GP, has had more than one patient test positive. To avoid becoming a carrier, she has opened her phone lines to help patients remotely. x

Arm’s-length consultation Pressure mounts on medical regulator to let doctors see to Covid-19 patients over the phone or by video call Katharine Child childk@businesslive.co.za

ý Doctors are pleading for the medical regulator to allow them to consult via video and voice calls to keep vulnerable patients safe at home and ensure that those with Covid-19 symptoms don’t come into busy waiting rooms. The rule forbidding such consultations has been contentious for years as “telemedicine” has come into vogue in some parts of the world. And in recent weeks, calls by doctors to relax the rules have reached fever pitch. The Health Professions Council of SA (HPCSA), which regulates doctors, is yet to make a decision. The restriction means health professionals cannot bill for video consultations because most med-

ical aids won’t refund them in full. And there are other risks. Johann Serfontein, a health-care consultant at HealthMan, says: “Malpractice insurance firms judge health professionals by HPCSA rules and if the rules do not change, psychologists, psychiatrists and other professionals will not have indemnity cover when participating in telemedicine. Many will not accept such financial risk and patients will suffer.” However, Discovery medical scheme encourages and pays its GPs to consult with existing patients over its own video platform and is offering training this week. It told doctors that its platform “is an essential tool, especially

with a national lockdown looming”. The SA Medical Association (Sama) has joined calls for the regulator to relax the limitations. “Telemedicine has emerged as a crucial element of the response to coronavirus in many countries and enables patients to contact health providers from their homes … without endangering health-care workers and other patients,” says Sama president Angelique Coetzee. “In light of the extraordinary situation in which we find ourselves, we call on the department of health as well as the HPCSA to advocate … telemedicine,” she says. HPCSA registrar Kgosi Letlape tells the FM that Sama’s request is being considered. The council is not against dropping the limits, and a decision will be made as soon as possible, he says. However, Letlape cannot give a timeline. The Trump administration

CORONAVIRUS BY THE NUMBERS

SA and US testing lags behind Number of Covid-19 tests performed per million of the population (Mar 20, 2020)

Why social distancing is so important

More than

18,000

people died a er contracting it

More than

104,000 have recovered

67 days is the time it took for the first 100,000 cases of the illness to develop, 11 days for the second 100,000 and just four days for the next 100,000

Number of cases assuming cases double every 4 days without and every 8 days with social distancing Number of cases a er 60 days No measures taken 32,768 Measures taken a er reaching 500 cases 4,096 Measures taken a er reaching 2,000 cases 8,192 Cases 15,000 10,000 5,000 0 Days 0

10 15 20 25 30 35 40 45 50 55 60

This chart, based on simple assumptions, is merely meant to illustrate the importance of policy measures to slow down the spread of the virus

4,800 health-care workers have contracted the disease in Italy, which represents 9% of all infections. 19 doctors have died in that country 18

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Drastic measures imposed in Germany to slow the spread have begun to have an eﬀect. The number of new cases continues to rise, but at a slower pace. The country has banned gatherings of more than two people who do not live in the same household

March 26 - April 1, 2020

UAE South Korea Australia Germany Austria UK Iran France Finland US Vietnam Japan SA Colombia Brazil

Nigeria says cases of chloroquine poisoning have emerged. This came a er US President Donald Trump touted the drug as a treatment for Covid-19. He said the antimalarial drug was approved to treat the disease, only for the Food & Drug Administration to say it had not yet been given a deﬁnitive green light

12,738 6,148 4,473.4 2,023.3 1,777.8 959.7 957.1 559.1 537.6 313.6 159 117.8 109.6 81.7 13.7

$1.8-trillion is the size of an economic rescue package under discussion in the US. Senate Democrats for a second time blocked the package this week, a er failing to get Republicans to agree to be er protection for workers

Source: Statista, Our World in Data and Washington Post

FEATURES An in-depth look at the hot button subjects of the day in SA and around the world

LOCKED DOWN

A RAMAPHORIA RERUN?

STUPIDITY AVENGED

DEEP DEBT-TRAP TROUBLE

What happens when a country stops? SA will find out on Friday, when its three-week lockdown begins. The economic pain has yet to bite

Ramaphosa’s lockdown has won him newfound support, giving him a shot in the arm after the waning of the elation that accompanied his rise to power

Foolish people who think they’re immune to death and know better than scientists and experts are getting their comeuppance in the face of the pandemic

Even before you factor in the economic fallout of the Covid-19 pandemic, SA’s fiscal future looks dire

March 26 - April 1, 2020

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cover story / coronavirus

LOCKED DOWN What happens when a country stops? SA will find out on Friday, when its three-week lockdown begins. Time will tell whether South Africans obey grimly like the Chinese, sing from their doorways like Italians, or find their own unique expression of ubuntu. So far, the outbreak seems to be bringing out the best in the countryâ&#x20AC;&#x2122;s leaders and most of its people â&#x20AC;&#x201D; but the economic pain has yet to bite Claire Bisseker bissekerc@fm.co.za

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March 26 - April 1, 2020

‘Retrenchments still likely’ Unlike the US and parts of Europe, SA is not throwing the kitchen-sink equivalent of monetary and fiscal policy at the virus in the hope that something will act as a floor under collapsing markets and plunging output. Counting only the measures that the president costed in his speech, the government pledged about R3.8bn in direct financial support to distressed firms and affected workers, and another R8bn in tax subsidies (through forgone tax revenue). So far it has chosen not to tap section 16 of the Public Finance Management Act, which would allow

the National Treasury to access R39bn in emergency spending this fiscal year. Perhaps he’s keeping that powder dry until later in the game. The most significant measures include a temporary employee relief scheme and a new national disaster benefit, whereby the state will tap the reserves of the Unemployment Insurance Fund (UIF) to subsidise wages of workers at firms in virus-related distress. (The fund has an NAV of more than R150bn and was expected to post average annual surpluses of R3.6bn over the medium term, according to the Treasury.) The SA Revenue Service is also coming to the party. It will provide a tax subsidy of up to R500 a month for the next four months for private sector employees benefiting from the Employee Tax Incentive and earning below R6,500 a month — a move that could potentially help more than 4-million workers. It will also allow small and medium enterprises (SMEs) with a turnover of less than R50m (about 75,000 firms) to delay a portion of their pay-as-youearn and provisional corporate income tax payments over the next few months. “Though a wide range of support measures were offered, in reality they are shallow by size and impact,” says Intellidex’s Peter Attard Montalto. While they will keep some businesses alive and some people employed, he doesn’t believe the package will provide enough support to really move the dial on SA’s GDP growth. Easing monetary policy and adopting an expansionary fiscal stance, which protects SMEs and jobs, is the right approach, says Sanlam Investments economist Arthur Kamp. “The measures announced will help. Even so, I think retrenchments will still increase materially, since corporate profits are already depressed,” he says. Still, Citibank economist Gina Schoeman thinks Ramaphosa struck the right note. “The risk of going too far is that the economic fallout ends up creating a far worse socioeconomic problem down the line. But by supporting the economy in the ways announced, and by still providing for essential services, it seems a good balance as far as we can tell,” she says. “The benefit of a lockdown is that it’s the only way to get ahead of the health and social upheaval that would cause catastrophic economic problems anyway,” she says. “Of course, a risk is that the 21-day lockdown persists for longer — but only time, testing and confirmed cases will determine that.” It also remains to be seen to what extent big business will step in where SA’s lack of fiscal space prevents the government from doing more. Economists expect that the banking sector will have to do a lot of

What it means: Ramaphosa has struck the right balance between containment and support measures with a welltargeted package in keeping with SA’s fiscal constraints

March 26 - April 1, 2020

Freddy Mavunda

aced with the prospect of a huge escalation in Covid-19 infections and a deep recession, President Cyril Ramaphosa launched a salvo of fiscal and containment measures on Monday night, adding SA to the ranks of countries that have imposed national lockdowns. The president pledged to use all measures within his power to offset the economic costs of the crisis — an undertaking that was extended to the SA Reserve Bank, which Ramaphosa said is ready “to do whatever it takes” to keep the financial sector well oiled. It was a commendable sentiment and, analysts believe, exactly what Bank governor Lesetja Kganyago should have said at last week’s monetary policy committee meeting. Even though the Bank cut the repo rate by one percentage point, its initial reluctance to use moneymarket measures to ease market liquidity rattled the markets. If Kganyago’s sanguine response was meant to convey calm, it misfired badly, given that most major central banks are using every tool at their disposal to combat the outbreak. Ramaphosa looked as if he too was in danger of falling behind the curve when he cancelled a scheduled address to the nation on Sunday night. But on Monday, he brought his A-game when it mattered. The president said, rightly, that he had no choice but to go big if the government is to prevent “a human catastrophe” in which hundreds of thousands could be infected within weeks. While conceding that a threeweek lockdown — in which nearly all businesses and industry will be closed — will hit the economy badly, Ramaphosa said “the human cost of delaying this action would be far, far greater”. Then he announced a wide range of support measures (many uncosted and open-ended), promising that this is only “the first phase” and that more measures will be rolled out as needed. His intent can’t be faulted, but again, the devil is in the detail. Ramaphosa’s reluctance to put any price tag on these measures makes it difficult to conclude that the response is too conservative. But at first glance the plan, though well targeted, appears modest — in keeping with the country’s fiscal constraints.

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cover story / coronavirus RISING CURVE Cumulative conﬁrmed Covid-19 cases the heavy lifting in granting forbearance to firms and consumers over the coming months. Schoeman says future Bank action will hinge partly on the extent to which the banking sector responds, given that payment holidays and term extensions provide a far greater stimulus to consumers than rate cuts. Even so, she is forecasting another 50 basis point cut at the Bank’s May meeting — though she wouldn’t be surprised to see it step in earlier with a bigger cut.

Simon Dawson/Bloomberg

A record contraction? Before Monday’s announcement, the growing consensus was that the SA economy would contract by more than 1% this year. Now, thanks to this lockdown, that is likely going to shift to -2% or worse. Absa economist Peter Worthington estimates SA could be set for a record GDP contraction of about 23.5% in the second quarter — if the lockdown is not extended beyond three weeks. But even if the economy recovers slowly from the third quarter, he expects SA’s full-year figure to be as low as -3%. “We are in deep trouble here,” agrees Kamp. “The global economy has hit a sudden stop. The recession is going to be worse than during the global financial crisis.” During the 2008/2009 crisis, the SA economy slowed by -1.5%. But, as Old Mutual Wealth strategists Izak Odendaal and Dave Mohr point out, “there have been financial crises, recessions and bear markets before, but the scale and nature of this interruption to daily life and economic activity is on a completely different level”. “The isolation measures are thus abso-

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March 26 - April 1, 2020

Number of cases 100,000 10,000 1,000 100 10 1 1

Day of infection Source: CEIC / Citi Research

Italy

lutely necessary, but never before have governments deliberately shut down large parts of their national economies in peacetime. And they are all doing it at once.” The global picture is equally nasty. Capital Economics expects most economies to contract 10%-20% in the first or second quarters. It has marked down its 2020 global growth forecast from 2.9% year on year to -1%. That would eclipse the -0.5% fall in output during 2009. In fact, it would be the worst year for the global economy since the 1940s. The International Monetary Fund (IMF) also expects global growth to be negative in 2020 and is forecasting a recession as bad, if not worse, than during the 2008/2009 crisis. The most bearish forecasters on SA, before the lockdown was announced, were Goldman Sachs, with a real 2020 GDP forecast of -2.6%, followed by Intellidex with -2.3%. Both estimated that if growth were to slow to this extent, and there is significant virus-related fiscal spending at the same time, SA’s consolidated budget deficit could blow out from an expected 6.8% to above 10% of GDP this fiscal year. This would push the debt ratio above 70% by early 2021. Kamp agrees: “Our economic downturn is about to deepen sharply in the second quarter, leaving a large hole in government revenue. We are probably heading for a double-digit budget deficit this year and the debt ratio can be expected to increase above 80% of GDP over the next three years.” It doesn’t help, Kamp points out, that global financial conditions have tightened abruptly. Investors have withdrawn $83bn from emerging markets since the beginning of the crisis — the largest capital outflow ever recorded. They’re now seeking safety in cash, mainly in the form of dollars. As a result, higher risk is being priced into emerging-market sovereign debt. The yield curve on SA government bonds has steepened and the currency has fallen sharply. Attard Montalto estimates that funding

Spain

South Korea

a 10.8% fiscal deficit would require the government to issue 36% more debt — at a time when SA government bond yields have spiked above 11% from about 8% a month ago. So far, SA has still been able to issue new debt at these elevated yields without too much trouble. But if yields remain at this level, huge pressure on government finances will result, say Odendaal and Mohr. “Now more than ever, we cannot afford wasteful and irregular spending,” they argue. “Every rand needs to be put to very good use, since it will have to be borrowed at a punishing interest rate.” In a pinch, the IMF remains an option. With nearly 80 countries now requesting its help, the IMF has pledged to vastly step up emergency finance, and it stands ready to deploy all its $1-trillion lending capacity. Eventually, the outbreak will blow over. Capital Economics chief economist Neil Shearing expects that most economies will resume their pre-crisis growth paths within a year or two, albeit with some permanent loss of output. However, this assumes that governments stand behind otherwise solvent firms and the banks; consumers and businesses recover their “animal spirits”; and bond markets tolerate higher debt burdens. “If any of these conditions do not hold, or if the virus or something like it returns, then it’s likely that economies will settle on a lower path of GDP,” he warns. SA, which was already in a recession and simmering fiscal distress before the virus hit, should brace for a steep economic contraction this year. Whether growth rebounds sustainably after that depends on whether the government shows the same boldness in instituting pro-growth economic reforms as it has in tackling the virus. It will have to, since punishing fiscal austerity will be necessary once the crisis fades and the fiscal bill becomes due. One thing’s for sure — life will never be the same again. x

Freddy Mavunda

THE VIRUS IS KILLING SMALL BUSINESS Rob Rose, Claire Bisseker, Joan Muller & Adele Shevel

After the 2008/2009 crisis, SA lost 1.1million jobs in small businesses. Many were young people

fter Eloise Windebank and her husband Alex opened Farro in Illovo, Joburg, in March 2018, it soon became a highly rated boutique restaurant lauded by, in one reviewer’s words, “every bloggy-hipster-type in town”. But last week, with the number of customers down to a trickle as South Africans bolted inside to fend off the Covid-19 pandemic, Windebank took the hard decision to shut Farro’s doors — at least for now. “This month was our second birthday, so it’s devastating,” says Windebank. “But if our business had to stay open, and pay our full overheads for next month, getting just 20% of the income we normally get, we’d be bankrupt.” She says, at this point, it’s just about trying to curb expenses and “not get into irrecoverable debt”, so that when the epidemic ends, Farro can open again. Farro wasn’t untypical of the 2.3-million small businesses operating in SA (by some estimates; figures vary widely depending on data source and definition): it had less than a month of cash-on-hand, a small group of staff who relied on it, and it had already taken a battering from the moribund economy. But the coronavirus, which led President Cyril Ramaphosa to announce a full China-style national lockdown this week, has taken a sledgehammer to companies across the board. Small businesses, which make up 98% of the companies in SA, are most vulnerable. In Farro’s case, it has just 10 staff. Shutting its doors temporarily now enables them to claim from the Unemployment Insurance Fund (UIF) under a new special Covid-19 exemption. Windebank says while her landlord has been slow to come back to her about the payment holiday she asked for, others have been very helpful. “Mercantile Bank, for example, which provided the financing for our leases on the coffee machines, has halted our repayments for three months. We hope three months is all it takes. If it’s longer, everyone’s in another realm,” she says. This week, Standard Bank became the first SA bank to provide a 90-day payment holiday “to shield small enterprise customers” from the economic meltdown, occasioned by the virus. (It didn’t suspend interest, however.)

Nedbank soon followed. CEO Mike Brown, who also chairs the Banking Association, tells the FM it’s actually the job of a bank to help customers when they need it. “Banks should be able to distinguish a solvency issue from a liquidity issue,” he says. “If it’s a good business that is temporarily suffering a cash shortfall because of corona, and is likely to return to being a good business, the banks will do everything in their power to help them through a difficult time.” He says Nedbank will consider whatever options it can to help customers cope: finding additional cash, or providing loan holidays. Critically, on Tuesday the Competition Commission approved an exemption that will allow banks to speak about a united approach to providing debt repayment holidays. So you can expect the other banks to follow Nedbank. Ramaphosa spoke of other measures to help small business too. They’ll be desperately needed, as a lockdown means “all shops and businesses will be closed”, except for “critical services”, like grocers, pharmacies and doctors. These included: ● A R2bn fund, endowed by donations from the Oppenheimer and Rupert families; ● A “special dispensation” for companies “in distress because of Covid-19”, in which their staff would be paid through a “temporary employee relief scheme”, presumably backed by the government. Ramaphosa suggested the UIF would be used to help top-up lost pay; ● Companies with revenue of less than R50m could delay 20% of their pay-as-you-earn tax payments over the next four months and part of their corporate income tax over the next six months — an intervention that, he said, “is expected to assist over 75,000 small and medium-sized enterprises”; and ● There’s R200m available to help tourism companies, which are the hardest hit. These are commendable steps. But are they enough? ‘Everything is on the table’ In an interview with the FM this week, small business development minister Khumbudzo Ntshavheni says: “There’s nothing that’s not on the table right now — every measure imaginable, we’re discussing it.” Ntshavheni isn’t the usual bureaucrat. At 42 years old, she knows about the stress of running a company. When she was a child, her mother ran a taxi business, and she has an MBA that she put to use running a farming business and a wholesale company. But the past week has been her biggest test yet. Hundreds of e-mails from distressed small businesses have flooded her inbox. “Look, the government couldn’t have planned for this,” she says. “We were already in a tough economic situation before this. But when a small business contacts you and asks how they can continue to exist, we can’t just say: ‘Well look, we couldn’t have planned for it.’ We have to find a way.” It’s complicated by the fact that the government can’t dictate to banks, or landlords, what measures they must take. But, says Ntshavheni: “We’ve told institutions we control — like development finance institutions — to March 26 - April 1, 2020

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reschedule loan repayments for small businesses. And we’re looking at what we can do for payrolls using the UIF. If someone earns R3,500 a month, and the employer cannot afford to pay, government must see how to make up the shortfall.” While it’s great to see banks postponing payments, you’d also want municipalities to give people a rates holiday. But most municipalities are economic basket-cases run by people who’d botch their household budgets, so they can’t afford to do so. Asked about this, Ntshavheni says: “Municipalities have to still provide services and they will need a level of income to be able to do that.” It’s one example of how, where the rest of the world can afford to implement generous concessions, SA just doesn’t have the fiscal room to do so. John Dludlu, CEO of the Small Business Institute, says while banks and lenders must act in a co-ordinated way, they shouldn’t just agree to a blanket loan-repayment holiday. Rather, he says, they should make concessions depending on individual cases. “Everyone has different needs, and is in different degrees of trouble. We must address this in a flexible way,” he says.

15%

Trade & accommodation

40%

cover story / coronavirus

tion truc

Co m

ity

14 %

Con s

s ines

bus

SME count by formality 2.019m

Informal

BUSINESS BREAKDOWN

ice serv

Tran com sport 7% munica&t ion

% 0.4

Source: Small Enterprise Development Agency/ Department of small business development, “Women- And Youth-Owned SMMEs”, 2019 24

28%

30%

28%

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2.309m 28%

72%

70%

72%

1.458m

1.387m

1.450m

1.552m

1.671m

2008

2010

2013

2015

2017

Source: Stats SA Post-Apartheid Labour Market Survey database 2008-2017 / International Finance Corp, “The Unseen Sector: A Report on the MSME Opportunity in SA”, 2018

Another critical intervention, Dludlu argues, is that large businesses and government must stop paying small businesses late — as they’ve done for years. “If you’re waiting 90 days to pay a small company in this environment, that’s not on. They may not survive. We believe large companies should settle all invoices within a week,” he says. This would be a vital commitment. Many small businesses, contacted by the FM this week, stressed how they’re gasping for air. The good news for tenants is that, legally, they might be excused from paying rent,

depending on the terms of their lease and their circumstances. Ben Groot of law firm GVS, who acts for a number of landlords, says the government’s decision under the Disaster Management Act to prohibit trading for 21 days might allow affected tenants to get rebates. “This is not a blanket excuse not to pay rent, but a very specific possible exclusion that may arise in certain circumstances.” Tenants will still be liable to pay their utility bills, unless municipalities come to the party by way of a cost concession.

13%

Cash buffer days are the number of days of cash outflows a business could pay out of its cash balance, were its inflows to stop

< 13 cash buﬀer days

25% > 62 cash buﬀer days

0 13 Cash buﬀer days

re tu ul ric Ag

Oth

0.2%

0.1%

Mining

Electricity, gas & water

2.155m

25%

Manufacturing

Sectoral breakdown of SMMEs, 2018

2.059m

Note: Estimates of the number of SMEs in SA diﬀer substantially, based on data source and deﬁnition

Fina

28%

Formal

1.926m

Moratorium on leases Mike Clark, CEO of charter flight company ON THE EDGE Swift Flite, says small companies need tanCash buﬀer for US SMEs gible measures today — a moratorium on lease payments and mortgages being at the head of the list. “Luckily for us, we don’t owe money on our aircraft, but other smaller 27 cash buﬀer days All small business median airlines need a three- or four-month break from their obligations, just so s

& cial

AN INFORMAL ECONOMY

March 26 - April 1, 2020

100

days

Restaurants

Repair & maintenance

Retail

Wholesalers

Metal & machinery

Construction Personal services

33 days

Health-care High-tech Other prof. services manufacturing services

days

High-tech services

Real estate

Note: Based on an analysis of the transactions (February-October 2015) for 597,000 SMEs in the US holding Chase Business Banking deposit accounts Source: JPMorgan Chase, “Cash is King: Flows, Balances and Buﬀer Days – Evidence from 600,000 Small Businesses”, 2016

VARIABLE IMPACT 6%

26%

Proportion of businesses by size classiﬁcation 66%

Micro

Small 5%

Medium

Large

11%

12%

Proportion of employment by size classiﬁcation 72%

Note: Based on the following deﬁnition: micro-enterprises ≤ 10 employees; small enterprises 11-50; medium 51-200; large >200 Source: Small Business Institute/Small Business Project, “Baseline Study of Small Businesses in South Africa, Stage 1”, 2018

they can keep their staff employed,” he says. Swift’s trajectory over the past month tells an all-too-common story. Based at Lanseria Airport, it runs a fleet of 14 aircraft, which mainly ferry staff of mining companies to mines in the Northern Cape, including Kumba Iron Ore’s Sishen, and foreign tourists to game lodges. “In just over a week, we’ve had more than 80% of our bookings cancel. Many of our clients came from Europe, the US or the East, and they can’t get into the country. The demand for aircraft has just dried up.” Airlines were already precarious before the coronavirus-inspired economic collapse. So how long can they survive, even if they’re given a payment holiday? Clark says it depends on how long the downturn lasts. “If it lasts just three or four months, we’re resilient South Africans — we can make a contingency plan. But if it lasts

till October or November, I don’t think anyone can survive that long.” Swift seems stronger than most — certainly stronger than national airline SAA, which may have finally taken to the skies for the last time. But don’t let this fool you. A 2016 JPMorgan study of 600,000 small businesses in the US reveals just how fragile SMEs are. “Half of small businesses have a cash buffer of less than one month,” JPMorgan said. “Moreover, 25% of small businesses hold fewer than 13 cash buffer days in reserve.” Given these numbers, is the government doing enough, quickly enough? Bernard Swanepoel, a director of the Small Business Institute, says plenty of detail was missing from Ramaphosa’s announcement. “Will all businesses struggling to stay afloat receive help? Or just those the minister identifies as worthy?” he asks. Dludlu also believes Ntshavheni should have gone further, earlier. “Right from the beginning,” he says, “we needed a far more comprehensive announcement, setting out what amount is being dedicated where, and how long those support measures would be in place so that people can plan around that.” He says there is still scope for the Reserve Bank to do more — even after it slashed interest rates by 100 basis points last week. “In the US, the Fed held an emergency meeting and slashed rates on a Sunday, as did Egypt. But here, the Reserve Bank acted as if this was just business as usual. We need to overreact, not underreact. We can’t afford to wait and see how it pans out,” he says. Ntshavheni responds: “We certainly haven’t underestimated the impact. SMEs employ the majority of our people, so we’re looking at measures to alleviate the pressure on their payrolls.” She says her team is working around the clock: “I’ve got people looking at me right now who have hardly slept in the past four days — they’re leaving the office at 2am and coming back at 7am. As the economics cluster, we’re meeting every morning, and feeding in to the national crisis command.” The problem is that, perhaps unlike the US or other developed countries, SA has to walk a tightrope in how it apportions bailout funds — it can’t just throw the kitchen sink at the problem, as US President Donald Trump is doing. Ntshavheni admits as much, saying there will never be enough money in reserve for the government to shield everyone. “We’re not just shielding small business, we’re also shielding society in terms of the spread of the virus. Because we know that if the virus

gets into a particular segment of our society, the numbers will quadruple.” ‘Never seen anything like it’ Central to the efforts to save small business is the Industrial Development Corp (IDC) — the state-owned institution that has a loan book of R3.7bn, which it has lent to about 800 small companies. TP Nchocho, CEO of the IDC, has worked in finance for 30 years. In other words, he’s lived through numerous crashes. “I’ve never seen anything like this,” he tells the FM. “In 2008, I was at the Development Bank, and we saw a huge impact as companies lost access to credit. But I’m telling you, that 2008 crisis is a fraction of what we’re going to be in for now.” Many of the companies funded by the IDC, Nchocho says, are now in dire straits. “There’s a lot of supply chain disruptions — clothing and textile companies are battling to get raw materials. And we’ve also seen agricultural exporters, like [for] the fruit which goes to Europe, not getting access to ports or being lost at sea. And we’ve seen cash-flow problems, as invoices aren’t being paid.” As Ramaphosa mentioned, the IDC is central to rescue efforts. As part of the emergency measures, it’s setting aside an extra R700m for “working capital” for struggling companies; R500m to help pharmaceutical companies buy “essential medical products”; an extra R3bn in the next three months to “support businesses through this crisis”; and it’s giving grants of up to R5m to “support the vulnerable, including basic sanitary products and food parcels”. The IDC is also deferring loan repayments on a case-by-case basis. And some of those cases are likely to be quite gruesome. “In the tourism sector, it’s likely to be a bloodbath,” says Nchocho. “We finance a lot of hotels and lodges, and they’ve seen substantial losses in customers and revenue. We need to look at how we can help, whether it’s deferring repayments or whatever.” But the reality is, many of these companies will still fail. Nchocho knows this too. “About 10% of our portfolio is distressed companies. Some of them will fall over, I’m afraid. They were in trouble before the virus — the economy has been on its stomach for the past few years, so it’s unavoidable.” In the end, he says more than a fifth of these distressed companies might fail. It’s a bitter pill for the IDC, which has a wider mandate than the normal commercial banks. March 26 - April 1, 2020

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cover story / coronavirus “We try to keep companies operating for as long as we can,” he says. “But we can only carry it up to a point. Honestly, where a company is not viable anymore, we’ll have to cut our losses and move away.” Any more failures, however, will be hard to stomach for a sector that has been shedding jobs like mad since 2008. Doomed to repeat The last time SA was hit with an economic crisis of this magnitude — the 2008 global financial crisis — it caused a jobs bloodbath in the SME sector that lasted for years. In the five years following the crisis, between the second quarter of 2008 and the second quarter of 2013, absolute employment in small firms in SA’s formal nonagricultural sector dropped by 1.12-million people. Even more alarming: about 60% of these small-firm job losses affected people aged 18 to 29, and many of those jobs paid less than R4,000 a month (in 2012 prices). These are precisely the type of entry-level jobs SA needs to reduce youth unemployment. By 2013 the economy had regained most of the jobs lost during the global financial crisis — but this was driven by job creation in companies employing 50 or more people. Economists say small firms were particularly hard hit because of the rigidity of SA’s labour market institutions — especially central bargaining arrangements in which deals struck between big firms and unions are typically extended to smaller firms in the same sector. So, to ward off a repeat of the carnage, the government should also give small businesses a temporary holiday from central bargaining agreements, including UIF payments, as it is considering to do. At all costs, the government needs to avoid the tactical blunders it made during the 2008 crisis. At the time SA, like most other countries, put in place an aggressive fiscal stimulus. Despite that, SA’s economy still shed 750,000 jobs — equal to about 5% of total employment in 2009/2010. This was the highest loss, as a percentage of total employment, by any emerging-market country at the time. One of the explanations for this outsize impact is that SA allowed real wage growth to run away over this period, well ahead of labour productivity growth. Firms responded with retrenchments when they were denied the option of cutting wages by inflexible central bargaining agreements. Part of the problem was that in 2009/ 2010, public service & administration minister Richard Baloyi ended a three-week public sector strike by offering a wage hike 26

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March 26 - April 1, 2020

of 7.5% — more than double consumer inflation of 3.3% at the time. This dominoed through the economy as private-sector trade unions sought to catch up with the generous public sector settlement. Research by International Monetary Fund (IMF) economist Nir Klein concludes that excess wage growth was responsible for roughly 25% of the jobs lost in SA between 2008 and 2010. Now SA can do things differently. Before the Covid-19 outbreak, the government had called a halt to its three-year wage deal with unions and was trying to negotiate belowinflation increases for the 2020 fiscal year. This outbreak has plunged SA into an economic crisis that will strip the fiscal cupboard bare. But at least it may force the unions to capitulate early — an improbable silver lining. In 2008, SA entered the crisis with a fiscal surplus; this time it is deep in the red. Conversely, in 2008, the banks were the weak point, but today they’re far healthier. As Nedbank’s Brown says: “Structurally, the banks are in way better shape than during the 2008 financial crisis. Back then, SA banks had capital levels of between 7% and 8%. Now we keep 10.5% as a buffer, so we have strong capital levels, and we have no problem with liquidity.” However, no-one knows how long it will last. Ramaphosa’s lockdown should, fingers crossed, curb the spread of the virus for the next 21 days at least. But every day has brought (largely unwelcome) surprises. Ntshavheni, for one, says she hasn’t been surprised by the spread of the disease necessarily, but rather by the ability of the country to simply close down. “After this disease has gone, it’ll be interesting to see what format of the world economy emerges. As a student of economics, I’m keenly watching how it happens, because globalisation is being redefined. Borders are coming up, thick and fast, including [between] once very open airspaces,” she says. And small companies, facing an existential threat, are at the frontline. Farro’s Windebank says she doesn’t have even the meagre 27-day cash buffer that JPMorgan speaks of. “I used to, but 2019 was brutal. The economy shrank, and load-shedding ripped everything out from under me. My buffer is long gone. Now all I’m talking about is keeping my serviceable debt to the banks under control.” Covid-19 has reshaped the economic landscape and while Farro has a better chance than most, many other small businesses won’t be around in a year’s time. x

Amid a stalling economy and Eskom load-shedding, SA’s restaurants were already taking strain. The fallout from the coronavirus outbreak may push many over the edge Adele Shevel & Anathi Madubela shevela@businesslive.co.za; madubelaa@arena.africa

efore the Covid-19 outbreak, the R29.99 “recession breakfast” was the top-selling item at his restaurant, says Jack Landon. “Now even that isn’t selling anymore. “ If that doesn’t illustrate our situation, I don’t know what will.” Landon is the owner of Spilt Milk in Joburg’s bohemian suburb of Melville. In better times, it was a vibrant, bustling eatery — a haven for students, hipsters and others. But, like the rest of Melville’s famous 7th Street, it now resembles a ghost town. Walk in there today, and the sight of vacant seats and eager waiters armed with hand sanitisers is arresting. Struggling to cope already, Spilt Milk, like all restaurants across the country, will have to shut its doors for 21 days as part of President Cyril Ramaphosa’s national lockdown. Many may not survive. Already from March 15, when Ramaphosa declared a state of disaster, business began vanishing. Says Landon: “Last week we were fine [but] after that speech things went from bad to worse. We realised that in two months we might not even break even, as we’d experienced a 50% drop in revenue over four days.” Dino Vlachos, owner of Greek-style street-food restaurant, Soul Souvlaki, says the day after Ramaphosa’s state of disaster speech, he saw an immediate 70% plunge in sales. “There are fewer people coming into our six stores, but fortunately we do deliver, so that helped bring in some business,” he says. It didn’t help that co-operative governance minister Nkosazana Dlamini Zuma then put out an order prohibiting alcohol at taverns, restaurants and clubs after 6pm,

BEGINNING TO BITE while limiting capacity to 50 people. Landon says he hasn’t seen 50 people in his restaurant for days. “No-one comes through our doors. We are lucky if we get 50 people a day.” It’s a script playing out all over the world. Eateries in France and Italy, two countries famous for their cuisine, have been closed. In the US, the restaurant industry asked Congress for $455bn in aid to help it weather the virus, and retain the 7-million jobs at risk. Changing course Louise Castle has been running restaurants like Bellagio, in Joburg’s northern suburbs, for 25 years. But since Ramaphosa declared a state of disaster, business has dropped 65%-70%. “It’s mind-blowing,” she says. Until the lockdown was announced this week, Castle had made a plan to cope. Bellagio retained its normal menu, adding family-style comfort meals such as soups, casseroles and curries, which were delivered free of charge to nearby places. Castle was prepared to spend all day driving around making deliveries if necessary. “I’m not going to make money, but I need to pay rent and staff (some of whom have been with me for more than 25 years).” With 30 staff reliant on her, she had no options. And everyone pitched in, with those waiters who had cars being called on to deliver food too. “If there are another 10,000 establishments like me in SA, plus their suppliers and dependants, the closure of these restaurants could affect the livelihood of about 1.5-million people,” she tells the FM. Coronavirus, of course, isn’t the only

Jack Landon

challenge restaurants across SA have faced. With Eskom unable to keep the lights on, Castle had to spend R300,000 to buy a generator. But it is the virus that might have the last word. An industry that has traditionally survived on wafer-thin margins, where waiters rely on tips to support their families, has now been forced to shut its doors for who knows how long. Even top-end eateries are struggling. Before the lockdown, acclaimed chef Luke Dale-Roberts had closed his restaurants: the Test Kitchen, The Pot Luck Club, The Shortmarket Club and Salsify at The Roundhouse. Marble and Saint, two of the trendiest restaurants in Joburg, owned by chef David Higgs and Gary Kyriacou, also closed last week. Some enterprising restaurateurs initially adapted to the change — until the lockdown put paid to that. Larry Hodes, a 30-year veteran of SA’s restaurant industry, owns three restaurants: Arbour Café & Courtyard and Voodoo Lily in Birdhaven, and Calexico in Auckland Park. “Everything’s moving so fast,” Hodes says. “I’ve had to take quite dramatic action in terms of staffing — we have reduced the

number of shifts and the number of hours per shift.” But Hodes was able to adapt quickly. As luck would have it, he’d been planning to launch The Dark Kitchen, which makes food only for delivery, with no restaurant to sit in, for years. Last week, he launched it. “The response has been great,” he says. Arbour and Voodoo Lily also began adding curbside pickups for customers to collect their orders in person. It’s a trend many restaurants followed. Bold though they were, these initiatives were a Band-Aid over a gaping wound. While banks agreed to either give payment holidays or help customers with extra loans, the problem for many restaurants has been the landlords — many of whom have yet to agree to a rental freeze. Nico Brandt, owner of Cut & Craft Bistro in the Joburg suburb of Kensington, says profit margins were waning, even before the virus hit. “From landlords to banks we all need to say: ‘Let’s try find a midway point to assist.’ Even if we pull out all the stops, for small business operators the reality in SA is a problem. We have no support or direction from the government,” he says Restaurants like Marble can afford to close for a month, as they have deeper pockets, says Brandt. But “99% of smaller businesses can’t sustain closing even for a week”.

Freddy Mavunda

Spilt Milk Social Cafe in Melville

Containing the fallout The last thing the restaurant industry needs is a total lockdown, says Wendy Alberts, CEO of the Restaurant Association of SA. “We have a huge responsibility to keep people employed. Their health and hygiene is March 26 - April 1, 2020

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cover story / coronavirus important, and we are committed to finding solutions to engage with the government,” she says. The association represents virtually all restaurants across SA, with the average restaurant employing about 20 people. And restaurant owners have adapted as best they can. For example, Alberts says some restaurant owners have upgraded their credit-card machines to a tap-and-go system “because of the huge amount of evidence that the virus is transferred through cash and credit cards”. On Tuesday, Alberts met tourism minister Mmamoloko Kubayi-Ngubane. “The minister has encouraged restaurants to take responsibility,” she says. “If we don’t act responsibly now, how many more months will it be?” Alberts says restaurants stand in stark contrast to retailers, which are making a killing as skittish South Africans panic-buy trolleys full of groceries. “We have been crippled and have received no support from the government,” says Alberts. The shutdown will make things even more unbearable: everything will have to be closed — even takeway meals, which many restaurants have been providing until now,

TOURISM

A tale of implosion

Jo Buitendach

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March 26 - April 1, 2020

Spilt Milk Social Cafe

are forbidden. The inevitable result: jobs lost. Vlachos has already had to let go of about 20% of Soul Souvlaki’s casual staff. “Our business is definitely not profitable at this point. Based on the level our business is operating, it is almost impossible to cover our responsibilities,” he says. To cope, Spilt Milk has done something a little different. It started a crowdfunding initiative — “Coronavirus plea for help” — to help it cover costs for the next few months. Landon hopes this will buy the restaurant time to find a solution before it goes under.

“When we started the crowdfunding, there was an element of wanting to pull at the heartstrings because it’s not just my life and business that is affected, but these guys [the staff] who are family breadwinners,” he says. When it started on March 19, the initiative set a target of R100,000. By March 24, it had got to R10,000. It’s one example of the ingenuity in the restaurant industry. But it may not be enough. At this stage, it’s an industry crying out for someone to notice how badly it has been hurt. x

Eleven years ago I opened a small specialised business, called Past Experiences, operating walking tours in the Joburg inner city. It was never easy to run. We operate in a city that has degenerated over the past 30 years and we regularly have to deal with crime and xenophobic violence. Nonetheless, I’m fortunate to work in a city I love, among communities that inspire me. But my business, and the tourism industry, has hit the wall of Covid-19. Necessary travel bans have brought all trips to SA by foreign tourists to a halt. Until this point, 2020 had been a good year for my company, with bookings every day. Now, there are none for the foreseeable future. It happened overnight. After President Cyril Ramaphosa announced the first steps to curb the spread of the virus, cancellations poured in. A consultant at a high-end travel agency told me he had had 30 families scheduled to travel over the next month — now he has none. To mitigate this, travel agencies have made a push to “postpone not cancel”. For me, it means bookings pushed to the end of the year, or next year. It’s a huge blow to SA. The World Travel

& Tourism Council says tourism contributes 1.5-million jobs and R425.8bn to the economy, representing 8.6% of SA’s economic activity. Now this has been punctured. My colleagues in the industry — travel guides, agencies, hotels, airlines and tourist attractions — are all in a similar predicament. In my case, I’m lucky that I don’t have full-time employees, or an office with overheads I must pay. Hopefully I can weather this storm for a few months, and supplement my income through other channels. Many others aren’t as lucky. The industry’s collapse ricochets down the chain. I worry about the many small businesses that benefit from tourism by extension — retailers, restaurants, security and transport services. During my tours, I bring clients to coffee shops, informal traders, artists and inner-city shops, but this has stopped. I think constantly of the small businesses that rely on me and my clients. But I worry most about the inner-city communities who live hand-to-mouth and won’t be able to panic-buy groceries, selfisolate, or approach this disease in the same way that many middle-class South Africans will. x Jo Buitendach

VOICE OF SMALL BUSINESS BY BERNARD SWANEPOEL

AND NOW YOU CARE? For years, politicians have simply ignored small business. As the Covid-19 pandemic spurs them into action, let’s hope it’s not too late

s worrying as Covid-19 seems to everyone right now, SA will get through to the other side. We’ll be a changed society of course, but with a determined effort from all of us, we can limit the spread of this disease and then turn our attention to fixing the economic fallout. One of the first orders of business when parliament is back in session should be to initiate a motion to hold the executive branch

123RF/Loulia Bolchakova

Had the executive acted 24 years ago, we might have constructed a strong and thriving small business segment

of government in contempt. Here is why I say this. Over the past two weeks, South Africans have at last noticed that the small businesses operating around them, in every sector of the economy, are particularly vulnerable. Each morning brings a fresh op-ed in some newspaper or other, some minister’s statement or a tweetstorm accompanied by handwringing and chest-beating about the particular effect Covid-19 will have on the survival rate of small companies, which make up the majority of our economy. Big businesses are moving

(though at a glacial pace) to try to offer some palliative care for smaller businesses now, and presumably there will be some sort of financial assistance forthcoming from the government once we’re able to sift through the full details announced by President Cyril Ramaphosa this week. But had the executive acted when it was empowered by parliament to do so, 24 years ago, we might have constructed a strong and thriving small business segment rather than one that now seems unlikely to weather the coming economic bedlam. Back in 1996, there were just two short sentences in section 18 of the National Small Business Act, which gave four trade & industry ministers and two small business development ministers the ability to gazette guidelines to review and assess the “effect and application of legislation on small business”. None of them did so. So in theory, we would have had the firepower to help small businesses if they suffered the sort of negative consequences we’re now seeing from Covid-19. Politicians could have used national, provincial and municipal laws as well as various policies and regulations already on the books to help, and they could have passed new laws too. But they didn’t do any such thing. Overseas, dozens of regimes adopted the “think small first” campaign and used it to good effect. SA,

in stark contrast, sits with very dusty legislation which was never promulgated, despite the wishes of parliament. So, in this context, it’s only right to ask whether we were ever really serious about supporting small businesses in the first place. While politicians pay lip service to creating an “enabling environment”, this never really happened. And we’ve seen this apathy manifested in most metrics on any ease of doing business, global competitiveness or innovation index. Instead, SA’s small businesses gaze up at Everests of red tape. They are paid for their goods and services criminally late, and enjoy little real “enterprise development” from their big customers. Had section 18 of the National Small Business Act been properly implemented, it would have allowed companies to grow and employ thousands if not millions more people. This workforce might then have been able to build up savings accounts to draw on in the event of a crisis like the one we’re facing now. They would also have been able to pay tax, to make the entire country more economically immune to rare but devastating events. Of course, there is much all of us can do in the coming months to help small companies and keep our economy going. But as soon as we are once again properly open for business, the government needs to get serious about inoculating the country against future pandemicstyle shocks to the job-creating segment of our economy. Otherwise, we’ll be right back here again when the next crisis hits. Swanepoel is the executive director of the Small Business Institute

March 26 - April 1, 2020

financialmail.co.za

feature / cyril ramaphosa Natasha Marrian mariann@fm.co.za

s SA stands on the precipice of a crisis — one that could lead to the coronavirus spreading to hundreds of thousands of South Africans within weeks and have devastating effects on the health-care system — analysts agree that President Cyril Ramaphosa is exactly the kind of leader the country needs. Ramaphosa did not have to dig deep to show leadership this week — it is under these dire circumstances in which he thrives and shines. “This is who he is,” says an investment specialist of his handling of the Covid-19 outbreak so far. If anything, the crisis could have an unintended and positive consequences for Ramaphosa, allowing him to shore up political support within and outside the ANC. It would be a welcome boost after the waning “Ramaphoria” that accompanied his rise to the top of the ANC in 2017 and the country in 2018. Elected to lead the ANC on a wafer-thin unity ticket, Ramaphosa has by all accounts battled to consolidate support inside the party. His opponents — not least of them party secretary-general Ace Magashule — have rallied against him at every turn.

A RAMAPHORIA RERUN? Getty Images/Felix Dlangamandla

President Cyril Ramaphosa’s national lockdown has won him newfound support, giving him a welcome shot in the arm after the waning of the elation that accompanied his rise to power

financialmail.co.za

March 26 - April 1, 2020

In the months before the global Covid-19 crisis, he has also faced widespread criticism, even from former supporters, over his apparent reluctance to take bold, hard decisions to fix an ailing economy and ensure that those responsible for state capture and corruption are speedily brought to book. For his part, he’s repeatedly explained that the latter is outside his control; it falls to the criminal justice system, in which he dare not meddle. Ramaphosa’s consultative and democratic approach to decisionmaking has also been criticised as being out of touch — particularly given the dire situation in which SA has found itself in the wake of the “nine lost years” under former president Jacob Zuma. Until now. This week, Ramaphosa was widely praised after announcing an unprecedented lockdown of the country to allow the government to take control of the Covid-19 outbreak. It was a tough, if obvious, decision. Ramaphosa, following advice from health minister Zweli Mkhize, took steps that will hopefully place SA on a better footing than Western countries such as Italy, the US and the UK. To do this, he used his characteristic consultative style, convincing business and opposition leaders of the necessity of a lockdown. He also obtained buy-in from the ANC itself — from its national office bearers to provincial leaders — a likely reason the announcement was somewhat delayed. Even Magashule, responding to the announcement, declared that “the president has spoken”. He said: “This pandemic is not a joke, take the president’s directive seriously. Please listen.” While Ramaphosa has taken the right decisions, a failure by his government to now roll out — and properly enforce — the plan could prove to be his undoing. “Politically, we think Ramaphosa is stronger now,” says Citibank economist Gina Schoeman. “The end result will likely make or break his political future, but as long as he can manage a turnaround, the resulting … economic turnaround will strengthen his public perception, in our view.” Wits School of Governance associate professor Ivor Sarakinsky agrees, saying Ramaphosa’s presidency is at a “crossroads”, and his political fortunes could go either way in the aftermath of the crisis. Sarakinsky does, however, believe a positive outcome is all but assured for Ramaphosa, given that he’s taken all the difficult, but scientifically sound, decisions so far. The only stumbling block Sarakinsky identifies is what he describes as the “crooks and clowns” in the ANC. Here is a likely reference to former Zuma loyalist and social development

What it means: The Covid19 crisis could allow Ramaphosa to shore up political support and neutralise labour

minister Lindiwe Zulu, who took to social media to express her frustration at being cooped up due to the virus — an action for which she had to apologise. Then there is Ekurhuleni mayor Mzwandile Masina, another Zuma loyalist, who wanted to use emergency metro funds to access a Cuban “vaccine” for Covid-19, though no such thing exists. Sarakinsky says this arrogance, based on ignorance, only serves to dilute the message of Ramaphosa’s administration. “If it does go wrong, his enemies will use it against him [at the next elective conference] in 2022,” says Sarakinsky. “But the chances of him being wrong are slim — science will vindicate him.” There is, however, another battle to win. Ramaphosa’s administration is still in the firing line of labour. His key ally, labour federation Cosatu, took issue with the idea of a lockdown, even though the working class will suffer most should Covid-19 run rampant in SA’s urban and rural communities. The response from SA Federation of Trade Unions head Zwelinzima Vavi was as odd. He said the federation “fully supports the president” and that the “price of doing nothing [will be] far greater and catastrophic” than the 21-day lockdown itself. But he went on to express his “disgust” at the government “fiddling while Rome was burning”, and said thousands of workers would lose their jobs due to the lockdown.

There is also the simmering battle between public sector unions and Ramaphosa’s administration over a wage hike freeze, which the government is attempting to impose to rein in the budget deficit. The country’s largest health sector union, the National Education, Health & Allied Workers’ Union, last week said it would proceed with a national day of action against Ramaphosa’s administration, should the government go ahead with its plan to renege on the last leg of the 2018 wage agreement. The Public Service Association’s Reuben Maleka says that after the government insisted at the Public Service Co-ordinating Bargaining Council last week that the agreed increase would not be forthcoming on April 1, the association and other unions are preparing to take the matter to court. If the government fails to honour its side of the 2018 wage deal, it could irrevocably damage trust between labour and Ramaphosa’s administration. It could also have harrowing political and social consequences, particularly if labour

were to use the Covid-19 crisis to hold the government over a barrel. But political analyst Somadoda Fikeni says the coming economic crisis due to the pandemic, coupled with SA’s dire state before the outbreak, may effectively neutralise labour. He draws a distinction between a local and a global event, saying if the Covid-19 pandemic had been home-grown, it would have been easy to blame the head of state. But it’s a global event and no economy — not even the most advanced — will be spared the consequences. He believes labour will have to play a constructive role in the crisis, or risk worsening an already explosive situation. Besides, it’s unlikely to win public support for its cause if it were to hold government hostage now. So it may have to let go of its hardline stance and return to the negotiating table. This is exactly what the SA Democratic Teachers Union national leadership mandated its negotiators to do this week. General secretary Mugwena Maluleke says his national executive committee wants the government to table its complete proposal before the bargaining chamber so that the parties can hold constructive talks. It will take a The hardline stance of other cataclysmic unions, however, has preevent to vented this from happening. unseat him Fikeni says the econoSomadoda Fikeni mic aftermath of the Covid19 pandemic may also force labour to play ball when it comes to negotiating wage freezes, salary increases and retrenchments. He believes Ramaphosa’s opponents, on the whole, have been neutralised by the crisis; just as they were about to deliver the knockout blow, they were left punching in the dark. Ramaphosa’s opponents and critics — even in the unions — were set to use the ANC’s national general council later this year to neutralise him so that he would not pursue a second term, says Fikeni. But the Covid-19 crisis has resulted in the event being postponed — and even opposition parties are now rallying behind him. “It will take a cataclysmic event to unseat him,” Fikeni says. It means, says Sarakinsky, that this is Ramaphosa’s opportunity to consolidate his support outside the faction-riven ANC. “It can neutralise the toxic environment inside the ANC … Far too many ANC leaders don’t understand the severity of the crisis, but if he can establish a base outside the party, the support we have seen for him this week can become the new normal,” he says. Ramaphosa’s keenest test now lies before him: can he rally his government and society to avert a deadly scourge, and then weather the economic storm that will come in its wake? x March 26 - April 1, 2020

financialmail.co.za

feature / comment: coronavirus

STUPIDITY AVENGED

Foolish people who think they’re immune to death and know better than scientists and accredited experts are getting their comeuppance in the face of the coronavirus pandemic Chris Roper

here’s probably a German word for it, this pleasure we get at seeing the idiots of the interwebs, those sadly deluded people who get their kicks telling us not to trust scientists or the media, get their coronavirus comeuppance. Schadencovid, perhaps? Take the antivaxxers, for instance, those proudly independent people who refuse to introduce poison into their children’s sacred bloodstream because they can’t spell the words on the ingredient list. It’s so difficult not to laugh quietly into your elbow when you think about the choice they’re going to have to make when a coronavirus vaccine arrives. These are the same people who prefer to believe one discredited paper linking autism to vaccines to the countless scientific papers that show the opposite. Then there are the broniacs, as I like to call the edgelords of social media who think they’re smarter than everyone else. These

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March 26 - April 1, 2020

bros are named after Brainiac, a low-level supervillain who appears in DC Comics, most notably as the enemy of Superman. Brainiac’s main power is his 12th-level intellect (normal earthlings like you and I are only sixth-level) — which, like our latter-day broniacs, makes him much cleverer than anyone else. Raised on a diet of Ayn Rand, graphic novels and unearned gold stars from teachers trying to stop them whining, our broniacs really do think they’re cleverer than scientists and accredited experts. Their classic hunting ground is climate change, where they really do know better than everyone else (I live by the beach! I’m not drowning!). But they’ve embraced the happy hunting ground of the coronavirus pandemic, where it’s even easier to disprove science anecdotally using the medium of misinformation. The poster idiot for this is Bill Mitchell,

an American talk show host, who tweeted: “Trust me, #Covid-19 is the new climate change. Have you even heard from Greta [Thunberg, the climate activist] since this all began?” He also thinks that viruses are like terrorists. “We cannot shut down our society and economy over a virus — no matter what it is. It is like paying ransom to terrorists — you simply cannot do it because then the terrorists need only threaten you and they control you completely.” The broniacs love to flaunt their pallid intellects by pretending they’re the only ones clever enough to spot that governments are just trying to get you to panic when they tell you that you need to stay inside. They’ll share jokes about how Covid-19 hangs around outside bars waiting for 5pm, or hot takes on how flu kills way more people than the coronavirus. Talk show host Mitchell again: “I do not understand how our hospitals can handle

123RF.com/volkovslava

670,000 flu cases every year, but a few thousand Covid-19 cases overwhelm the system. We have been dealing with massive flu outbreaks for decades. To me this is all part of the hype.” One person kindly pointed out the error in his “thinking” for him. “How can McDonald’s sell billions of burgers every year, but when I pull up and ask for only a hundred thousand they freak out? Fake news, I tell you what.” One can’t help feeling a touch of schadencovid at this headline in British tabloid The Sun: “‘NOT A BRAIN CELL’ Fury as Brits STILL Ignore Calls to Stay Out of Pubs During Coronavirus Crisis.” That one of the newspapers most responsible for training people to distrust experts should now be shocked that people don’t listen to government experts is pretty funny. It would be funnier if the fruit of The Sun’s misinformation didn’t include killing innocent people. The UK government’s ire at the same thing is also a kind of poetic random justice, given Prime Minister Boris Johnson’s cavalier attitude to facts. Then there are the Americans, currently feeling the deleterious effects of Fox News’s exposé of “the real story” of the coronavirus, which it contends was a media and Democratic Party plot against President Donald Trump. Fox has consistently minimised the dangers of the pandemic to its largely elderly audience — the main potential victims of the virus. There’s a history of foolish people thinking they’re immune to death, of course. That great diarist of London’s Great Plague of 1665-1666, Samuel Pepys, described the 17th-century version of our idiots who insist on holding weddings and church services. “The taverns are fair full of gadabouts making merry this It’s so difficult not eve. And though I may press my face against the to laugh quietly window like an urchin at a confectioner’s, I am into your elbow tempted not by the sweetmeats within. A dram in when you think exchange for the pox is an ill bargain indeed.” about the choice Funnily enough, the new delivery protocols the antivaxxers are implemented by our supermarkets echo those of going to have to 17th-century suppliers of food. According to Wikimake when a pedia, “the villages around London, denied of their coronavirus usual sales in the capital, left vegetables in specified vaccine arrives market areas, negotiated their sale by shouting, and collected their payment after the money had been left submerged in a bucket of water to ‘disinfect’ the coins”. Unfortunately, we can’t just wait for the selfish know-it-alls to qualify for entrance into the Darwins, those awards that recognise people who have contributed to human evolution by selecting themselves out of the gene pool via death by stupidity. As has been pointed out repeatedly, for us to flatten the curve on exponential growth we all have to practise social distancing. The many selfish people who have decided that this doesn’t apply to them are putting us all in danger. But we can still experience some moments of joy when individuals get their comeuppance. News organisations are starting to realise that the false objectivity of giving climate denialists and health edge-dwellers a platform is contributing to the erosion, and ultimately the destruction, of trust in experts and the media. Those denied a media-approved soapbox are quick to cry censorship and scuttle off to write for fringe organisations like the Institute of Race Relations or the Cape Times. It’s hard to feel sorry for them, and of course it isn’t censorship if they still have platforms. But one side-effect of their nonsense is that they give ammunition to those who do want to restrict our freedoms. As a result of all the misinformation being disseminated, the government has criminalised disinformation about Covid-19. It’s hard to disagree with this stance, but we need to remain vigilant. Any restrictions on free speech are a chip in our constitutional armour. I’d rather live in a world where you can trust people to consume the true information being published and ignore the disinformation. Alas, and in part thanks to the broniacs who play loosely with the truth for their own selfish ends, that time might have passed forever. x

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feature / economy

DEEP DEBT-TRAP TROUBLE

Even before you factor in the economic fallout of the Covid-19 pandemic, SA’s fiscal future looks dire

Claire Bisseker bissekerc@fm.co.za

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March 26 - April 1, 2020

gio, head of emerging markets at TD Securities, from London. “Even in its most optimistic scenario [a reduction of future public wage increases, no fiscal slippage, and growth meeting the government’s projections] the debt-to-GDP trajectory heads upwards with no stabilisation for many years.” Owing to the Covid-19 outbreak, which risks tipping the world into a global recession more severe than during the 2008 global financial crisis, the Treasury’s 2020 GDP growth forecast will be missed by a very large margin. “I think its long-term debt projections would have looked pretty ugly [at the time of the budget in February] even in the best-case scenario,” says Maggio. “They would look nightmarish now.” The big question Burger and Calitz seek to answer is what happens after 2022/2023. Does the debt ratio continue climbing on its current trajectory to hit 100% by 2031? Or, if the goal is to stabilise the debt ratio before that, how would that be achieved? They model four possible scenarios that could play out after 2022, assuming the existing medium-term budget framework, which covers the period until then, stays as is (see graph). The starkest projection (the purple line) shows that if the government fails to reduce the current 2.6% primary deficit, and real economic growth remains stuck at 0.5%, the debt ratio will breach 100% by 2027. “Such a scenario may materialise if the government only partially implements the

R160bn slowdown in the rate at which the wage bill increases over the medium term,” they write. “Failure to stabilise the debt ratio — that is, the failure to restore fiscal sustainability — would, in turn, also undermine investor and business confidence and thus the GDP growth rate.” The second scenario (the red line) represents roughly the trajectory SA has been on since 2013. It assumes that economic growth improves SA’s long-term to about 2% by 2025 debt projections and the primary deficit would have looked narrows to 1.5% — its pretty ugly [at the average since 2013. time of the budget However, this scenario in February]. They is also fiscally unsuswould look tainable. It simply pushnightmarish now es out the deterioration in the debt ratio to 100% Cristian Maggio by four years, to 2031. Scenarios three and four (the yellow and green lines) assume that economic growth improves to 2% and 2.5% by 2025 respectively, and that the government gradually eliminates the primary deficit, allowing the debt ratio to stabilise at about 80% between 2025 and 2027. However, for debt to stabilise, even at these uncomfortably high levels, the primary balance would need to improve by 3%-4% of GDP by 2027, from -2.6% of GDP now. In 2020 rands, this would entail huge expenditure cuts of between R165bn (in scenario 4) and R220bn (in scenario 3) each year from at least 2023 onwards. 123RF.com

s the government cobbles together a fiscal stimulus package to offset the effects of the coronavirus, fiscal policy experts warn that SA is heading into a debt trap — if it isn’t there already. In a new paper, Philippe Burger and Estian Calitz, economics professors at the universities of the Free State and Stellenbosch respectively, show that huge public spending cuts will be required to stabilise the debt-to-GDP ratio at less than 80% over the coming decade. If these cuts are not made, the debt ratio will reach 100% on current policies, and keep climbing. At the opposite extreme, the authors show that reducing the ratio to 50% — the level it was at just four years ago — would, in the absence of much higher growth, doubtless be “politically impossible”, even if the task were spread over the next 20 years. They conclude that SA’s debt ratio is likely to remain persistently high in the long run and that the government’s financial position is precarious. At worst, the country faces a looming debt trap. The paper, “Budget 2020 and a Looming Debt Trap”, published on the Econ3X3 web forum, was written before President Cyril Ramaphosa declared the Covid-19 outbreak a national disaster, and it does not factor in the disease’s potentially devastating economic effect. “A shock to GDP such as the 2008 global financial crisis, or possibly the 2020 Covid-19 crisis, could easily cause the debt-to-GDP ratio to spiral out of control and resume its upward path,” they warn. The big omission from the 2020 budget was any modelling from the National Treasury setting out how it expects SA’s debt ratio to evolve over the longer term. Previously, it supplied a forecast for up to 2027/2028, but the current projection stops at 2022/2023, by which time the Treasury expects gross debt to be 71.6% of GDP — a full 10 percentage points higher than it is today. Economists are highly sceptical as to whether the government will stay within even these bounds, as doing so will require that its plans — including a R160bn cut to wage bill growth — pan out perfectly in the face of fierce opposition from unions. “I have very little faith in the government’s capability to meet its targets,” says Cristian Mag-

PUBLIC DEBT SCENARIOS 180 160 140

% of GDP

100 80 60 40 20 200 0/0 1 200 2/0 3 200 4/0 5 200 6/0 7 200 8/0 9 201 0/1 1 201 2/1 3 201 4/1 5 201 6/1 7 201 8/1 9 202 0/2 1 202 2/2 3 202 4/2 5 202 6/2 7 202 8/2 9 203 0/3 1 203 2/3 3 203 4/3 5 203 6/3 7

Gross debt / GDP (historic) Gross debt (1.5% prim def, current trajectory) Gross debt (1.6% prim sur by 2028; GDP growth 2% by 2024) Gross debt (2.6% prim def; GDP growth 0.5%) Gross debt (1.1% prim sur by 2024, GDP growth 2.5% by 2024) Gross debt (3.5% prim sur by 2029; GDP growth 2.7% by 2024) Source: 2020 Budget Review, Burger & Calitz

Overall deficit (RH axis) Total revenue Total expenditure

201 0/1 1

-15

201 0/1 1

-10

201 0/1 1

-5

201 0/1 1

Deficit (% of GDP)

GOVERNMENT EXPENDITURE & REVENUE (CONSOLIDATED GOVERNMENT)

201 0/1 1

The researchers argue that there are only three ways for SA to stabilise the debt ratio. They rule out major tax hikes, as SA’s tax burden is already high compared with that of other emerging markets. Raising it further will only discourage investment, productivity and innovation. Instead, they urge policymakers to focus on reducing the tax gap — the difference between optimal and actual tax collection. The tax gap comprises a policy gap (created by various tax allowances, which may be revised or terminated) and the compliance gap, which stems from tax evasion — a major What it means: focus of the SA Revenue Service With little (Sars) this year. prospect of Judge Dennis Davis, who stabilising debt, heads the Davis Tax Committee, the SA believes up to R100bn continues government’s to evade the tax net. He estifinancial position mates “conservatively” that SA is set to remain could net R50bn of this by precarious in the cracking down on illegal activity long run and fixing Sars. Second, government must ensure that public expenditure supports economic growth; is shifted from consumption (paying wages) to capital spending (building infrastructure); and is more efficiently deployed so service delivery improves. Third, and most important, the government must slash spending. Burger and Calitz stress that the gov-

120

Revenue & expenditure (% of GDP)

This is equivalent to 18% and 24% of the wage and goods-and-services bills combined. To put this in perspective, the government’s entire annual capital expenditure budget is only R163bn. Therefore the researchers conclude that, in the absence of a sustained resurgence in economic growth, the government is unlikely to prevent the debt ratio from breaching 75% or 80%. They ask whether SA is already in a debt trap. And if not, what can be done to escape what appears to be a rapidly looming one? They describe a debt trap as a fast-rising debt ratio in an environment in which a government is unable to raise more revenue through increasing tax rates and/or reduce government expenditure to levels needed to ensure a stable debt ratio. At first, when it is not clear whether a government is in a debt trap (the situation SA is in now), it is still able to sell bonds to finance its debt by offering higher interest rates, even though this will severely increase its interest obligations. However, as its debt burden keeps increasing, it will likely find it harder and harder to find buyers for its bonds. “Ultimately, once it cannot find such buyers, the debt trap shuts. When it shuts, it leaves only two options: either the government monetises its debt (printing money to repay debt, which may have calamitous inflationary consequences), or it defaults, destroying its national and international credit reputation.”

Overall deficit (Budget 2020’s projections) (RH axis) Total revenue (Budget 2020’s projections) Total expenditure (Budget 2020’s projections)

Source: Budget Review (2020), Table 9.

ernment’s proposed R160bn cut in the wage bill is not a net cut in government expenditure. In fact, it’s not even an outright cut in the wage bill — it’s just a cut in the projected increase in the wage bill. In other words, while it would slow the pace at which the wage bill grows, the bill would still increase by R68bn between 2020 and 2021; government expenditure would still rise by R302bn over the next three years; and the debt ratio would still balloon

from 61% to 71% in this period. “Whether the SA government is heading for a debt trap depends on whether the government will be able to serve the national interest and not yield to the demands of labour unions to not cut the government wage bill,” they conclude. “Ultimately, there is no substitute for political will, leadership and agreement, on the part of both the government and the trade unions, to avoid a debt trap.” x March 26 - April 1, 2020

financialmail.co.za

feature / apartheid’s legacy Michael Schmidt

ighteen years ago this month, the amnesty commission of the Truth & Reconciliation Commission (TRC), under advocate Dumisa Ntsebeza, released its damning report, recommending about 300 prosecutions of apartheid-era perpetrators across the political spectrum. Today, with the inquest into the 1982 death in custody of trade unionist Neil Aggett under way, and with public furore over whether former president FW de Klerk is responsible for issuing orders to kill, questions are being raised about the cost to the taxpayer of prosecuting oldorder thugs. The legal fees of former apartheid apparatchiks in defending themselves will be borne by the successor democratic state — that is, the public itself. The bill for security policeman João Rodrigues, for the reopened inquest and associated court actions relating to the 1971 death in custody of activist Ahmed Timol, has amounted to R3.58m — and Rodrigues’s trial for murder has not yet begun. The argument for taxpayers footing the bill is that justice will be delayed, or even denied, to the families of the deceased if state legal aid is not

GHOSTS OF THE PAST

granted to the accused, allowing them to stand trial. A case in point is the pretrial hearing into the 1983 disappearance of activist Nokuthula Simelane: in 2018, the court ordered the police to pay the legal fees of four accused policemen who will now stand trial in October. Lukhanyo Calata, son of Fort Calata, one of the murdered “Cradock Four”, tells the FM that victims need to accept that they will be among those paying for the defence of apartheid killers. “We want justice,” he says. “These guys acted in the interests of the apartheid government and we understand the state has to pay for their legal fees — as tricky as that is. How do we put a price on a person’s life?” Retired Maj-Gen Dirk Marais, the last convener of the SA Defence Force’s contact bureau, which co-ordinated the military’s response to the TRC, says he’s “not worried about [prosecutions]. Of course it depends on who is the government, but I can’t tell them what they must think.” He does feel, however, that any prosecutions policy must pursue justice across all political lines if it is to be fair. The Simelane hearing revealed apparent cabinet interference in the workings of the National Prosecuting Authority (NPA): in an affidavit, former NPA chief Vusi Pikoli told how former justice minister Brigitte Mabandla and several cabinet colleagues allegedly pressured him to settle for pleabargained, suspended sentences for the three

The Ahmed Timol and Neil Aggett inquests have given some impetus to the unwinding of apartheid’s legacy. But progress remains slow, and justice for the victims elusive

security branch officials who poisoned cleric Frank Chikane, plus their commanders — former law & order minister Adriaan Vlok and former security branch chief Johan van der Merwe. Back in 2002, Ntsebeza’s recommendations were passed to then NPA chief Bulelani Ngcuka, who established a priority crimes litigation unit (PCLU) that audited the cases, determining that about half were triable, and 21, with some further investigation, were ripe for immediate prosecution. But Amnesty International and Human Rights Watch at the time jointly expressed concern at “the granting of pardon to 33 convicted prisoners, mainly from the former liberation movements, at least some of whom had been refused amnesty by the TRC”. Their concerns around undermining of the statutory process of prosecutions for those who had either been denied amnesty or who had been implicated in gross human rights violations would seem to have been well founded: almost two decades later, not one successful prosecution has resulted from the PCLU’s recommendations. Yet the Timol ruling put the fox in the henhouse, causing jitters among the old guard. A year ago, new prosecutions chief Shamila Batohi warned that the NPA would finally prosecute apartheid perpetrators — and that the Cradock Four case is among about 15 apartheid-era murder cases it is deliberating pursuing. Now working with the Foundation for Human Rights, Ntsebeza tells the FM: “The current prosecution in the Ahmed Timol matter is a product of our [the foundation’s] persistent drive to get these cases prosecuted”, noting that the strategy has been to reopen inquests — and then, if successful, press for prosecution. With the ghosts of the past catching up, former security branch official Sergeant Johan Marais, 60, attempted suicide last September. Afterwards, he explained to Rapport newspaper that the Timol inquest had opened old wounds relating to him being ordered to shoot captured student Caiphus Nyoka in Daveyton in 1987. An inquest at the time of Nyoka’s death accepted the false police version that the young man had been armed and dangerous. Speaking from a psychiatric hospital, Marais said he had confessed to the shooting “so that I could have at least done one good thing in my life”. x Anti-apartheid activist: The funeral of trade union leader Neil Aggett at St Mary’s Cathedral in Joburg Gallo Images/Juhan Kuus

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March 26 - April 1, 2020

obituary / sol kerzner

SA’S SUN KING DIES Sol Kerzner was a fearless, fiery and creative visionary who put SA on the global hotel and tourism map — but his life was not without controversy Adele Shevel shevela@businesslive.co.za

ol Kerzner was one of SA’s most influential entrepreneurs. A trailblazer in the leisure and hotel industry, he was straight-talking, fearless and fiery, and he put SA’s hotel and tourist industry on the global map. Kerzner, who died this week at the age of 84, founded the country’s two largest hotel groups — Southern Sun and Sun International — and developed resorts that transformed tourism in Mauritius, the Maldives, the Bahamas and Dubai. Each project was bigger and bolder, always created to “blow the customer away”. The youngest of four children, he was born in Doornfontein, Joburg, to Lithuanian-born Jewish immigrants. Though he qualified as an accountant, he found himself more enamoured of the leisure and hospitality industry than numbers. After a trip to Florida, he saw an opportunity for resorts in SA. And so in 1962, at the age of 29, he built the first five-star hotel in the country, the alluringly named Beverly Hills, on a deserted stretch of coastline north of Durban. More hotels followed, but it was Sun City that was the global game-changer. Kerzner built Sun City (called Sin City by some) from scratch in Bophuthatswana. The development included a lake, game park and entertainment centres and brought high-stakes gambling and glamour, with relatively easy access, to conservative apartheid SA. There were topless dancers, “adult movies”, films on Sundays and slot machines too. In 1992, a £150m extension gave rise to the Lost City — complete with fake oceans and fake earth tremors. Again, it was more luxury and more excess. At one point, it was reported that 1.5-million people a year were making the three-hour trip from Joburg and Pretoria to see entertainers they’d never see in SA — including Frank Sinatra, whom Kerzner paid $2m for a week’s work in 1981. The “Sun King” went on to create a cross-continental empire of hotels, casinos and resorts. Kerzner was impatient, didn’t like incompetence and had a temper. It wasn’t uncommon for him to phone someone in the early hours of the morning and demand an immediate meeting. And though his intake

Sol Kerzner

of coffee, cigarettes and whisky was legendary, he gave up drinking after a heart attack and played with worry beads instead. Kerzner’s career was not without controversy. Allegations surfaced in the late 1980s that he had bribed former Transkei leader chief George Matanzima for an exclusive gambling licence. When Matanzima was overthrown by Bantu Holomisa, an extradition application was made to bring Kerzner to trial, but he was let off the hook after the homeland’s attorney-general refused to prosecute, citing a lack of evidence. Kerzner went on to operate casinos around the world, but sold his interests in Sun City and SA in early 1992. His first international project was in the Bahamas, where he took over a bankrupt estate and turned it into a destination resort, Atlantis. Kerzner and his son Howard “Butch” Kerzner launched One&Only Resorts in the casual luxury space — an understated departure from the projects that had come before. When Butch was killed in a helicopter accident in 2006, Kerzner returned to the position of Kerzner International CEO. Jeff Rubenstein, a lifelong friend, says if tragedy was a burden to Kerzner, hard work was the antidote. After Butch died, Kerzner oversaw his company’s return to SA, opening the One&Only in Cape Town in 2009. Ian Douglas, who worked with Kerzner for 20 years, describes him as a hard taskmaster. But you always knew where you stood with him, he says. “If you did a great job, he acknowledged it.” At the same time, he says: “I don’t believe he was driven by the money. It was a great

consequence of what he did … He was the rock and anchor of his family and wanted to ensure they were always taken care of.” His family was everything, and his daughter Andrea says he’d fly halfway across the world for a grandchild’s birthday party. His friends, too. “There’s the image of Sol as the rock star travelling the world internationally and having lunch with Bill Clinton,” says Douglas. “There was that, but in a very simple sense his mates were his mates. He made time for them, he’d spend every Christmas with them.” Kerzner was, according to former Kerzner International general counsel Richard Levine, a remarkable man: a visionary who paid attention to the details; fearless, but fully aware of the risks; immensely demanding, but remarkably compassionate — I don’t believe he “a true original”. was driven by the When asked by money … He was the Financial Times the rock and what his three best anchor of his features were, family Kerzner answered: Ian Douglas humility, creativity “and a sharp left hook. I used to box as a kid and am still boxing on.” Kerzner leaves a legacy of more than 80 hotel and casino properties in more than a dozen countries. He founded and funded the hotel school at the University of Johannesburg and in December 2010 he was recognised in the queen’s birthday honours list. Married four times, he is survived by his children Andrea, Beverly, Brandon and Chantal, and 10 grandchildren. x March 26 - April 1, 2020

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africa

international covid-19 in africa

123RF

CONTAINING COVID-19 As the coronavirus begins its spread across Africa, some countries have announced travel restrictions and school closures. Now they need to curb community transmission Carien du Plessis

n February 17, the first person to test positive for the Covid-19 virus in Africa arrived in Algeria from Italy. By last weekend, the total number of cases on the continent had passed the 1,000 mark — most of them international travellers. Africa has so far managed to dodge health experts’ expectations of how the virus would spread — though it’s early days yet. “We have no explanation for why the spread is so slow in Africa,” Dr Matshidiso Moeti, World Health Organisation (WHO) regional director for Africa, told journalists on Thursday. She said the focus now should be on delaying the spread and preventing local outbreaks. Higher temperatures and a youth bulge (the median age in Africa is 18, compared with 47 in Italy) could work in the continent’s favour. At the same time, there is a

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March 26 - April 1, 2020

lack of intensive care units coupled with a large number of immune-compromised people on the continent. Early on, a number of African countries announced preventive measures such as travel restrictions and school closures. With only 17 reported cases, Rwanda was the first country to go into total shutdown. Prevention of community transmission is important as most African countries are illprepared to deal with large numbers of critical patients, should there be an outbreak like that in Italy. Nigeria, for instance, has fewer than 400 ventilators for a population of 190-million, says Ifeanyi Nsofor, CEO of health consultancy EpiAfric and Aspen New Voices senior fellow. “The UK and Italy have tens of hundreds and they are still struggling.” It’s not all bad news. A month ago there were only two dedicated Covid-19 testing

laboratories on the continent; now more than 40 countries have these, Moeti says. Recent epidemics also mean the continent has response mechanisms in place and a strong focus on community health care. At the continental level there’s the AU Africa Centres for Disease Control & Prevention, which opened its doors in 2017 but has been dogged by insufficient funds. Chinese entrepreneur and philanthropist Jack Ma’s Alibaba Group has donated 1.1-million coronavirus test kits, 6-million masks and 60,000 protective suits to the centre. At country level, the institutions are stronger. The Nigeria Centre for Disease Control (NCDC), for example, has five testing laboratories. It helped pick up and contain the first known Covid-19 case in the country — an Italian traveller who arrived last month. “Because of the 2014 Ebola outbreak and intermittent Lassa fever outbreaks, countries like Nigeria have pre-emptively invested in epidemic preparedness,” says Junaid Nabi, a public health researcher at Harvard Medical School. On the whole, though, “most countries are not well prepared”. However, recent epidemics affecting Singapore, Taiwan and Hong Kong meant they limited travel and could manufacture test kits as soon as the genetic sequence of the

coronavirus became available, Nabi says. “Singapore had a lot of deaths after the SARS [severe acute respiratory syndrome] outbreak and swine flu. They knew such epidemics were a question of if, and not when.” A wide and rapid dissemination of information globally has also been crucial. A number of academic articles have been published by scientists in countries where Covid-19 has broken out, and leading academic journals have made them available for free, Nabi says. “This has greatly improved our understanding of the disease and development of treatment protocols.” Aspen New Voices senior fellow Dr Serufusa Sekidde says WHO director-general Tedros Adhanom Ghebreyesus’s recommendation of “testing, testing and testing” is important. Sekidde, who studied in China, says community health worker programmes based on the Chinese “barefoot doctor” approach are important in countries where funds are limited. “Politicians, when they think of building up our health-care system, focus a lot on the hospital system,” he explains. In contrast, China’s “barefoot doctors” were high school-educated rural dwellers with basic medical training. They promoted hygiene and preventive health care and treated common diseases. Countries such as Rwanda, Sierra Leone, Uganda, Malawi and

Political fallout By the time Wamkele Mene was sworn in as the first secretary-general of the African Continental Free Trade Area (AfCFTA) last week, the speech he had written was old, with countries rapidly restricting travel. Mene, a former department of trade & industry official, tells the FM that the Covid-19 pandemic “has caused untold disruption in global supply chains, global trade and global markets”. It has, however, also provided an opportunity for the continent to rethink trade. “As Africans we now have to relook at our pattern of dependence on others, and we have to reflect in a very serious way on how we can increase our selfreliance,” he says. Africa has a responsibility to “make sure that we have our own value chains and supply chains. If there is to be an opportunity from this crisis, this is [it].” Jakkie Cilliers, author of Africa First! Igniting a Growth Revolution, says the AfCFTA could prove to be very important

Kenya have implemented this model, and used it to fight infectious diseases such as Ebola and polio. But Denis Chopera, medical virologist and programme executive manager at the SubSaharan African Network for TB/HIV Research Excellence, says that according to modelling done by experts at Wits University, once it reaches 100 local transmissions, infection becomes exponential. At that point, more serious measures have to be implemented to slow the infection rate — particularly as a vaccine You prepare for is still several epidemics in months away. peacetime — you “Over six don’t wait for them months the impact to happen will be less than if Ifeanyi Nsofor people are infected over a month, which will overwhelm the health-care system,” he explains. Should the virus spread to urban informal settlements, where it’s more difficult for individuals to self-isolate, he says healthcare officials could isolate entire communities as a means of controlling the spread. Chopera believes climate change will give rise to the spread of similar viruses in future, as the encroachment by people into animal habitats will mean a lot more interaction between the species. “Investing in biomedical research in future is important so that

we can be prepared to see these things when they are coming,” he says. Local and innovative ways of dealing with the coronavirus are in the offing. A Senegalese innovation lab is already helping to develop cheap and rapid testing kits which could speed up diagnosis. And Nsofor says a consortium of German and Nigerian public health, research institutions and a global software company, coordinated by the Helmholtz Centre for Infection Research, developed an outbreak response management system during the West African Ebola outbreak of 2014/2015. “When data is entered, the states will see it and the NCDC will see it. It takes away a lot of the paperwork, which takes time.” And delays could mean deaths. Several tech hubs are also sending out calls for ideas on how to address the coronavirus. “This would help change the narrative that in everything, Africa has to wait for the West,” says Nsofor. While funding remains a big issue, he hopes one positive outcome from the virus will be that businesses contribute more to health care once they realise how epidemics affect their profits. “You prepare for epidemics in peacetime — you don’t wait for them to happen,” says Nsofor. “When they happen, there is so much tension people don’t think critically, and people make mistakes.” x

for trade integration. “You need larger markets,” he explains. “The implementation of the AfCFTA agreement is critical for Africa to stop its deindustrialisation and to change the value-added component of manufacturing.” It will, however, be a slow process, because the agreement will only be fully in place in 2034. So, for now, the disruption of the supply chain from China — one of Africa’s biggest trading partners — will have a huge effect on the continent. But, says Cilliers, “the fourth industrial revolution and digitisation mean supply and demand are becoming localised”. Democracy could suffer more lasting damage. This weekend Guinean President Alpha Condé ignored public health risks and deadly protests to push on with a referendum that could add 12 years to his 10-year rule. Jeggan Grey Johnson, programme officer at the Open Society Foundations, says: “There have been no preparations to

my knowledge on the coronavirus in Guinea-Conakry. We are beginning to see a defiance against dealing with the pandemic where dictators will not stop at anything to get what they want.” In Malawi the rerun of a botched February election has been pushed from May to July, and President Peter Mutharika has strengthened his position by quietly dissolving his cabinet. Civil society organisations have expressed alarm, saying the country “is on the edge of civil strife”. In Ethiopia, the postponement of elections planned for August could frustrate Prime Minister Abiy Ahmed’s reforms. And in Zimbabwe and Lesotho, the possible deployment of the military to enforce a Covid-19-related shutdown could escalate tensions. There’s an upside, says Grey Johnson. “Political elites, when they get ill, will experience the same things the people of their countries experience when the health system is broken.” That, at least, may drive some future reforms. x

March 26 - April 1, 2020

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IN GOOD FAITH BY CARMEL RICKARD

DOLLAR FOR DOLLAR Zimbabwe’s law society is taking the government to court over the country’s currency changeover. Precedent suggests its action is unlikely to succeed

fter several court judgments upholding Zimbabwe’s play-play money as replacement for the US dollar, which had been the legal tender in that country, the Law Society of Zimbabwe (LSZ) has decided to tackle the issue, challenging the constitutionality of the changeover. The local currency system, introduced by the government in early 2019, was officially supposed to be on par with the US dollar. However, the real-time gross settlement (RTGS) dollar immediately

@carmelrickard

123 RF/ olen abo ldyr eva

The Law Society of Zimbabwe will need a judicial miracle to win its currency legislation case 40

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lost value, leaving many people and businesses seriously out of pocket or even bankrupt. When the case is heard, the LSZ will argue that replacing US dollars with RTGS dollars — overnight and without adequate compensation — amounted to “compulsory deprivation and expropriation” of US dollars. It thus breached the constitutional guarantee against comMarch 26 - April 1, 2020

pulsory deprivation of property. In his founding affidavit for the litigation, LSZ executive secretary Edwin Mapara cites finance minister Mthuli Ncube as a respondent, along with President Emmerson Mnangagwa, the attorney-general and the Reserve Bank of Zimbabwe and its governor. After the US dollar was introduced by the government as legal tender, the law society operated accounts in several banks on the basis of that currency. According to Mapara, the compulsory conversion of the LSZ’s US dollar-denominated assets and bank balances did not serve any public interest. Mapara’s affidavit reads, in part: “[Their actions] in compulsorily ordering and effecting the conversion of US dollar balances in the applicant’s account into RTGS in February 2019 amounted to compulsory deprivation and expropriation of such US dollars without adequate compensation.” This, he says, was in breach of the constitution. “Such deprivation was not accompanied by any payment or tender of compensation to the applicant, the person affected by such deprivation,” he adds. “The deprivation amounted to violation of the applicant’s rights to property and such deprivation was done without the applicant’s consent.” He adds that as the largest body representing legal practitioners in Zimbabwe, the LSZ had an interest in the question of the changeover in currency, as the issue would affect its membership daily. No date has yet been set for the matter to be heard, but the results of several other cases involving the currency changeover would seem to indicate that the LSZ will need a

judicial miracle to win. The supreme court, Zimbabwe’s apex judicial forum, has already handed down two decisions in related cases, both on the same day and both upholding the changeover. Neither gives any suggestion that the court might consider the changeover legislation unconstitutional. Unfavourable precedent Of course, the court would be at liberty to change its mind if convinced by argument on the matter — but given the reputation of the bench in Zimbabwe I would not bet on it. In the one case, the two parties involved had apparently specifically agreed that payment would be in US dollars. However, the court said that even if such an agreement had been concluded, it would contravene the law on the currency to be used in all domestic transactions. “The parties could not, by their consent to act against the clear letter of the law, confer legality upon a bill of costs denominated in US dollars,” the court ruled. The second decision, written by chief justice Luke Malaba, said counsel “would like the court to believe that conversion of a foreign currency denomination to a local currency denomination amounts to a lesser value in the local currency. This reasoning is wrong at law.” The RTGS dollar had the value given “under the one-to-one rate and it remains on that value even after the effective date”, he wrote. It is difficult to imagine that a court holding such a belief could bring itself to find the changeover unconstitutional and amounting to the compulsory deprivation of property. x

money& investing 123RF/ Artem Oleshko

Analysis and coverage of SA's top companies and investments - the guide to where your money should be CAPITEC

It’s not going up in flames Capitec’s share meltdown has shaken even those hardened to the market’s collapse. The panic may be overdone Garth Theunissen

ý Wild swings in Capitec Bank’s share price last week have investors fretting about whether the unsecured lender is uniquely exposed to a perfect storm — a worsening domestic recession coupled with the Covid-19 pandemic that’s forcing business activity to grind to a halt. Capitec’s share price lost as much as 28% on March 18 and a further 14.69% the very next day, only to rebound by more than 42% on March 20. A recovery in the share price was due at

least partly to Capitec’s hasty Sens announcement on March 19 in which it staunchly defended its fundamentals. Nevertheless, Capitec has still lost roughly a third of its value this year, and with the infamous Viceroy report’s accusations of it still fresh in investors’ minds, some critics are speculating that the recent share price volatility is an omen of greater turmoil on the horizon. After all, if the economy does contract this year as much as economists expect, a bank

with a large unsecured lending book to mostly lower-income consumers is likely to feel the impact more acutely — at least that’s the theory. “Capitec looks as if it’s been specifically hard hit, but it’s actually trending more or less in line March 26 - April 1, 2020

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money&investing

with the other financial services companies on the JSE — it has just done so in a slightly more compressed timeframe,” says Keith McLachlan, a portfolio manager at AlphaWealth. “Capitec’s share price was a bit more resilient to the Covid-19 panic initially, partly because it was on a much richer valuation than the other banks, so all it has done is to play catch-up. To single out Capitec is missing the point of what’s happened.” McLachlan points out that the JSE banks index and the Satrix Fini index have slumped 35% and 36% respectively since the end of February, putting Capitec’s share price decline more or less in line with that of the broader financial sector. Capitec remains a highly cash-generative business and foresees headline EPS to be between 18% and 21% higher when full-year results for the fiscal year to end-February are released next month. Those estimates have not yet changed. The more established big four banks are also not without their own risks, as evidenced by Nedbank’s 54% plunge and Absa’s 40% drop since the beginning of March. Critics often forget that other commercial banks also have unsecured lending exposure, while a significant portion of their loans is for depreciating assets like vehicles.

1-million funeral policies since introducing them in May 2018 — 85% of them distributed through its branch network, which continues to expand while rivals like Standard Bank shut theirs down.

Gerrie Fourie: Touted the apparent improvement in Capitec’s credit loss ratio

What’s more, virtually all big four banks have lent heavily to listed property counters, which are suffering their own Covid-19-induced share price meltdown as shopping malls empty and commercial tenants face months of constrained business activity. Redefine, for example, slumped 65% in only 15 trading BANKS UNDER FIRE days. “In this climate you want to Satrix vs Absa vs Capitec vs FirstRand vs Nedbank be careful of all the banks,” says vs Standard Bank – daily (indexed) Piet Viljoen, director of Counterbased to 100 point Asset Management (for% 0 100 merly RECM). “If the economy eventually 95 -5 hits the wall due to the impact of 90 Covid-19, many of [the banks’] -10 85 clients are going to struggle to -15 80 repay debt.” -20 In Capitec’s defence, the 75 Satrix Fini Portfolio (-45%) issue is certainly more than just Nedbank (-63%) 70 -25 an unsecured loan book. With Standard Bank (-42%) 65 -30 12.6-million clients and 834 FirstRand (-39 %) 60 active branches, it enjoys one of Absa (-47%) -35 Capitec (-33%) 55 the biggest retail banking market -40 50 shares in the country (by some definitions the biggest) and is -45 45 diversifying into new products like credit insurance and funeral Jan 07 13 20 27 Feb 10 17 24 Mar 09 16 policies. 2020 It has already sold more than Source: Infront 42

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March 26 - April 1, 2020

Transaction fees and funeral income together contribute 46% to net income and cover 91% of Capitec’s operating costs. Still, whichever way you slice it, Capitec’s unsecured loan book remains its Achilles heel. “If you look at Capitec’s business model, the retail bank is not at risk. It’s the unsecured lending book that is more exposed to cyclical economic fluctuations,” says McLachlan. “That will always be more at risk than secured lending.” Capitec claims that only 1.1-million of its 12.6million active customers have credit, while 83% have more than 40% cash available for other expenses when comparing debt to income. Capitec’s client base is also increasingly robust, with more credit granted to clients with gross salaries of over R10,000 or R20,000 a month and less to those earning below the risky threshold of R7,500 a month. It also has a solid retail deposit base of R81.4bn. Yet loans in arrears are a worry. At the results presentation for the six months to end-August 2019 CEO Gerrie Fourie touted the apparent improvement in Capitec’s credit loss ratio, which showed that the value of loans up to three months in arrears had declined by 11% to R2.16bn at the end of August 2019, from R2.43bn the previous year (see table). But loans that were more than three months in arrears jumped 128% to R6.991bn. Capitec says the reason for this surge is the transition to IFRS 9 accounting standards on March 1 2018. The new standards allow for loans to be written off after 90 days only if there is no reasonable likelihood of recovery beyond

BAD CREDIT

Capitec loan book breakdown (Rm) Total gross loans & advances Up to 3 months in arrears More than 3 months in arrears

Aug 2018

Aug 2019

Diﬀerence (%)

51,359

60,252

14.3

2,428

2,161

-11

3,071

6,991

127.65

Source: Capitec interim results presentation for 6 months to end Aug 2019

AB INBEV

5% of the gross balance at write-off. Even so, when you tally all the loans in arrears for more than 90 days you reach a value of R9.152bn, which in layman’s terms (rather than accounting-speak) means that 15.2% of Capitec’s R60.252bn total loans and advances belong to people in real financial difficulty. One might even be tempted to use this as evidence for Viceroy’s claim that Capitec is indeed involved in predatory lending practices. There’s also the steady trickle of anecdotal claims, particularly on social media, chastising Capitec for allegedly rolling over loans to already overindebted working-class consumers. “You don’t get to crowdsource an opinion on whether a bank is a predatory lender or not,” says McLachlan. “The confirmation bias of relatively uninformed people speculating about a highly technical issue that in all likelihood requires a specific legal definition does not constitute proof of a predatory lender. Based on my interaction with the Capitec team it would appear that it runs a very tight ship.” That view is supported by Viljoen, who says he has “high regard” for Capitec’s management team. “When it comes to investing in banks you want to look for companies with a very strong risk-management culture,” he says. “If you look at the local financial sector, the two banks that stand out are probably Standard Bank and FirstRand. Capitec is right up there [with them].” But if that’s so, why is Counterpoint Asset Management not a Capitec shareholder? “Valuation”, is Viljoen’s succinct and simple answer. “We’re value investors, so we’ve always felt Capitec was just too expensive for us,” he says. At a forward p:e of 17.4 Capitec certainly isn’t cheap. But it’s a lot more reasonably priced than it was just three months ago, when the share price was hovering at about R1,450, compared with R958 at the time of writing. Does that make Capitec a good buy despite the looming economic crisis? Viljoen is reluctant to make a recommendation, but he does offer some pertinent advice. “The economy may fall into a hole for some time and the companies that will emerge on the other side are those with balance sheets strong enough to get them through the tough times,” he says. “If you have a weak balance sheet you’re probably going struggle to get through, whether you’re a business or an individual.” x

World loses taste for beer Recent stock market armageddon is a cautionary tale for companies, like AB Inbev, that were forged with heavy debts Bruce Whitfield

ý Market dislocations test the character of even the most resilient investor. After five years of nearly zero returns on the JSE, to have not only the 2019 recovery obliterated, but markets fall by a quarter on top of that in just over a month, feels like Armageddon. US markets have shed about a quarter of their value from the record highs in February, while shares on the JSE are down about a third. It feels like the end of the world. History teaches us it’s not. Some recoveries, however, do take longer than others. While market drops have become less frequent in recent decades, they have become more severe, and generally speaking, the recoveries quicker. While it took the Dow Jones industrial average nearly 25 years to recover to its 1929 level following the Great Depression, in seven out of

11 falls from record highs since 1950 markets have recovered within a year. That doesn’t mean they will do so this time. The bull market, alive, well and kicking as recently as six weeks ago, lasted considerably longer than its predecessors. It was due to end at some point. But the vast amounts of money injected into the financial system after the last crisis in 2008, coupled with low inflation, meant investors were borrowing aggressively to invest. After all, they thought, it was a one-way bet. Until it wasn’t anymore. As declines gathered pace, more and more investors had to liquidate positions to cover their margin calls, accelerating the brutal pace of value destruction. And this crash has happened far more quickly than its predecessors — in the 2008 global financial crisis, for example, markets declined more than 40%, but over nine months; the JSE fell nearly as far in March alone. Over the long term, stock market indices go up. Some companies fail, others lose relevance, but new ideas come to the fore and we are used to seeing valuations rise over time. But the giants of 25 years ago are not the giants of today. The world has moved from placing substantial value on industrial firms such as GE and Exxon to money-making digital ventures such as Microsoft and Alphabet. For ordinary investors who have put money into SA blue chips in recent years in the belief that the shares of dominant firms run by rockstar CEOs only go up, vast fortunes have been lost in the likes of Steinhoff, Tongaat Hulett, EOH and Sasol. Research this week out of BofA Securities cautions against stock-picking in a highly volatile market. As the collapse in share prices in so many

LOOKING BACK US bear markets and recoveries since 1800s Average decline (%)

Average length (months)

0 -10 -20

Average time to recover

120 (months)

100 80

-30

60 20

-40

-50

-60

Average

Cyclical Structural

Eventdriven

Average

Cyclical Structural

Eventdriven

Average

Cyclical Structural

Eventdriven

Source: Goldman Sachs Global Investment Research/FT

March 26 - April 1, 2020

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money&investing apparent blue chips has shown, far too many have smallanyana skeletons that fall out the cupboard when times turn tough. Index investing is good enough for the heirs to Warren Buffett’s fortune, and the BofA Securities research points to patience; rather than trying to time a recovery, setting a clear strategy of rand-cost averaging is the safest way to invest through a market collapse. “The probability of losing money plummets to 0% over a 20-year time horizon,” the note reads. It also points out that shares are unique in being an asset class that performs strongly over almost any longer period. Still, there are exceptions. The first decade of the 21st century, which ended with the financial crisis, was the only one in the past century other than the 1930s that delivered negative returns. Local investors, concerned in the short term with their own health and that of those dearest to them, have the added worry of the value of their long-term savings being further eroded by the currency, which has lost more than 20% against the dollar in the past couple of months.

Happier times: AB InBev listed on the JSE in 2016. At that stage, its market cap was almost three times what it is now Business Day/Martin Rhodes

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March 26 - April 1, 2020

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One of the great realities of investing is that the dollar remains the world’s reserve currency through any crisis. “The catalyst for the most recent sharp selloff of the rand, as well as many other emergingmarket currencies, appears to be mainly … foreign investors withdrawing an unprecedented amount of portfolio investment from emerging as a convenient smokescreen for other failings. markets — both bonds and equities,” Stanlib For example, long before the pandemiceconomist Kevin Lings said in a note this week. induced market rout that has destroyed trillions “The sell-off … is a direct result of the spread of dollars in savings worldwide, the world’s of Covid-19 and the biggest brewer, AB desire by many InBev, had seen its THE BIG FIZZLE investors to move value decline by more AB InBev share price (c) – weekly more of their investthan the $105bn it paid 000 ments into safe-haven for SABMiller four 170 assets.” years ago. 160 As the likelihood of The fall has accel150 a Moody’s downgrade erated since last 140 looms large this week, 130 month’s results in a severe recession in which it disclosed the 120 2020 seems inevitable 110 negative impact the as the government disease had on its Chi100 deliberately shuts nese operations in the 90 down the economy in first two months of 80 an effort to stem the this year. 70 spread of the virus. For 60 The disease is now governments trying to in more than 160 Jul Jul Jul balance the need to countries and it’s save lives with the unclear what the Source: Infront Dividend demands of driving longer-term impact on growth, the trade-offs corporate profits will are going to be agonising. be. AB InBev is yet to publish any guidance on The impact on companies is going to be subits expectations of future earnings. stantial. Expect many to use the Covid-19 panic Its October 2016 purchase of SABMiller val-

ued the enlarged firm at $250bn at its peak that month. By the end of February 2020 it was worth $114bn, and the figure has fallen below $70bn since. Global diversification at the height of a pandemic appears to amplify investor concerns, rather than provide the comfort that having operations in practically every corner of the globe should. As countries impose ever-tighter restrictions on freedom of movement and association, so too do sales drop of a product that is consumed primarily at social occasions. And as in so many deals done in the post2008 low-inflation world, AB InBev took on debt of $100bn to build its empire — an extraordinary amount of money that was needed to pay off the previous owners of the world’s then second-biggest brewer. At the time of the AB InBev offer, SABMiller had been trading on the London Stock Exchange at £29.34. But with the Brexit vote fresh in everyone’s mind and a declining pound, SABMiller held out and eventually received £44 a share. As it turns out, AB InBev overpaid significantly. It’s had to sell numerous premium brands such as Grolsch and Pilsner Urquell to

satisfy global competition authorities, too. The current crunch will make it considerably harder, if not impossible, to achieve its own internal milestones in terms of reducing debt. Large, highly leveraged deals, such as what was known for a while as the “megabrew” one with SABMiller, are notoriously hard to consummate and the slide in the value of the world’s biggest producer of beer clearly illustrates this. AB InBev’s performance is even worse when you consider what other global brewers have done. In the four-year period to February, during which AB InBev shed about 60% of its value, rival drinks-makers Carlsberg, Heineken and Diageo rose 35%, 30% and 20% respectively. That excludes the recent price volatility seen across asset classes across the globe. Depending on what SABMiller shareholders did with their windfall, they must be counting their lucky stars that they got out when they did. But current shareholders have to contend with a huge hangover. “In a market like this where profits will be squeezed for a few months, interest payments hang heavy,” says Sasfin Securities

deputy chair David Shapiro. Adrian Saville, chief investment officer at Cannon Asset Managers, agrees: “With companies, it’s not income statement, it’s cash flow, and there are some proper casualties along the way. Physical businesses with big balance sheets are going to get hit hard.” Says Siboniso Nxumalo, head of equities at Old Mutual Investment Group: “In any recession highly leveraged companies tend to perform poorly. Debt is the magnifier — in good times it makes you look better, but in bad times it makes you look terrible.” The reality for all brewers, however, is that their markets are contracting. “Across developed markets, particularly the US, there is no doubt that mainstream beer is losing consumer appeal … Depending on the data sources you use, beer as a percentage of total alcoholic consumption peaked around 2007, some estimates say as early as 2004, and market share has been declining steadily ever since,” says Samantha Hartard, a portfolio manager at Ninety One. Shapiro argues that AB InBev’s problems run even deeper than both debt and flagging beer consumption. “It’s the demise of big brands,” he says. “They’ve lost their marketing edge. Before, with only a handful of TV networks they could buy eyeballs, they could demand where to be placed on the shelf; now with social media, they’ve lost that power. Anyone can advertise on Instagram or YouTube, so any craft beer can give them a run. Today’s consumer relies on thumbs-up and thumbs-down emojis more now when making purchase decisions, rather than a PR agency’s endorsement of the product.” Trends favour the craft beer revolution as well as alternatives perceived to be trendier or healthier. Wine out of a can sucked through a straw is far more hip than latching onto a beer bottle, while alternatives that contain less sugar or fewer carbohydrates are doing better than beer. “Consumers are looking to alternatives to high-calorie beers,” says Hartard. “Beers are addressing this within the category with the

rise of lighter alternatives, such as Castle Lite, but there are many categories, like spirits, that don’t face this problem, and are winning market share partly due to this.” At the time, the AB InBev acquisition of SABMiller was the third biggest of its kind in history, and the biggest ever in the UK and certainly SA. Those behind the deal sold it as a no-brainer that would create a brewing giant with a true international footprint, making one out of every three beers drunk anywhere on the planet. Under the weight of global circumstances, that argument, like AB InBev’s shares, now carries very little value. x

Adrian Saville: It’s not income statement, it’s cash flow

March 26 - April 1, 2020

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money&investing OLD MUTUAL

Life after Moyo for Big Green Operationally the insurance giant is holding up, despite its protracted management scandal Stephen Cranston CranstonS@fm.co.za

ý Old Mutual might have been in a vacuum since last May — when CEO Peter Moyo was suspended — but it is a big ship that often does well in spite of itself. Like its peers on the JSE, the share has lost more half its value since then, falling from R24 to less than R10 a share at the time of writing. Some of this can be attributed to the Moyo drama, but Discovery has also seen its share halve without the same hint of scandal. Rather, Old Mutual has been caught up in the panic selling that has accompanied the worldwide spread of the coronavirus. Fears are also now rising that Old Mutual, along with the rest of the industry, may see a dramatic spike in policy lapses as business activity grinds to a halt in the wake of the state’s 21-day national shutdown. Avior’s head of research, Warwick Bam, says Old Mutual “is exposed to the broadest segments of the SA economy and will be impacted accordingly”. He concedes that while the government is hoping to protect jobs through stimulus packages, businesses will do what they can to limit their losses. “We are in an unprecedented scenario but the insurance sector, especially Old Mutual, is prudently capitalised and will be able to withstand the economic impact of Covid-19 without concern from policyholders.” he says. Electus co-founder Richard Hasson says Old Mutual’s recent results were weaker than expected, but not disastrously so, and do not 46

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March 26 - April 1, 2020

justify the share price collapse. After all, the group equity value disclosed at the 2019 year-end results was R24.74 a share. Life insurance results are always a messy combination of assumption changes and attributable profits. In the year to December, headline earnings were up 5% to R9.9bn. But the biggest driver was the comparatively buoyant 2019 market: there, a 77% increase in the return of the shareholder’s portfolio to R2.1bn, which has now reversed. Interim Old Mutual CEO Iain Williamson says the group has exceeded its target of R1bn in savings from its corporate budget, taking R1.2bn out of fixed costs. It has sold its businesses in Mexico and Colombia. Its only non-African operation is a joint venture in China — and now is probably not a good time to put that division on the market. There were three positive diviPeter Moyo: Will not be going back Freddy Mavunda

It is hard to work out the actual trading profit after these changes

sional performances, with the largest unit, the mass and foundation cluster (MFC), pushing earnings up Patrice Rassou 13% to R3.5bn. This now accounts for almost 40% of group results from operations. But Bam says MFC profits were flattered by the release of actuarial profit margins. “The true performance is reflected by the 4% fall in life insurance sales and the 3% rise in the credit loss ratio at Old Mutual Finance.” He says the additional competition from SA banks such as Capitec in the MFC segment is evident in Old Mutual’s results but the impact is more muted than the market may have expected. Williamson acknowledges that Capitec’s funeral policies have sold well, “but we don’t believe we are losing many clients to them. Ours are sold to people who need some help before they buy.” There was also a 7% increase in the return from Old Mutual Corporate to R1.8bn — another area in which the group is dominant, with its huge Super Fund umbrella retirement fund. In the rest of Africa, Old Mutual showed a 15% increase in returns to R496m. However, Williamson says East Africa was particularly frustrating with losses of R40m. High medical claims, lower general insurance premiums and unfavourable assumption changes on the life business

Moving on After several reverses in court, it is clear that Peter Moyo will not be going back to his old job as CEO of Old Mutual. This week the Supreme Court of Appeal dismissed with costs Moyo’s leave to appeal application against a January 14 judgment in favour of Old Mutual. Asked, though, why he persisted in what from the outset seemed a losing battle, Moyo tells the FM: “I wouldn’t just roll over where a principle is involved.” But he remains emotional about the life office, in which he has deep roots. If he hadn’t joined the Big Green, he could have lived out a humdrum career as a partner of EY. “I was the first black general manager and the first black deputy MD,” he says. When he took over employee benefits in 1998, instead of sitting on the Fifth Floor, as

NO LET-UP

Old Mutual share price (R) – weekly

the Old Mutual C-suite was called, he found a highly utilitarian spot right at the heart of the sprawling employee benefits staff area in Pinelands, Cape Town. Moyo says that in 2002 there was no objection to him setting up Amabubesi, which later became NMT Capital, though he stepped down as an executive director of Amabubesi when Old Mutual took a shareholding in 2005. But he says Old Mutual saw its involvement in the investment company as an important part of its black empowerment efforts. “I got disillusioned when the centre of gravity moved to London, when our then chair Mike Levett set up the head office there. There were too many layers between us and the holding company.” Moyo could no doubt see his chances of becoming head of Old Mutual SA were diminishing as it was increasingly clear that then MD Roddy Sparks had earmarked Paul Hanratty, a youthful actuary, as his successor.

So in 2005 Moyo became head of Alexander Forbes’s African (including SA) business, which accounted for more than 80% of group profits. Moyo soon faced his greatest challenge when it was revealed that Forbes was pooling the cash balances of its pension funds and taking a cut of the extra interest. The practice was known as bulking and all took place before Moyo joined the business. It was a costly exercise to repay the funds and Forbes was rescued by a private equity consortium. It preferred its own type of managers, first Bruce Campbell, who had been MD of Mutual & Federal, then Edward Kieswetter, now the SA Revenue Service commissioner. Moyo resigned from Forbes in 2007. He then had a decade without a full-time job. Admittedly, he was CEO of NMT Capital, but that hardly took up eight to 10 hours a day of his time. He certainly padded out his CV as chair of Vodacom, insurance broker Willis SA and of property company Liberty Two Degrees

tricks. Insure’s underwriting profit fell from R480m to R35m. It blames the weather, but hail can’t have singled out OMI clients over those of Santam, which had a R1.8bn underwriting profit. Williamson says he Oct is nonetheless happy Dividend with many of the management actions at the unit, in particular the creation of a stronger specialised insurance unit under John Nienaber and a revitalised direct insurer, iWyze. Bam says OMI has yet to prove the ability to reach management’s 4%-6% underwriting margin target. “Improved risk selection and reinsurance structures could solve some of the issues,” he says. But unfortunately Old Mutual’s dominance of trade credit insurance through Credit Guarantee will hurt while the SA and global economies go through a wrenching period of contraction, thanks to the Covid-19 pandemic. As of its latest results, Old Mutual says lapse “experience” was just R15m ahead of expectations. Management has, however, decided to set aside R1.16bn for the expected increase in lapses over the next three years. x 2020

financial pressure than the mass market. Bam believes the PF segment has a credible strategy to improve performance under the leadership of Kerrin Land, who took the job vacated by Karabo Morule, a Moyo loyalist. Land, who ran the Mar Jul commercial side of the group’s asset manager, Source: Infront will also take over wealth, which houses the unit trusts, linked product company and the product set and tied agents targeted at the affluent. This will be split from the investment group, which houses the asset management boutiques. Says Williamson: “This will allow the current head of wealth and investments, Khaya Gobodo, to focus on his passion, which is investment management, and Kerrin to focus on her commercial and marketing strengths.” Wealth and investments’ contribution also fell, by 10%. There were flat revenues but oneoff costs as it closed some subscale units such as its emerging-markets manager. The truly disastrous performer was Old Mutual Insure (OMI). One thing that can’t be fudged is the underwriting experience: a simple calculation of what is brought in minus what is paid out. There’s no room for fancy actuarial 2019

combined to hit profit. In the fledgling West Africa business, losses in the half fell to R124m. Old Mutual has ringfenced its large Zimbabwe business and does not recognise its profit while that country’s hyperinflation continues. But it is the dominant financial services player in Zimbabwe and in a normal year it can provide well over R1bn in profit. The group still made R866m from its Botswana, Malawi, Namibia and Swaziland businesses. The region is diversifying from life and savings products into lending (through Old Mutual Finance) and general insurance. Negatives included personal finance, the core historically white middle-market business, in which earnings fell by 14% to R1,7bn. Patrice Rassou, Ashburton’s incoming chief investment officer, says Mutual’s results are messy and no more so than in personal finance. “There was a basis change in the mortality assumptions, and an assumption that lapse rates will fall on longer-dated Greenlight [risk] policies. And there several other changes like this, which don’t mean much to most readers. It is hard to work out the actual trading profit after these changes.” Bam believes personal finance represents one of Old Mutual’s largest opportunities to grow market share in SA. But Neelash Hansjee, an analyst at Old Mutual Equities, says this segment, which targets the “missing middle”, is under as much, if not more,

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and director of the Liberty Group itself. When Old Mutual Ltd listed in 2018 it was in exactly the structure Moyo had wanted all along — an African business reporting into a strong independent SA business. But its board, headed by Trevor Manuel, did not have the same relaxed view of external business interests which former group CEO Jim Sutcliffe and SA boss Sparks held. There were no serious candidates from Old Mutual management when Moyo was appointed. He says that in the final round there was one other candidate and “she was black”. Could this have been Pinky Moholi, the former CEO who resigned in disgust rather than continue to serve on a board set on litigation? If Moholi applies again, interim CEO Iain Williamson will be strong opposition — though he is white, the fact that he has no outside business interests will work to his advantage. After the Moyo dispute it is likely that all significant outside business interests will be forbidden for senior management. x

March 26 - April 1, 2020

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money&investing REMGRO’S UNLISTED ASSETS

Dark fibre: Remgro’s dark horse The company’s investment in tech hub CIVH is starting to look like a real winner — as is its plump pile of cash Marc Hasenfuss hasenfussm@fm.co.za

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March 26 - April 1, 2020

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2019

ý In the past few weeks investment company traction in the unlisted portfolio will be welRemgro has benefited markedly from its subcomed. stantial offshore cash pile. At this point, though, Remgro’s short-term What’s more, that might obscure the encourportfolio gain has been, bizarrely, driven from its aging valuations reflected for the investment R16bn cash pile. At the end of December, 39.7% company’s two biggest unlisted investments in of the cash pile was held in pounds and 12% in its latest interim report. dollars at R6.6bn and R2bn respectively, at forThe figures for the half-year to end-Decemeign exchange fixes of R18.55/£ and R14/$. By ber showed that the intrinsic value estimate for the FM’s estimate, that foreign portion of the technology hub CIVH went up to R9bn (precash holdings has grown to almost R10bn, viously R8.4bn) and spreads business Siqala which would push Remgro’s total cash pile to increased to R6.3bn (previously R6.2bn). around R19bn. CIVH controls fast-growing fibre-optics This would mean – considering Remgro’s businesses Dark Fibre debt at centre of NURTURING THE GEMS Africa, Vumatel and R14.3bn – a net cash Remgro share price (R) – weekly SqwidNet. cushion nearer to Siqala, which RemR4bn, which convinc230 gro recently bought ingly underlines the 220 from consumer brands group’s determination 210 giant Unilever, owns to maintain dividend 200 bestselling spreads payments in these 190 brands including Rama, tremulous times. 180 Stork and Flora. Interestingly, 170 CIVH (which was Remgro CEO Jannie 160 given a special cameo Durand spoke about 150 in the Remgro investthe value of keeping ment presentation) and 140 some powder dry. He Siqala are key investexpected a quiet year 130 ments in Remgro’s in terms of corporate 120 “Reset — Regrow — activity, but conceded Apr Jul Oct Jul Oct Repeat” strategy. “there might be Mar They’ll come under Source: Infront Dividend opportunities in this more intense investor crisis … I don’t know”. scrutiny when the portOne thing is for folio balance changes after the proposed certain. Remgro, despite its enthusiasm for the unbundling of the group’s interests in banking longer-term prospects for the fibre-optics busiassets RMB Holdings and FirstRand. With the ness, will not be participating in CIVH’s envisfallout from the Covid-19 pandemic smacking aged R6bn capital raise. Remgro’s listed holdings (the discount to intrinInstead, Remgro will make way for empowsic value is now probably more than 30%), any erment entities and black investors.

Though the prevailing environment is certainly not the optimum time to be tapping new investors for cash, Durand says CIVH is well capitalised and does not need to pursue the capital raise with any urgency. The company has balance sheet capacity to meet network rollout requirements for the foreseeable future. CIVH signed off a debt restructure and refinancing in December last year, and has access to debt of around R18bn — depending on earnings before interest, tax, depreciation and amortisation and covenant levels. Durand reiterates that there are no plans to take CIVH to the JSE — though having a host of new shareholders on board (following the capital raise) might require a rethink around a listing in the longer term. Remgro executive Pieter Uys says the key message is that CIVH is reinvesting all its cash flows into more infrastructure. “We can tune this investment strategy to the demands of the market.” The increased valuation in CIVH seemed to cause some consternation at the Remgro investor presentation after a markedly bigger headline loss of R197m (R104m previously). However, Durand described the fastexpanding CIVH as generating “very productive losses” — stressing that CIVH was “very cashflow positive on an operating basis”. A breakdown of CIVH’s performance showed revenue growth of 29% to R1.745bn and a 76% jump in operating profits to R523m, representing a margin of almost 30%. The headline losses stem mainly from a higher depreciation charge following from the rapid expansion of the fibre-optic network. CIVH’s fibre network already spans almost 30,000km, with 11,500 mobile base stations connected. The network passes near 690,000 homes and businesses, a large potential market, with 240,000 already connected. There is a reassuringly low customer churn of less than 1%. The vibrant fibre-to-business segment boasts long-term contracts that still, on average, have six years to run. The fibre-to-home offering should see a kicker in the next few years as lower-income households are targeted and with growing demand in bandwidth uptake. Remgro’s second-biggest unlisted position, Siqala, is not quite the rip-roaring growth story that is unfolding at CIVH. But the spreads busi-

ness looks remarkably resilient and is already showing signs of performing better under Remgro’s wing. Siqala made sales of nearly R1.45bn in the interim period (previously R1.4bn), with operating profit up 4.4% to R330m. Headline earnings shifted an impressive 29% to R297m. The overriding question is if Remgro will move Siqala into the hub of its listed consumer brands subsidiary, RCL Foods. Durand says this is not on the cards, even though certain services are already shared with RCL. The issue, the FM suspects, is that reversing Siqala into RCL would be impractical with Remgro already holding 77.5% of the latter company. A deal might only work if RCL minority shareholders are bought out and the company delists from the JSE. In terms of operational span, Siqala would add some bulk to RCL’s higher-margin grocery basket and negate the cyclical influence of commodity-type businesses like sugar and poultry. What is also worth watching, in terms of Remgro’s broader consumer brands offering, is the progress of rooibos tea-based beverage specialist BOS Brands. Remgro’s venture capital arm Invenfin pumped another R56m into BOS Brands recently, bringing the cumulative investment to R379m. Presumably, once BOS Brands reaches sustainable profitability, there is an option to usher this specialist business towards RCL or Remgroaligned liquor group Distell. x

Jannie Durand: CIVH is well capitalised

AIRLINE RETRENCHMENTS

Comair readies for job cuts The plucky airline, which until this year had been profitable since inception, will not escape the looming cash crunch In lockdown Bruce Whitfield

ý Like the economy in which it operates, SA’s aviation sector will emerge from the current economic crisis in a very different shape to what it was a month ago. With no commercial flights permitted anywhere in SA for at least the next three weeks, the full impact is hard to gauge. There are already casualties and more will follow. Bankrupt state-owned carrier SA Express grounded itself more than a week ago, and while the plan was for SAA’s business rescue practitioners to reveal their turnaround strategy for the airline next week, it’s hard to see a future for it. After all, SAA is regarded by many critics as a state-owned vanity project, in an environment where government spending priorities are going to be stretched more thinly than ever before. In the meantime, private-sector competitor Comair is wasting no time in making cutbacks. Hours ahead of President Cyril Ramaphosa’s announcement of SA’s three-week lockdown, and days after announcing the sudden departure of two senior executives, Comair revealed that it was embarking on a significant retrenchment process. How many jobs will be cut is still an open question, amid mounting losses across several of its businesses, which span passenger travel, airport lounges, airline training and catering, among others. “Despite our efforts over the past few months to preserve cash, maintain liquidity, divestment from nonperforming acquisitions, aggressive cost reduction across the group, taking back control of the fleet and unlocking further operational efficiencies, more remains to be done,” said CEO Wrenelle Stander in a statement. The airline said it was implementing section

189 of the Labour Relations Act, which makes provision for redundancies, as part of a financial recovery plan. Investors have known for some time that the airline was facing difficulties. Its first-half results exposed the possibility of it making an annual loss for the first time in its 73-year history. Costs were outstripping revenues and a host of decisions taken in previous years, to improve operating performance and overall growth rates, were now costing the company money. For example, the airline has significantly higher fleet and maintenance costs than in previous years, because it took on the first of eight, now grounded, Boeing 787-800 Max aircraft, as well as five leases for additional 737-800s, as part of its fleet rejuvenation project. As part of that it entered into a cash-lockup programme with Boeing to secure the new aircraft, but these weren’t delivered after two fatal accidents which showed flaws in the Max aircraft design. Comair defended the decision as the right one at the time, as was the move of its maintenance from SAA Technical to Lufthansa Technik Maintenance International. But that transition means it is paying two providers until at least June 2021. In the weeks running up to the lockdown announcement, passenger numbers had slumped, causing the airline to cancel and combine flights as a result of lower demand. But a full stoppage means it will have no income for nearly a month, possibly longer. Few airlines can survive that collapse in cash flow and many carriers around the world are looking to their governments for support. SA carriers are going to find it hard to convince the government they are worth saving. x March 26 - April 1, 2020

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the G spot by Giulietta Talevi

Open the money taps @GTalevi Giulietta@bdtv.co.za

he rand has suffered a relentless beating in the market turmoil of the past few weeks. Economist Mike Schüssler says one way of stabilising the currency would be to introduce a swap line between the US Federal Reserve and SA’s Reserve Bank. We asked him what this would entail. MS: The Bank of England, the European Central Bank (ECB), the Japanese central bank and the Swiss National Bank have permanent swap arrangements and there’s no limit, as far as I know, on them. But then [the Fed] issued a statement, including Brazil, New Zealand, Australia, South Korea, Mexico, Singapore, Denmark and Norway, and they can tap up to a combined total of $450bn using assets in their own country. The rate that [the Fed] is charging on that is 25 basis points — their repo rate if you wish. That would allow the SA Reserve Bank to lend money out at a maximum of 0.5%. And who would it lend to? MS: It could lend it to commercial banks, it could lend the money to importers, the government; but the fact is you would have that money in your economy and you would not be printing it. It’s somebody else printing the money for you. Because the dollar is the world’s reserve currency, it doesn’t influence your situation too much. When it was announced, many of those countries’ currencies went up. Right now SA does not have that much room to fund things that we need to fund, and it would allow the Bank to buy the government’s debt.

The First World could help emerging markets by printing the money for them 50

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What is the significance of this? MS: The First World could help emerging markets by printing the money for them. All the emerging markets have huge debt problems. The fact of the matter is that it would benefit the Americans in that they don’t want too strong a currency, and at the

March 26 - April 1, 2020

moment there’s a surge in dollars. So for them the big thing is, if they print more dollars and make [money] available to many of the emerging markets, it stops the panic in the emerging markets and … that would lower the strength of the dollar. The same would apply to the ECB if they wanted to do that. For emerging markets, we need to buy in supplies and the quantitative easing rounds that we saw overseas [in the aftermath of the global financial crisis] all went into stocks and if there was any jitters, the money flew out of our markets and our bond markets really got hit. So this would help emerging markets strengthen their currencies, lower their bond yields and probably increase their stock markets. And in that process the dollar and the euro would not strengthen too much and make it more difficult for them to export goods and services. There are also other multinational institutions like the World Bank that can lend money and this is to keep trade lines relatively open. Otherwise the Americans also run the risk where emerging markets say to themselves “our currencies are becoming very devalued”, and money will head into, say, the American market, thereby pushing the dollar up into bubble territory, leaving the Americans in a difficult position. The whole developed world will have to think about this. It would help stimulate economic growth in other areas of the world without our own money having to be printed. There’s a difference between [this and] an emerging-market currency being printed nonchalantly. We can’t just print — we’ll import inflation by our currency falling. And it’s not that we’re asking them for dollars in terms of their tax money, it’s that their money supply will expand. It will, in a way, create inflation for the whole world, not just one part. This could give us enough relief till this is over. It doesn’t have to be a permanent arrangement.

Moody’s is scheduled to swing the junk status axe this Friday. Given what has happened to markets, does it even matter anymore if we’re downgraded? MS: If we get downgraded — and it sounds crazy — but that might actually help our bond market by putting an end to the uncertainty. Everything is now over the top and after the downgrade, people will see we’re still here and we will make up some ground, I think. Then we can start working with the uncertainties of this virus. We know it’s going to be bad but compared to everything else, the downgrade is minimal. Do you think SA’s economy will be shattered by this Covid-19-induced shutdown? MS: There’s no doubt that our corporates have a lower debt level than those of most other emerging-market countries. Their average is about 90%; we’re at 40%, of which half is state-owned enterprises and half is Eskom. If we look at consumer debt it’s very low. We’ve [just] got to get growth back. x

Mike Schüssler Russell Roberts

investor’s notebook by Stephen Cranston

Riding Motsepe’s wave

I @scranston

Through ARC, the consortium has redeployed some of the wealth from its Sanlam holdings

t sometimes seems as though African Rainbow Capital (ARC) contains such a disparate range of assets that it was named after Noah’s Ark. What do potash miner Kropz, an installer of fibre headed by ex-Absa boss Steve Booysen, mineral supplier Afrimat and digital-only bank TymeBank have in common, apart from being part of ARC? But ARC shouldn’t be seen as a would-be conglomerate in the vein of the old Barlow Rand or Malbak, or black investment companies such as Thebe and Kagiso. The chair, billionaire Patrice Motsepe, knows that most of its beneficiaries in the controlling Ubuntu-Botho consortium need to diversify assets. So, through ARC, the consortium has redeployed some of the wealth accumulated from its Sanlam holdings. The largest investment so far has been in the rain telecoms business, which is building an LTE-advanced network. It has already caused a stir in the industry with its uncapped data packages, though with restrictions which mean that only insomniacs get the full benefit. But it is milking the increased demand for home-based data. TymeBank is playing a similar disruptive role with fees of just a few rands a month for most clients. No fewer than 1.1-million people have opened accounts; there are 440,000 active accounts and at least 3,500 new clients join every day. Where possible, Sanlam discourages ARC from setting up direct competitors to the Bellville behemoth. However, there is African Rainbow Life (ARL), which, in spite of its name, is a Sanlam subsidiary; ARC and ARL management are the other shareholders. But this was a highly opportunistic move: there was a walkout from Old Mutual headed by Bongani Madikiza, an expert in work-

place marketing (sales presentations to employees), where Sanlam is weak. There are a lot of conspiracy theories around Alexander Forbes. Since US consulting firm Mercer disinvested, ARC has become the largest shareholder in Forbes. And here, it competes with Sanlam: for example, both offer pension administration. Some say ARC co-CEO (and Sanlam chair) Johan van Zyl is working with Sanlam CEO Ian Kirk to merge the Forbes and Sanlam administration businesses. But Forbes can only prosper as an independent, nonaligned business. ARC co-CEO Johan van der Merwe says that in current market conditions the group will focus inwards. The exception will be the investment into Sanlam Investment Management, in its present form or after a merger, perhaps with Absa Asset Management. Van der Merwe says that the prices of asset managers — using Coronation and Ninety One as proxies — are now quite reasonable, so it looks forward to an earningsenhancing deal.

Like many of these investment companies, ARC trades at a hefty discount. Its market cap of about R2.4bn is barely a quarter of its NAV. But Van der Merwe says it won’t need scrip for acquisitions as it has R500m in cash and a further R1bn in debt facilities. Still, if ARC follows the example of similar businesses, it will come under pressure to realise value — perhaps by listing its largest assets and in due course by selling the rump and closing the head office. ARC could live longer because of Motsepe’s patient approach, however, and most of the other members of the Ubuntu-Botho consortium are likely to follow his lead. Their wealth will grow so long as Sanlam continues to pay dividends. ARC already has two potential hits in TymeBank and rain. Shareholders should stay for the ride. x

123RF/1enchik

CASHING OUT/ GROWTHPOINT TO OFFER INTERIM DIVIDEND IN FULL CASH RATHER THAN SCRIP AFTER STOCKS DIVE March 26 - April 1, 2020

financialmail.co.za

market watch by Marc Hasenfuss

I think it’s prudent to withdraw my proposition to the tennis club that we form an investment club and buy the $h!t out of Sasol when it hits R20 52

financialmail.co.za

Reits rout

lague diary — week one: it’s abundantly clear that it won’t be business as usual for the foreseeable future. The penny dropped when sickly events prompted the closure of the Fish Hoek Tennis Club, shutting off my safe space for weird and wonderful off-court banter. Unable to vent freely after hours, I may as well detail my trading endeavours which — if the HRI (Hasenfuss Reverse Indicator) still works — could be useful for other investors to assess the petrified confusion that characterises the market at present. Do the opposite of what I do, and you’ll generally be OK … if history is anything to go by. I’ve seen several market corrections, and should be an old hand. This one, in my experience, is by far the most ominous, and it’s not easy to apply the old market adage that share prices will always recover. There is a mildly apocalyptic feeling to proceedings. Still, one must keep perspective. Here I am worrying about the market, and my wife is celebrating that a strict lockdown might preclude the clerk of the court delivering summons for her speeding fine. This would be a pity, because I remain bewildered about how it’s even possible to get a Honda Jazz past 120km/h. An even greater mystery is the length and severity of the current market malaise. At times it looks like we could talk ourselves into a deep hole as overriding uncertainty is fanned vigorously by the relentless chatter on social media. It’s incredible how sentiment for our beloved oil-from-coal producer Sasol, for instance, seems to waft back and forth so easily because of idle opinionmaking. But I still think it’s prudent to withdraw my earlier proposition to the tennis club’s “Monday Marauders” that we form an investment club and buy the $h!t out of Sasol when it hits R20. We probably should reconfigure that proposition for a hit at R10. But seriously, I have taken a nasty loss exiting some of my favourite positions – including Hosken Consolidated Invest-

March 26 - April 1, 2020

ments, where the debt-to-equity ratio no longer provides me with comfort, owing to a plunging Tsogo Sun share price. I’ll hopefully get an opportunity to buy back in when the first signs that we are dealing effectively with Covid-19 outbreak are evident. I probably would have skipped out of Brimstone (with its exposure to randhedged fishing companies like Sea Harvest and Oceana) as well as Premier Fishing & Brands, but no-one is offering realistic bids. What did provide me with some hope for at least trading through this crisis was a scintillating short-term return (practically a few days) on global heavyweights AB InBev and cash-flush luxury brands business Richemont. Clearly the market opinion can differ vastly on such businesses in just a few days. Nevertheless, I was delighted to cash out and store up my war chest in preparation for another despairing skirmish on the markets. British American Tobacco, on the other hand, has been less than convincing. But I retain my holding, firm in my belief that long-held bad habits will not be broken despite heightened health consciousness. I’m a little shy of local stocks at the moment. But I have been accumulating Adcock Ingram (a wellrun pharma business at a good valuation) and newly listed asset manager Ninety One. Ninety One will hopefully become legend, spoken about with relish in years to come: a lesson about a great business listed in the worst of times. I have taken a light position in property giant Growthpoint — finding some reassurance in the enduring quality of the 50%-owned V&A Waterfront and a decent offshore portfolio. I tried to hold my nerve in Redefine, but I capitulated at about 210c last week and, in retrospect, am fairly happy with the outcome. I’m also building offshore positions — via deeply discounted Reinet as well as exchange traded funds like Sygnia Itrix 4th IR, Satrix Nasdaq and Coreshare Global DivTrax. And yes, I have NewGold and NewWave USD — in case you doubt how jittery I am. x

Real estate investment trusts are playing a prominent role in the current market turmoil, dumping their holdings in response to margin calls by their banks. Mortgage Reits entered the coronavirus crisis owning an estimated $500bn of bonds backed by property loans. “The Reits are at the absolute epicentre of this crisis, given that their business requires leverage,” says Matthew Howlett, Reits analyst at Nomura. Financial Times

123RF/Tsung-Lin Wu

@marchasenfuss

In the trenches

GLOBAL MARKETS

ROILED The falling value of mortgage bonds, driven down by the rush for cash and worries about defaults as the Covid-19 pandemic leaves homeowners unemployed, has pushed US Reits past their leverage limits

Crunch time Business activity has crashed to a record low in the eurozone as the Covid-19 pandemic fuels a global economic crisis, according to a closely watched survey. The IHS Markit flash composite purchasing managers’ index for the eurozone plunged to 31.4 in March from 51.6 in the previous month. This is the lowest reading since the series began in the late 1990s. IHS Markit says it is “indicative of an 8% annualised decline in eurozone GDP and it is unlikely that the index has hit rock bottom yet”. Financial Times

economic indicators AFRICA TOP STOCKS (EXCL SA) Maroc Telecom Safaricom Attijariwafa Commercial Intl

ECONOMIC INDICATORS

Country

Market Cap ($000s)

Price Total Return Ytd

Morocco

11,334.94

126.65

-17.22

Kenya

9,254.55

24.60

-21.90

Morocco

8,473.44

396.60

-20.52

Egypt

6,062.69

65.00

-21.71

INTEREST RATES

Latest

Month ago

Mar 20

Inflation (% change y/y) 4.6

4.5

Prime

8.75

9.75

Producer price index

Jan

4.6

3.4

NCD*

6.48

6.63

7.23

Repo

5.25

6.25

6.75

Jibar*

5.56

6.55

7.15

Safex†

6.34

6.73

Credit Aggregates (% change y/y)

Nigeria

5,805.96

129.70

-8.66

Morocco

4,612.37

224.00

-19.28

Vodafone Egypt

Egypt

2,338.67

153.48

137.29

Morocco

2,044.34

1,391.00

-16.20

Industry (% change y/y)

Nigeria

1,769.93

850.00

-42.17

New passenger car sales

Feb

7.6

-5.1

Egypt

1,725.66

12.08

-22.46

New commercial vehicle sales

Feb

-14.9

Morocco

1,640.12

170.50

-22.11

Retail sales

Jan

1.2

-0.5

Nigeria

1,295.01

16.75

-35.90

Wholesale sales

Jan

1.9

2.5

Kenya

1,264.98

35.70

-33.27

Manufacturing production

Jan

-2.0

-5.9

Morocco

1,244.64

3,493.00

-10.44

Mining production

Jan

7.5

0.1

Eastern Co SAE Cosumar Guaranty Trust Equity Group Holdings Wafa Assurance

Claims on the domestic pvte sector

Jan

5.01

6.12

Total loans and advances

Jan

4.80

5.58

Total domestic credit extension

Jan

4.38

5.57

Mineral sales

Jan

24.2

-5.3

Jan

103.28

88.97

Exports

Jan

101.41

102.86

Trade balance

Jan

-1.87

13.89

6.36

Trade (Rbn) Imports

DIVIDENDS & DISTRIBUTIONS F Final I Interim

Company

Amount (c)

Trade by

Payable

Gold reserves

Feb

6.53

25.00

Apr 6

Apr 14

SDR holdings

Feb

2.46

2.47

Metair Investments

120.00

Apr 14

Apr 20

Forex reserves

Feb

45.72

45.78

Remgro

215.00

Apr 14

Apr 20

Gross reserves

Feb

54.71

54.61

Sasfin Holdings

48.73

Mar 31

Apr 6

Net reserves

Feb

45.36

45.15

COMMODITY PRICES Week ago

Year ago

EXCHANGE RATES

12-mth low 12-mth high

Precious metals ($/oz) Gold

* 3 months

† Overnight rate

Bond yields (%) Mar 20

Year ago

8.210

7.935

8.735

R213

11.930

9.070

9.405

R208

4.900

6.365

7.085

R209

12.490

9.740

9.660

Mar 20

Month ago

Year ago

12-mth low 12-mth high

INSPIRED THINKING

Developed Markets — Rand per foreign currency unit 1,530

1,305

1,271

1,687

US dollar

17.61

15.11

14.48

13.87

17.61

613

763

860

602

1,028

Euro

18.79

16.30

16.44

15.49

18.79

Palladium

1,643

1,813

1,600

1,304

2,774

UK pound

20.48

19.46

19.18

17.22

20.92

Silver

12.62

14.72

15.32

12.00

19.29

Japan yen (100)

15.87

13.47

12.99

12.44

15.88

Canada dollar

12.24

11.39

10.86

10.45

12.24

Aluminium

1,559

1,662

1,913

1,559

1,913

Best Fixed Income and Forex House 3rd Consecutive Year

Copper

4,805

5,448

6,484

4,730

6,537

Base Metals ($/t)

Switzerland franc Australia dollar Nickel

11,155

12,271

13,121

11,155

18,153

Lead

1,643

1,735

2,024

1,603

2,286

13,980

15,933

21,420

13,578

21,524

Tin

Month ago

R186

1,499

Platinum

10.25

Gold & Forex Reserves ($bn)

Libstar Holdings

Mar 20

Year ago

Feb

Banque Centrale

Nestlé Nigeria

Month ago

Consumer price index

Dangote Cement

Ciments du Maroc

Short-term interest rates (%)

1010508/FMCB

Company

Zinc

1,845

1,972

2,897

1,828

3,031

Iron Ore

83.01

83.24

81.03

76.24

118.96

Energy

17.83

15.36

14.50

13.81

17.83

10.20

10.01

10.27

9.70

10.56

Brazil real

0.29

0.28

0.26

0.25

0.30

China yuan

0.40

0.46

0.40

0.50

India rupee

4.33

4.74

4.75

4.33

5.10

Russia ruble

4.53

4.22

4.44

4.22

4.68

0.25

0.27

0.28

0.25

0.29

25.72

33.55

68.05

24.56

73.89

Malaysia ringgit

Coal ($/t)

63.50

65.20

76.75

58.50

91.00

Thailand baht

1.88

2.08

2.19

1.87

2.28

Botswana pula

0.69

0.73

0.68

0.76

White maize

3,206

2,953

2,851

Yellow maize Wheat

2,732

2,591

5,211

4,982

Sunflower

5,558

Soya

6,552

2019 SPIRE AWARDS

Best Forex House

4th Consecutive Year

Developing Markets — Foreign currency unit per rand

Brent ($/bbl)

Agriculture (R/t)

2019 SPIRE AWARDS

2,457

3,206

2,705

2,417

2,982

4,631

4,347

5,211

5,550

5,284

4,835

5,997

Economist: Global Markets Research,

6,300

4,810

4,479

6,552

Rand Merchant Bank (tel) +27 11 282-1040 or e-mail: Mpho.Tsebe@rmb.co.za

The information in the commodities column is provided by Mpho Tsebe,

RMB. Solutionist Thinking.

CELEBRATING OUR PARTNERSHIP WITH OUR VALUED CLIENTS AT THE 2019 JSE SPIRE AWARDS. Clients are at the heart of our business, which is why we are honoured to have been recognised at the 2019 JSE Spire Awards – the benchmark for the South African Capital Markets. Our Solutionist Thinking is not only what sets us apart, it’s what inspires us to consistently deliver innovative solutions for our valued clients.

Corporate and Investment Banking

Search RMB Awards Rand Merchant Bank is an Authorised Financial Services and Credit Provider.

March 26 - April 1, 2020

financialmail.co.za

jse top stocks COMPANY

CLOSING PRICE (MONDAY) (C)

PROSUS NV ANHEUSER-BUSCH INBEV BHP GROUP PLC BRIT AMER TOBACCO NASPERS LTD-N GLENCORE PLC ANGLO AMER PLC VODACOM GROUP FIRSTRAND LTD ANGLO AMERICAN PLATINUM STANDARD BANK GROUP MONDI PLC ANGLOGOLD ASHANTI CAPITEC BANK HOLD SANLAM LTD SOUTH32 LTD KUMBA IRON ORE GOLD FIELDS LTD BID CORP LTD SHOPRITE HLDGS ABSA GROUP LTD CLICKS GROUP LTD MTN GROUP LTD BIDVEST GROUP SIBANYE-STILLWATER OLD MUTUAL LTD IMPALA PLATINUM ASPEN PHARMACARE MEDICLINIC INTL PLC ASSORE LTD MULTICHOICE GROUP QUILTER PLC DISCOVERY LTD NEDBANK GROUP PEPKOR HOLDINGS SPAR GRP LTD/THE NEPI ROCKCASTLE GROWTHPOINT PROP TIGER BRANDS LTD PICK N PAY STORES EXXARO RESOURCES MR PRICE GROUP NORTHAM PLATINUM INVESTEC PLC WOOLWORTHS HLDGS LIFE HEALTHCARE AVI LTD PIONEER FOOD GROUP DIS-CHEM PHARMACIES HARMONY GOLD MNG AFRICAN RAINBOW MINERALS VIVO ENERGY PLC NETCARE LTD LIBERTY HLDGS TFG FORTRESS REIT LT A FORTRESS REIT LT B BARLOWORLD LTD SASOL LTD RESILIENT REIT TRUWORTHS INTL SAPPI LTD RCL FOODS LTD/SO REDEFINE PROPERTIES ASTRAL FOODS LTD EQUITES PROPERTY TELKOM SA SOC LT OCEANA GROUP LTD MOTUS HOLDINGS

financialmail.co.za

104,427 74,900 22,634 49,800 214,486 2,375 21,888 11,666 3,390 55,650 8,911 24,800 27,754 92,400 4,544 1,729 25,196 8,014 19,481 10,787 7,481 22,953 2,948 14,900 1,857 997 5,550 9,606 5,596 28,800 8,890 2,079 5,815 7,525 1,014 17,735 5,782 1,087 16,932 6,000 7,888 10,375 5,500 2,673 2,558 1,738 7,191 10,991 2,507 3,745 8,747 1,400 1,218 6,071 6,840 1,135 225 6,396 2,188 3,206 2,738 1,915 999 162 19,112 1,335 1,486 5,000 3,449

Market Cap — Global market capitalisation. YTD — year to date. EPS — Earnings per share. Trailing EPS — EPS at the time of the most recent annual results presentation. Est. forward EPS — EPS as estimated by analysts at the time of the next annual results presentation. * — SA companies quoted in rand, otherwise in reporting currency. Div Yield — Dividend yield as at most recent annual results. Forward Div Yield — Dividend yield as at next annual results. Three-year average RoE — three-year average return on equity. Forward RoE — Return on equity as at next annual results.

MARKET CAP SHARE (Rm) PRICE RET. YTD (%)

1,757,241 1,512,412 1,291,934 1,142,504 939,927 316,452 273,704 214,172 190,162 150,048 144,332 117,205 115,899 106,839 106,481 84,363 81,153 70,790 65,340 63,788 63,420 57,285 55,548 50,701 49,675 46,944 44,346 43,847 41,256 40,207 39,339 39,094 38,280 37,729 35,367 34,158 33,873 32,855 32,140 29,607 28,295 28,063 28,038 27,153 26,822 25,503 24,150 23,343 21,562 20,323 19,429 17,725 17,528 17,375 16,194 15,984 15,984 14,025 13,697 12,828 12,128 10,495 9,580 9,385 8,203 7,973 7,596 6,776 6,648

March 26 - April 1, 2020

-0.92 -35.17 -28.95 -16.63 -6.37 -45.25 -43.78 1.18 -46.02 -55.85 -47.06 -23.99 -11.84 -36.11 -42.55 -33.9 -35.84 -15.62 -41 -13.17 -49.89 -9.44 -64.26 -27.24 -48.26 -49.29 -60.49 -19.43 -27.48 8.26 -23.69 -29.04 -51.12 -64.89 -43.19 -10.21 -51.37 -50.84 -17.97 -6.09 -39.85 -43.15 -55.51 -59.33 -46.04 -29.49 -19.18 2.06 -5.4 -26.86 -43.54 -38.78 -35.43 -45.13 -54.24 -41.07 -71.88 -40.32 -92.79 -50.64 -41.06 -56.15 -9.59 -78.57 -10.2 -33.25 -57.32 -18.77 -57.78

TRAILING EST. EPS (*) FORWARD EPS (*)

NA 4.54 1.86 2.49 10.93 -0.03 2.76 9.34 5.5 70.18 15.85 1.68 -0.03 49.84 3.42 -0.03 50.49 0.19 13.48 5.9 17.15 6.72 4.91 9.35 0.01 2.04 3 13.48 0.17 49.38 -1.2 0.08 9.57 24.62 0.62 11.19 0.71 2.08 24.53 3.03 32.88 10.64 3.63 0.48 -1.48 1.75 5.94 4.8 0.65 -2.64 22.34 0.11 1.75 11.14 11.6 1.39 1.39 11.47 -10.4 13.84 2.05 0.27 -0.18 0.62 16.58 1.9 4.53 4.86 9.72

2.69 3.72 1.71 3.41 7.72 0.17 2.47 10.08 5.48 115.56 19.28 1.51 2.09 67.12 5.38 0.12 39.56 0.52 16.23 7.26 20.55 8.03 7.27 14.75 9.14 2.4 28.57 14.37 0.28 42.17 8.34 0.08 8.7 28.15 1.18 12.47 0.6 NA 13.56 3.37 22.95 12 14.09 0.56 3.3 1.63 5.36 6.43 1 9.98 25.11 0.14 1.77 13.27 12.68 1.6 1.5 11.25 15.45 6.09 5.82 0.31 0.89 0.96 24.2 1.74 4.59 6.05 10.54

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

NA 4.29 11.19 12.94 NA 15.38 8.64 6.81 8.79 1.98 11.15 6.53 0 2.03 7.35 3.69 18.57 2.38 3.39 2.96 15.04 1.94 18.66 4.03 0 12.04 0 0 2.91 7.29 NA 3.43 3.7 18.8 NA 4.19 18.49 20.08 6.27 3.91 7.18 7.1 0 19.02 7.33 3.05 5.7 2.95 1.36 0 11.43 3.47 9.11 11.73 11.48 13.93 13.93 7.54 79.25 16.7 14.02 0 2.5 62.35 4.71 10.84 25.18 7.26 NA

0.14 4.77 9.04 9.14 0.45 12.89 8.09 7.18 9.5 9.31 12.13 6 1.53 2.78 7.82 5.68 13.13 3.45 3.8 3.24 16.15 2.34 21.28 4.38 14.94 13.18 16.49 3.41 2.97 6.47 7.23 5.22 4.06 20.02 3.91 4.9 19.32 20.58 4.74 4.13 16.61 7.55 NA 19.43 7.11 6.67 5.98 3.61 1.66 0.91 14.72 5.2 9.76 13.17 12.22 17.35 92.73 7.28 38.45 18.07 14.21 3.01 2.97 55.97 7.01 12.18 16.46 8.44 14.13

3-YEAR FORWARD AVERAGE ROE (%) ROE (%)

NA 10.19 12.49 42.37 37.51 6.16 14.99 21.69 23.76 18.16 15.6 21.18 -0.86 26.59 16.16 7.78 37.45 -2.17 15.66 19.15 13.12 39.65 8.29 17.27 -10.74 NA -9.61 12.23 -3.84 20.69 NA NA 15.23 14.38 NA 28.76 NA 8.74 19.03 47.79 19.5 38.99 0.35 10.96 -2.25 11.82 36.11 10.91 55.97 -8.62 15.68 NA 24.39 12.58 19.74 0.92 0.92 12.35 4.52 4.16 20.35 15.01 4.77 8.06 29.18 12.98 10.18 15.3 NA

11.7 10 17.32 11.56 10.8 3.32 11.51 21.88 21.08 40.62 17.16 17.16 22.66 27.23 15.37 4.75 33.14 15.31 17.07 15.74 15.3 36.77 14.66 19.97 51.29 13.88 30.8 10.2 6.07 12.19 28.89 8.19 11.04 14.99 6.72 29.53 12 9.57 13.52 45.52 16.78 31.95 39.78 11.52 36.01 13.89 34.39 13.27 30.72 18.05 14.83 20.47 23.64 13.73 18.98 NA 15.46 9.65 5.09 11.33 27.28 7.59 6.55 9.74 23.41 NA 7.61 14.52 15.76

P:E FORWARD P:E

NA 9.51 6.84 9.54 22.47 NA 4.5 12.37 6.66 7.85 5.04 7.59 17.27 18.52 13.14 NA 4.97 22.7 13.38 16.03 4.27 33.56 6.39 11.58 NA 4.79 10.11 5.35 15.85 5.33 NA NA 6.06 2.89 10.32 15.71 3.89 4.13 12.8 19.1 2.61 9.28 15.15 2.62 7.63 19.59 14.28 21.5 38.75 8.67 3.26 7.22 7.11 0.53 5.66 8.32 8.32 7.37 1.65 5.37 4.84 3.29 27.45 4.1 11.42 8.8 2.95 9.19 3.26

21.94 11.41 7.5 7.16 15.74 8.07 5.02 11.57 6.18 4.81 4.62 8.64 7.53 13.76 8.44 8.43 6.37 8.66 12 14.85 3.64 28.57 4.05 10.1 2.03 4.15 1.94 6.68 9.71 6.83 10.65 12.09 6.68 2.67 8.56 14.21 5.11 NA 12.48 17.79 3.44 8.64 3.9 2.34 7.74 10.66 13.42 17.07 25.02 3.75 3.49 5.86 6.88 4.58 5.4 7.08 1.5 5.69 1.41 5.27 4.7 3.48 11.25 1.68 7.89 7.66 3.24 8.26 3.27

TOTAL SELL

TOTAL HOLD

TOTAL BUY

0 3 2 1 0 1 1 5 2 2 0 1 2 1 0 0 8 0 1 4 0 4 1 0 0 0 1 2 1 2 0 1 1 3 0 0 0 1 6 3 0 4 0 0 3 1 2 0 1 0 0 0 0 1 1 2 2 5 1 0 2 1 3 1 0 1 1 0 2

1 14 15 5 0 6 12 3 7 6 4 4 4 8 3 9 1 7 2 3 5 4 3 4 1 4 2 4 6 2 2 1 1 3 3 7 0 3 4 4 1 3 1 1 4 5 3 7 4 3 4 0 5 2 4 3 0 2 4 3 4 3 0 6 2 1 7 1 2

13 17 10 17 14 17 11 5 4 1 9 11 4 2 1 12 3 4 4 4 7 1 8 6 6 2 6 4 4 1 6 8 2 7 3 4 5 3 1 4 9 4 7 4 5 3 5 0 4 3 5 9 4 1 6 0 2 4 5 3 5 5 1 1 3 3 4 4 2

jse top stocks COMPANY

CLOSING PRICE (MONDAY) (C)

SUPER GROUP LTD ROYAL BAFOKENG PLAT VUKILE PROPERTY MASSMART HLDGS ECHO POLSKA PROP HYPROP INVESTMENTS IMPERIAL LOGISTICS LIBSTAR HOLDINGS EMIRA PROPERTY FUND KAP INDUSTRIAL THARISA PLC RFG HOLDINGS LTD SA CORPORATE REAL EST MPACT LTD MERAFE RESOURCES NAMPAK LTD

zar x exchange DALE CAPITAL GROUP LIMITED RUNWAY PROPERTY GROUP LIMITED SENWES LIMITED

1,645 2,375 630 2,563 581 2,000 2,511 630 675 127 1,130 1,150 115 875 30 100

P:e — Price:earnings ratio as at recent annual results. Forward P:e — Price:earnings ratio at next annual results. Tot Sell/Hold/Buy — number of buy, hold, and sell recommendations. Sum of sells, holds and buys — number of analysts following company. All information provided by Bloomberg and Bloomberg sources. The FM undertakes to transmit the information as accurately as possible and is confident it is correct, but is not able to warrant its accuracy. Companies not being tracked by analysts will not appear in the above listing, market capitalisation notwithstanding.

MARKET CAP SHARE (Rm) PRICE RET. YTD (%)

6,111 6,110 6,024 5,617 5,275 5,118 5,053 3,836 3,528 3,311 3,051 3,022 2,910 1,516 753 690

TRAILING EST. EPS (*) FORWARD EPS (*)

-42.16 -52.14 -67.53 -50.06 -66.12 -64.32 -54.37 -17 -45.3 -69.76 -28.25 -21.6 -62.42 -41.28 -65.12 -85.36

3.26 0.05 1.84 -4 0.07 0.65 -10.15 0.47 1.55 0.37 0.04 0.83 0.09 -4.81 -0.54 -1.33

3.59 9.41 1.94 -0.58 0.12 6.47 6.62 0.89 1.53 0.47 0.19 1.17 0.39 2.42 0.14 1.21

PREVIOUS CLOSE

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

0 0 29.24 0 0 38.29 10.99 3.97 NA NA 3.91 1.77 33.08 4.8 13.33 0

CLOSING PRICE

NA 4.67 31.07 0.23 39.2 30.5 11.99 4.42 22.58 14.21 7.36 3.37 33.7 9.06 49.47 16.93

CHANGE

3-YEAR FORWARD AVERAGE ROE (%) ROE (%)

12.04 -1.76 11.69 7.76 NA 7.38 14.05 4.65 NA 11.13 13.48 9.79 6.87 -2.18 0.95 -0.46

VOLUME

10.97 13.82 10.98 -3.48 12 7.8 15.23 9.35 NA 9.82 19.17 11.27 NA NA 7.81 7.3

VALUE

P:E FORWARD P:E

4.66 47.12 4.5 NA 4.12 8.95 NA 11.31 4.78 3.07 12.8 13.69 3.31 4.71 NA NA

MARKET CAP (R000)

4.59 2.52 3.26 NA 2.55 3.09 3.79 7.06 4.42 2.68 3.32 9.86 2.97 3.62 2.15 0.83

YEAR HIGH

TOTAL SELL

TOTAL HOLD

TOTAL BUY

1 1 1 3 0 1 0 0 1 1 0 0 1 0 0 2

2 0 1 2 1 4 3 1 1 3 2 3 1 1 0 1

4 6 4 2 3 2 5 4 3 3 5 4 2 3 4 2

ISSUED SHARES

LAST BID

LAST OFFER

YEAR LOW

TRADE DATE

202,040,920

0.00

0.88

0.00

177,796

0.90

0.80

23/03/2020

47,995,092

0.00

10.00

0.00

479,950

10.00

23/03/2020

180,789,308

12.40

13.08

12.50

13.00

0.50

108,563

1,410,762

2,350,261

13.10

6.50

23/03/2020

TWK INVESTMENTS LIMITED

35,100,993

0.00

29.60

30.60

29.60

(1.00)

2,000

59,200

1,038,989

30.90

12.33

23/03/2020

SENWESBEL LIMITED

116,091,853

4.15

4.50

0.00

522,413

6.00

3.70

23/03/2020

2,010,500

0.00

1.10

1.01

0.00

2,030

1.10

1.00

23/03/2020

TRANSFORMATION INVESTMENT PORTFOLIO LIMITED

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March 26 - April 1, 2020

financialmail.co.za

adfocus coronavirus fallout

ADSPEND FALLS VICTIM TOO Expect spending on advertising to slow in the next six months, agency heads say, as companies slash their marketing budgets to compensate for lost revenue brought on by the Covid-19 pandemic

James Barty

Robyn de Villiers

Jeremy Maggs jmaggs@iafrica.com

SA’s advertising and communications industry has gone into high alert over the Covid-19 pandemic. Many people in the sector are saying revenue in the normally busy second quarter will be reduced, and this will have a serious knock-on effect for the rest of the year. James Barty, founder of the King James Group, which has Pick n Pay on its books, says: “We expect to see shifts in [places] where spend is deployed — perhaps an upweighting of digital channels.” And he says there is already a change in health information messages, with specific campaigns set to deal with the outbreak of Covid-19. Barty believes the impact on the bottom line will be client and category dependent. “I think recessionary measures have to a large degree been factored into planning, and our agency environment is already operating under austerity. The added impact of the coronavirus on some clients will be felt only in time.” Other agency heads agree the industry should expect change. Robyn de Villiers, chair of reputation management agency BCW Africa, says: “Many years of working in SA and across Africa [have shown] times of uncertainty often lead to delays in the decision to invest in communications, or to cancellations. But this is an unprecedented time; ongoing communication is needed now more than ever before.” Kgaugelo Maphai, MD of the Joburg office at The MediaShop, which has Shoprite Checkers and Tiger Brands on its books, says companies will be affected in different ways. “Most clients are dealing with the impact on sales, so it’s positive for food retailers. But for 56

financialmail.co.za

March 26 - April 1, 2020

Kgaugelo Maphai

others — especially those dependent on products from China — it’s not too good,” he says. He expects adspend to shrink in some categories but says it’s too early to say what the effect will be on media agencies’ collective bottom line. Andrew Fradd, MD of Mortimer Harvey, which works with Absa and Vodacom Business, says talks with clients relate to reduced spending on planned activities. “The intent remains to ensure business continuity and sustained and relevant communications … we now have to understand the effect that working from home has on overheads and expenses.” Chris Botha, MD of Park Advertising, says: “Marketing spend is often a symptom of business revenue. Revenue is down; therefore less money will be spent on advertising. Expect adspend to slow down over the next six months and expect businesses to adjust marketing spend to compensate for lost revenue. We have already had global clients cut back local spend because of the impact of lost sales in China. “Media owners will be making less money. The result? Either more discounts or severe margin protection as clients look to cut spend. Relationships between media owners, media agencies and clients will be tested at the negotiation tables.” Botha expects cinemas to take a beating because of crowd restrictions, and that audience sizes will plummet. He believes that the use of WhatsApp as a news and business tool will continue to grow. “While WhatsApp doesn’t take advertising, it does inform data for Facebook and

Chris Botha

Instagram, so what these platforms know about you will grow as you use them more,” he says. He also foresees a drop in the audience for roadside out-of-home advertising, with fewer people on the road. Radio listenership in cars, he believes, will decrease as working from home becomes the new short-term norm. This, he says, will affect adspend in the medium term. Stuart Lee of the Famous Faces speaker booking agency says there has been a notable drop in conference activity, but in the form of a series of postponements rather than outright cancellations. Lee urges companies to embrace technology in the conference space. “Technology’s surge is unstoppable and with it the opportunity for experts and audiences to interact. It’s also much more cost effective.” Globally the ad industry’s losses could tally up to $26bn as companies slash marketing budgets, says US ad industry analyst Michael Nathanson of MoffettNathanson. That is almost an 11% decline. However, he says there might be a small upside of television benefiting in the short term as people stay home and watch news and streaming programmes. Publicis Groupe’s Zenith media agency says it will lower its December prediction of a 4.3% rise in global ad spending this year, due to Covid-19. Adspend by major brands in China has dwindled significantly in the wake of the outbreak and could be a sign of what’s to come in the rest of the world. The eMarketer data and research agency has slashed its China adspend forecast by 6.2%. The rate of adspend growth is expected to be the lowest since 2011. x

life

LITTLIES LISTENING

123RF/Martin Malchev

ý Amazon’s audio book service Audible has made a selection of kids’ books available free while schools across the world are closed. Children (and kids at heart) can listen to a range of stories that range from those for the youngest ears to classics like Jane Eyre. Go to audible.com

A look at how to spend your downtime — from music, to sport, books, the theatre and the screen SPORT

READ BETWEEN THE LINE-OUTS What does it take to write a good rugby book? Eddie Jones and Donald McRae show how it’s done Archie Henderson

ý No live sport to watch, diminishing opportunities to play (unless you’re a golfer or a lonely long-distance runner). How about reading about it? There are some good old books on sport in our libraries and some excellent new ones recently published. One of the latter is the Eddie Jones biography, written by South African Donald McRae. It’s the best sports book, let alone rugby book, in a while and Jones is a publicist’s dream. The Aussie, who’s been coaching England’s rugby team for the past four years, is seldom out of the spotlight. In recent weeks he’s been in trouble for criticising a Six Nations referee and now he’s pushing for the Tokyo Olympics to go ahead when everyone except the International Olympic Committee, it seems, wants them postponed. The people at Pan Macmillan must be rubbing their hands as they watch Jones going about his business. Every match, every training session is another piece of publicity that money couldn’t buy. Robin Harvie, Pan Macmillan’s publisher of Eddie Jones: My Life and Rugby, believes the book could have reached 500,000 sales had Jones and England prevailed in Yokohama. A few weeks ago it was almost up to about 200,000 and continues to sell. It was timed for the Rugby World Cup, but it will never be out of date because every tournament has its

own literature. There is the daily bitsand-pieces reporting, forgettable and quickly forgotten, followed in rare instances by something longer-lasting, memorable, and also marketable. The Jones book is that. Last year’s Rugby World Cup generated a variety of biographies, from a shallow potboiler on Springbok captain Siya Kolisi to the three-year project on Jones. There was a collection of interviews with Springboks past; a reporter’s travelogue; dark and dry humour from Doddie Weir, the former Scottish lock now diagnosed with motor neuron disease; and Clive Woodward, England’s 2003 World Cup-winning coach, espousing his usual theories on “philosophy and principles of leadership”. None has proved as successful as In Black and White, Craig Ray’s biography of Springbok coach Jake White after the 2007 Rugby World Cup. The first print order of 50,000 sold in a week. In the end it sold 220,000, an SA record bestseller. SA publishers held back on the 2019 World Cup because the risks were enormous. Some hoped to ride on the World Cup’s coat tails. “We all put our toes in,” says Jeremy Boraine, publishing director at Jonathan Ball, which produced the Kolisi book. Others brought out biographies of Tendai “Beast” Mtawarira, one of the March 26 - April 1, 2020

financialmail.co.za

Most of the book is in the conventional past tense, but key matches are told in the present. It’s like Hilary Mantel writing rugby

Gallo Images/AFP/Malcolm Mackenzie

2019 Springbok heroes; James Dalton, a tragic hero of 1995; Warren Gatland, who will coach the British & Irish Lions in SA next year; and All Black Brothers, hoping to capitalise on the three Barretts who are the latest of 39 sets of siblings to play rugby for New Zealand.

123RF/Jam es Heywor th

Making history Twelve years ago, Struik publishers (now Penguin Random House) took a chance with the White biography. Author Ray remembers the first production meeting in 2006, soon after the Boks had lost twice to Australia, including a 49-0 drubbing in Brisbane, and when White’s future was in doubt. “They wanted the manuscript by June 2007, to be in time for Christmas,” says Ray. Both author and subject balked; the book needed to include the Rugby World Cup, they insisted. What if the Boks didn’t make it to the final, the publishers asked. Left unsaid was

whether White would even be there. “Jake told them the final would be on October 20. ‘We’ll be there,’ he told them. “‘We’ll win it, and you guys work back from that date,’” says Ray. The rest was history and Ray finished the last chapters two days after SA’s victory over England in the final, writing for six hours in a Starbucks at Cairo airport during a 10-hour lay-over from Paris. McRae, who lives in London, knows all about the pressure of publisher deadlines, having written 11 previous books, two of which won the Sports Book of the Year in Britain. This time it was different, and amid family tragedy: during an intense period of his writing, his widowed mother died in Johannesburg. “So there were some difficult days while I was reaching the crunch point in the book.” Yet by September, he’d finished 14 of the 18 chapters. The last four would be written during the World Cup tournament. Jones and McRae’s project started in late 2016, “so I had three years to research and write it”. The first two years were given

58 58

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March 26 - April 1, 2020

to interviews. “It gave me time to get to understand his complex story and the varied coaching adventures he experienced. “It was also a time to develop trust between us.” The most important work was done in 2019. “We delved far deeper into the personal aspects of his story and the best material only emerged between March and May last year. By that stage, Eddie trusted me and we had moved beyond the routine sporting interview.” The last chapter was “pretty fraught”. He met Jones two days after the final. “He was still hurting after SA’s decisive win and we had to cover a lot of ground.” McRae had only two days to write the last chapter, “but the intensity of the deadline helped concentrate my mind”. McRae has allowed Jones to tell the story in the first person and expertly captures the Aussie’s voice. Most of the book is in the conventional past tense, but key matches are told in the present. It’s like Hilary Mantel writing rugby. “I wanted the reader to feel as if they were at the game, and reliving those moments,” says McRae. “I wanted the games [which are often written in a very dull way] to feel vivid and compelling.” Those SA rugby fans who read more than their Twitter feed will find the final chapter of the McRae/Jones book compelling. It’s packed with Springbok schadenfreude. But, after many clashes in the Tri-Nations and Super Rugby, and now with England, the story remains one about a man they love to hate, except, that is, when he briefly became White’s consiglieri at the 2007 World Cup. The problem for SA publishers was not only financial. They needed a face to pin their books on. Personalities sell books, as the recent success of the AB de Villiers cricket biography proved. But the rugby people were just not interested. Past attempts to persuade great Springboks Schalk Burger and Jean de Villiers to do biographies were resisted. That didn’t change in 2019. Also the market is not as strong as it once was, or big enough. “The days of the big Victor Matfield book or John Smit book are over,” says Boraine. “For a British publisher doing Eddie Jones the risk wasn’t as high

[as it would be for an SA publisher].” If SA publishers are poorer for not taking the risk in 2019, so is the SA reading public. Sports books, and rugby books in particular (because there is so much politics in the game), fill gaps, even when they cater for the prurient, as Dalton’s biography does. Historians of the Springboks’ victory last November will now have to rely on the public prints, with their paucity of insight and detail. Jones’s biography will fill some of that gap. Did we know, for example, that in 1998 Jones wept in his hotel room at Camps Bay after the Stormers had beaten his beloved Brumbies at Newlands? A walk on the beach

helped him pull himself together. And it’s not all schadenfreude. Jones pays the Boks of 2007 a compliment. “In all my years of coaching, only one other group has come close to matching the intellect of the Brumbies’ inner circle. The 2007 World Cup-winning Springbok squad, which I helped coach in that tournament, had John Smit, Fourie du Preez and Victor Matfield who were almost as smart … the Brumbies just about edged it as the most cerebral set of players I’ve ever coached — but the Boks pushed them close.” Those Boks also knew how important Jones had been to their victory. And Jones would know too. When an unexpected parcel arrived, addressed to him, Jones opened it warily. It contained Du Preez’s Springbok blazer. The mandarins of SA rugby had allowed Jones to accept a winners’ medal after the 2007 World Cup final, but denied him the blazer. x

life inbox BOOKS Pile these up next to your bed

BOOKED OFF ý You’re staying at home (or definitely should be) so are probably looking for ways to pass the time once you’ve devoured your FM. Here’s Kate Rogan, owner of Joburg’s beloved Love Books, on what she recommends you should start your reading blitz with: Nonfiction The Lonely City: Adventures in the art of being alone by Olivia Laing — because we’re all going to be facing loneliness in one way or another, why not learn to embrace it? Laing is the acclaimed author of the hit novel Crudo, and her musings on the loneliness she experienced in New Your City are profound and beautifully written. A Cloud a Day by Gavin PretorPinney. The cloud guy brings us this gorgeous book of 365 skies selected by the Cloud Appreciation Society and accompanied by enlightening text on … well, clouds. Lift your eyes to the sky now that you have time. The Atlas of Unusual Borders by Zoran Nikolic. We’re pretty sure you’re looking at the world in a way you never have before. So why not immerse yourself in this fascinating look at how quirks of geography have defined borders and affected lives. Fiction Apeirogon by Colum McCann. This is an extraordinary novel, both in plot and execution. Placing you somewhere between watching a documentary and reading a novel, it’s based on the true story of two grieving fathers, from opposite sides of the Israel-Palestine conflict, trying to find their way to a common humanity. It’s the kind of book that will keep you busy for days and will send you off reading and researching in many directions. Perfect if you’re self-isolating. Also, if you haven’t read McCann’s exceptional 2009 work, Let the Great World Spin, which

broadly centres around Philippe Petit’s tightrope walk between the Twin Towers during the 1970s, now is the time! Such a Fun Age by Kiley Reid. A quick and satisfying read that looks at race and white privilege in the US, with insights South Africans will appreciate. This is not worthy, preachy stuff — it’s a fabulous, clever and funny read that brings real issues right home. The Book of Gifts by Craig Higginson. This is local author Higginson’s fifth novel, and I would say his most nuanced. It’s a gripping story of a teenage boy and his complex family, set in Joburg, Umhlanga and Mauritius. How nice it is to fantasise about champagne around the pool at the Oyster Box through Higginson’s descriptions. Oh, and Anna’s (yes, Anna of Love Books) famous carrot cake makes an appearance in the novel too. Hamnet by Maggie O’Farrell. Hamnet is one of the best things you’ll read this year. The devastating story of Shakespeare’s family, and in particular his son Hamnet, set during the time of … yes, the bubonic plague. Nothing feels more appropriate. SUPPORT YOUR LOCAL: To order your copies of these books for delivery, or for other reading suggestions, mail info@lovebooks.co.za x March 26 - April 1, 2020

financialmail.co.za

a moveable feast by Fred Khumalo

A POINTER FOR THE FUTURE I had to cough meaningfully before the waiters at Jiran bothered to peel their eyes off their phones indifferently, like zombies

arrived in Durban on the morning of March 15, hours before President Cyril Ramaphosa spelt out, to a stunned nation, a litany of restrictions that would be imposed on citizens in an attempt to curb the spread of the coronavirus. I was in the Banana City to participate in Time of the Writer, the annual literary festival which I have attended religiously for 23 years. Needless to say, the festival was cancelled, in keeping with the president’s proclamation. But earlier, when we got to our hotel in the North Beach area, the precinct was still vibrant, with revellers milling about. I was so looking forward to enjoying the city of my birth. After a quick shower, we were rushed by the festival photographer to the beach for a photoshoot. It was as we were walking back to the hotel after the photoshoot that I realised that the last morsel of food I’d eaten all day was a muffin and a cup of coffee at OR Tambo. I was famished. Café Jiran, part of the Belaire Suites Hotel where we were staying, beckoned. So I rushed over for a spot of lunch. It was bizarre that while the street outside was abuzz, the restaurant was almost empty. The woman behind the counter ignored me. I found myself a table. There were two waiters, both of them thumbing their phones. I had to cough meaningfully before they peeled their eyes off their phones indifferently, like zombies. They looked at each other, as if to say: your turn. By the time one of them had the humility to come to my table, I had studied the menu so thoroughly I could have written an exam paper on it. I settled for a toasted mutton curry sandwich. It set me back R85. A part of me screamed: two slices of brown bread and a spoonful or two of average lamb curry — daylight robbery!

@fredkhumalo

As we were walking back I realised that the last morsel of food I’d eaten all day was a muffin and a cup of coffee at OR Tambo. I was famished 60

financialmail.co.za

March 26 - April 1, 2020

have moment. I could have gone to Florida Road with its excellent choice of restaurants. I could have even bought Nando’s. Hindsight does not fix things. I wouldn’t recommend Jiran to someone in a mood for serious dining, or food worth the money you’re paying. Then I thought about dining out with the advent of Covid-19. Can restaurants be trusted to regularly and continuously test employees for the virus in order to protect potential diners? Will the diners themselves be tested before they are ushered into the restaurant — as has become the norm when you enter some establishments? Or would such testing be invasive? Until I sat down to write this piece, I hadn’t thought about these questions. Then the answer to my musings came when the president declared a lockdown on Monday night. Even though it was necessary, it still came as a shock. Rather, it helped reinforce the gravity of the situation we are in as human beings on this planet. We are in trouble. All possible measures have to be taken to minimise the risk of further infections. We have to salute President Cyril Ramaphosa for his decisiveness. But we are a resilient people. We are going to fight together. This, too, shall pass. x

But another part of me rationalised: this is North Beach. Location, location, location. You’re paying for the view, the ambience. Except there was no ambience to speak of. It was then that I had my I-could-

Café Jiran ★★ 151 Snell Parade, North Beach, Durban Tel: 031-332-4485 ★★★★★ Zweli Mkhize ★★★★ Tito Mboweni ★★★ Cosatu ★★ King Buyelekhaya Dalindyebo ★ The coronavirus

crossword Cryptic No 69 ACROSS

1`2`~34`5`6`7 `~`~8~`~`~`~` 9``````~0```` `~`~`~`~`~`~` -```````````~ `~~~`~`~`~`~= q`w```~e````` `~`~`~r~`~~~` ~t````````y`` u~`~`~`~`~`~` i````~o`````` `~`~`~`~`~`~` p```````~[```

1 A theologian’s increases (4) 3 A stroke of the worst misfortune? (8) 9 An attractive item gains nothing in a car engine (7) 10 An inviting suggestion (5) 11 Possibly wages last for one drink! (5,2,5) 13 Say thanks when advanced the money (6) 15 Decided who would take part (6) 17 Such a warning may make one see red! (6,6) 20 Outstanding feature stands before a foreign land (5) 21 Chastise a chap in touching fashion (7) 22 He may scratch a living as an artist (8) 23 Discover an oriental secret agent (4)

SCRIBBLE PAD

DOWN 1 Might lay around being omnipotent! (8) 2 Follow mother in principle (5) 4 First impressions are convincing (6) 5 Maybe a paper is torn to make them!

(12) 6 Beg for a free show to follow in French (7) 7 Altered a dry measure (4) 8 He’s welcome to talk Latin (7,5) 12 Worship of images adroitly modified (8) 14 Giving willingly (7) 16 Squirm — like a man under a summons? (6) 18 Send East for your wants (5) 19 He follows the account painfully (4)

SOLUTION No 68 Across: 1 Optimists; 8 Air; 9 Foot the bill; 11 Sheared; 12 Paste; 13 Orange; 15 Groove; 17 Tibet; 18 Annuity; 20 New Years Day; 22 End; 23 Yardstick.

Down: 2 Pro; 3 Mater; 4 Steady; 5 Slipper; 6 Calls to mind; 7 Arch-enemy; 10 One-man bands; 11 Stop thief; 14 Gateway; 16 Career; 19 Norms; 21 Arc.

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March 26 - April 1, 2020

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backstory GERALDINE FENN Jeweller, co-founder: Tinsel Gallery

What’s your one top tip for doing a deal? Whatever I do, do the opposite. Because my business is jewellery, which I am hopelessly sentimental about, I’m way too trigger-happy in giving discounts to customers. It has always been tricky for me to put a price on my time, creativity and expertise. What was your first job? When I was about 15 a school friend had an uncle who needed help sorting out his huge stamp collection. We spent two days with tweezers taking stamps from piles and arranging them in the right albums. It was weird and boring as hell. When I was an archaeology student I did some work for a professorwho was excavating at the Cradle of Humankind: I was sent buckets of sediment containing ancient owl pellets, which I had to sort through to find tiny rodent bones. That was also weird, but pretty cool too. What do you consider the most overrated virtue? Niceness. It’s the blandest virtue of all. 62

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March 26 - April 1, 2020

How much was your first pay cheque, and how did you spend it? I’ve never actually been formally employed! I probably saved up my first bar-tending tips to buy Doc Martens shoes — they were black nubuck, 14 holes. What is the one thing you wish somebody had told you when you were starting out? That sometimes you just need to dive in and do it, even if you don’t have all the answers and it scares you. How would you fix Eskom? A Spanish Inquisition-style witch-hunt to root out the corrupt individuals? Not really, but I do think the corruption has to be dealt with firmly, and there have to be consequences for people and municipalities not paying for the services they’re receiving. What is the one investment you wish you had made, or made earlier? A William Kentridge charcoal drawing, about 20 years ago.

How are you planning to live out the shutdown? We’ve been stockpiling wine for a while now ... We have two boys, aged six and four, and a very small garden, so I’m sure it’ll be challenging. I’m planning to let them play Minecraft most of the time, to be honest. What’s the most interesting thing about you that people don’t know? When I was a kid I used to do highland dancing — tartan kilts, dancing over the swords, bagpipes, the whole shebang. In retrospect I was a giant nerd. If you were president, what would you change, or do, tomorrow? In terms of the current coronavirus crisis I think he is doing all the right things, and we’re lucky to have him as the captain of our ship. After this he needs to turn to fixing the economy: if I were him I would try my best never to let the weeds get higher than the garden (as Tom Waits sings).

as if

I have

thorns

No invasion

of personal

space accelerating

investment

www.menar.com @menarsocial

menarsocial menarcapital

in sa despite

corona