FM's ANC election special edition: Dec 2017 by SundayTimesZA

Markus Joosteâ&#x20AC;&#x2122;s R286m windfall P4 & P43

Activists on the a ack against Naspers P7

Guptas could lose jet over unpaid bills P28

Can SA list its cities? P32

www.financialmail.co.za December 21 - December 27 2017

HOW #CR17 WON THE ANC (SORT OF)

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contents

financialmail.co.za December 21 - December 27, 2017

fox

features

money&investing

life

Naspers: what investors want

Bombardier: flight of money

Steinhoff: no bottom in sight

Photography: depth of field

Mark Lewis

cover story

PicEG credit R ULHere ARS 3 Editorials 4 Editor’s Note 5 Letters 6 Between the Chains 15 Boardroom Tails 41 In Good Faith

14 Higher Education 14 Gripping Graph 15 Numbers FEATURES 18 ANC Elective Conference 28 Bombardier 31 Eskom 32 Megacity 34 Tourism 36 Peter Bruce 38 Congolese Rainforest 40 Media & Advertising

FM FOX 7 Naspers 8 Another Week 9 Trending 9 Dinner Party Intel 10 Diamonds & Dogs 10 Hot Property 11 Entrepreneur 12 Artificial Intelligence 13 Pattern Recognition

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MONEY & INVESTING 43 Corporate Governance 46 Markus Jooste’s Horses

47 48 49 50 50 52 52 53 54 55 56

cover story

Trustco FirstRand Mining Market Watch Global Markets Shop Talk Checkout Counter Investor’s Notebook Analyse This Economic Indicators JSE Top Stocks

One step for00 ward Markus Jooste’s R286m windfall P4 & P43

December 21 - December 27, 2017

Guptas could lose jet over unpaid bills P28

Can SA list its cities? P32

www.financialmail.co.za December 21 - December 27 2017

HOW #CR17 WON THE ANC

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(SORT OF)

FM LIFE 59 Photography 61 Inbox 62 Outbox 63 Food for Thought

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Activists on the a ack against Naspers P7

Cover: Shaun Uthum & Bloomberg

December 21 - December 27, 2017

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editorials

RAMAPHOSA FACES LONG REBUILDING JOB

yril Ramaphosa’s ascent to the top job in the ANC is the culmination of a long, patient journey whose forced 20-year detour into the corporate world has no doubt only served to further equip him with the skills he will desperately need for as troubled an economy as ours. Being president of the ANC makes Ramaphosa the de facto president of the country and reduces the incumbent Jacob Zuma to a lame duck who must now carry out the instructions coming to him from Luthuli House. Ramaphosa has no time to waste on being the nice guy. He is inheriting an economy badly damaged by his predecessor. SA can afford neither further damage nor economic stagnation. The record high unemployment rate of 27.7%, with its attendant explosively high youth unemployment, is a time bomb waiting to explode. The absence of growth demands urgent and drastic intervention. Patience is an unaffordable luxury right now. “Your election presents an opportunity to renew confidence in SA, internally and externally,” wrote Nedbank CEO Mike Brown in an open letter to Ramaphosa. There are far too many easy wins that Ramaphosa can quickly grab to build on the trust his constituency has in him and the goodwill shown by the markets. Doing so may help the most immediate of our problems — fighting further credit rating downgrades, corruption and chronic unemployment. Other than drastically slashing the obviously and unnecessarily bloated executive of almost 80 ministers and deputies, appointing more trustworthy and capable ministers than those in the finance, energy, social development and the public service administration portfolios will be just Editorial

financialmail.co.za

Editor: Rob Rose. Deputy editor: Sikonathi Mantshantsha. Managing editor: Kevin O’Grady. Writers: See bylines for writers. Assistant editors: Zeenat Moorad, Razina Munshi, Prakash Naidoo, Amarnath Singh.

the start. SA urgently needs to demonstrate its commitment to prudent financial management. Only credible leaders — and they must be credible in the eyes of investors — can deliver that outcome. Ramaphosa must grab the opportunity he was handed by the courts to appoint a competent and professional national director of public prosecutions. To achieve that, he has to get the ANC’s national executive committee to instruct Zuma to drop his appeal against the high court judgment that gave the task to Ramaphosa two weeks ago. Other law enforcement and security agencies, such as the police and the SA Revenue Service, are crying out for dedicated and efficient professionals. Even appointing such people would just be the start of a long, hard rebuilding exercise. Enforcing the rule of law is just the foundation, the first block in the construction of investor confidence. No nation may climb up the ladder of prosperity without firmly planting its feet on this first step, the rule of law. Incidentally, the rule of law is good not only for investors, but also for worthy citizens to raise families secure in the knowledge that not only are their own assets protected, but so are the most vulnerable members of society. Only when these measures are in place can SA achieve its full economic and social potential, and embark firmly on the path to self-reliance. But for these to happen, Ramaphosa must recognise that the same mindset that created our enormous problems is incapable of resolving them. In the rebuilding effort he will not be alone. “There is much goodwill both locally and internationally to assist in the effort,” as Brown points out. The Financial Mail and many others stand ready to join the whole nation in the essential rebuilding effort. Ramaphosa dare not squander the goodwill. x Sub-editors: Dave Landau (Chief), Shirley de Villiers (Deputy), Dynette du Preez. Proofreader: Norman Baines. Art director: Debbie van Heerden. Contracted artists: Colleen Wilson, Vuyo Singiswa. Graphics & statistics: Shaun Uthum. Photographer: Freddy Mavunda. Editorial assistant: Onica Buthelezi. Office assistant: Nelson Dhlamini.

BITCOIN BUBBLE PAYS OFF

orget Naspers or Richemont — the clear investment winner for this year has been bitcoin, the unfathomable cryptocurrency that has risen 2,346%, from about R14,000 apiece in January to about R300,000 today. Remarkably, almost to a man, SA’s established investment experts have recommended steering clear of bitcoin, citing the (obvious) fact that there’s nothing backing it and that the stratospheric rise has all the hallmarks of a classic bubble. Yet investors would have been fabulously rewarded for ignoring those experts. Of course, “investors” isn’t exactly the right word. “Speculators” would probably be more accurate, as they’re only buying it hoping they can sell it for more later. But is it really a bubble? It’s hard to say at this point. Certainly, the trade in bitcoin isn’t driven by fundamentals — there are none — but rather by the classic pathological weakness in investing: the fear of missing out. The Economist this week said bitcoin doesn’t raise much systemic risk, pointing out there’s no sign that it is being widely purchased with borrowed money. “Bitcoin could be worth US$10 or it could be worth $10,000,” the magazine said. The fact is, no-one knows. But as long as the thousands of South Africans ploughing their money into bitcoin are aware they could lose it all, perhaps the fallout of a collapse will be limited. x

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December 21 - December 27, 2017

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editor’s note by Rob Rose

JOOSTE: REPAY THE LOOT Over 15 years, Steinhoff’s CEO has scored R492m in salary and bonuses. If he messed up, shareholders must reclaim some of that windfall @robrose_za roser@fm.co.za

arkus Jooste, the 56-year-old accountant who this year reportedly likened himself to “Robin Hood”, became fantastically wealthy as the CEO of Steinhoff. Most CEOs get rich by holding a large stake in their company, which then grows in value — as Koos Bekker has done at Naspers. But in Jooste’s case, he’s made a packet in salary and bonuses, alongside his shares in the floundering furniture retailer. Jooste’s total pay, Financial Mail calculations show, amounted to a staggering R492.7m over the past 15 years, including R212m in “bonuses”. The heftiest chunk of this — R286m — was paid to him in just the past three years. Now, that’s also the time period in which Jooste’s inner circle allegedly stitched together some of the shady deals overseas (in Germany and Switzerland). These deals, according to insiders who spoke to this magazine, are the reason Deloitte refused to sign off Steinhoff’s financials for the year to September 2017. They are at the core of the “accounting irregularities” that led to Jooste’s resignation. But Steinhoff Africa Retail (Star), which was spun out of Steinhoff, did manage to release its audited figures two weeks ago. Thanks to Star, we now know that for the year to September, Jooste walked away with R121m — R75m of which was a bonus. Now, that is degrees more than was paid to CEOs of bigger JSE-listed companies, including Anglo American’s Mark Cutifani (R68.2m), Naspers’s Bob van Dijk (R28m), FirstRand’s Johan Burger (R35.5m) or Stan-

Business Leadership SA CEO Bonang Mohale says if wrongdoing at Steinhoff is proven, shareholders should claw back bonuses 4

financialmail.co.za

December 21 - December 27, 2017

dard Bank’s Sim Tshabalala (R30.9m). Of course, you could argue that Jooste, as a shareholder in Steinhoff (68.9m shares), has also felt the pain from its 91% share price plunge in recent weeks. It has meant, in tangible terms, that his stake in Steinhoff has fallen by R3.5bn to about R320m. That’s a remarkably soft cushion — but, still, it’s not every day you lose billionaire status with such giddying speed. So what can be done to ensure accountability if, as it seems, Jooste did some bad things? Certainly, accountability won’t be coming from the criminal authorities. The irony of President Jacob Zuma’s calculated crippling of the National Prosecuting Authority (NPA) is that today, when it would desperately suit him to put some of the more morally flexible “agents of white monopoly capital” behind bars, the NPA just doesn’t have the nous any more. But there is another way to ensure accountability. If Jooste misled Steinhoff’s board, there’s precedent for any new board — or investors — to claw back, at the very least, the bonuses paid to him. This might seem like a novel approach in SA, but it’s almost de rigueur in investment circles overseas. In October, the UK Automobile Association tried to claw back £1.2m from former executive chairman Bob Mackenzie for not disclosing an “altercation” he’d had with a member of the public. (And the Steinhoff case, you’d have to say, is a tad more serious than a brawl on the side of a highway.) Perhaps a better comparison would be with the US’s second-largest bank, Wells Fargo, which became embroiled in a scandal last year when it emerged that its staff, under acute pressure to sign up new customers, had conjured up 2m fake accounts. In April, Wells Fargo’s board demanded that executives repay US$75m in bonuses — including the $28m paid to the bank’s former CEO, John Stumpf. Business Leadership SA CEO Bonang Mohale says if wrongdoing at Steinhoff is proven, shareholders and the board should “absolutely” claw back bonuses. “Bonuses are performance based. If you perform, you’re eligible for a bonus. But if it turns out you got it through illegitimate means because the numbers were inflated, for example, you should forfeit it,” he says A few years back, Public Investment Corp boss Daniel Matjila said the bonuses paid to executives at construction companies should be clawed back, after it emerged that they’d rigged tenders by R1.46bn. Predictably, it didn’t happen. So why hasn’t it happened before in SA? Mohale has strong, if entirely sensible, views on the subject: “Because most boards and shareholders are too petrified to demonstrate courage. They’d rather sweep it under the carpet. But real governance takes courage.” That’s a courage that has been singularly lacking in the country’s boardrooms, where appeasement is more valued than accountability. If Steinhoff’s implosion triggers a change in that odious boardroom culture, it won’t be a moment too soon. x

you said... letters

facebook

Emergent farmers must be supported For the second time in a row, the agricultural sector has been integral to our country’s GDP growth, contributing 2% in the third quarter. This is a clear demonstration of the tremendous capacity of this sector. With the proper support, emergent growers, who are raring to contribute to agricultural output, could share equitably in these victories. To achieve this much-needed growth we need constructive and ongoing collaboration between government and the relevant industry associations. Historical and socioeconomic factors have led to many in charge of new black-owned farms struggling to survive. They operate in a competitive sector, and a lack of suitable skills places them at a disadvantage. They need technical advice, mentorship, training and experiential learning for a better chance at success — not to mention business skills, market access know-how and focused enterprise development. With the agricultural sector having had its fair share of transformation failures, strong partnerships with govern-

ment are critical. The citrus industry generates 94% of its income from exports. Therefore we, the Citrus Growers Association Grower Development Company, work closely with the national and provincial departments of agriculture, forestry & fisheries to provide holistic support for all our citrus growers. We do this especially by instilling business, export and agriprocessing acumen. Once farmers grasp the mechanics of the international market and citrus exports, they’re able to tackle the rest of the domestic and international value chain confidently. We continue to work with government and state-owned enterprises to together craft and implement plans to achieve the inclusive participation in growth and in the value chain that the sector so desperately needs. SA’s emergent growers have much to offer. But to ensure their value is maximised and sustained, we need to make sure that they stay motivated and committed. Government’s role remains critical in building these partnerships with farmers and established industry stakeholders who share this vision.

Lukhanyo Nkombisa GM: CGA Grower Development Company, Pretoria

A name game

Is bitcoin fuelling global warming? P13

Carl Niehaus: serial orphan P9

How the ANC broke the economy P30

www.financialmail.co.za

December 14 - December 20 2017

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Inside Steinhoﬀ’s house of cards

‘Don’t ask me about my business’ — Michael Corleone, The Godfather

SA’s best and worst suburbs P18 Flip over for SA in 2018

The fall of a Stellenbosch don: inside Steinhoff’s house of cards. The Steinhoff group will be broken up, and the very rich investors will buy the subsidiaries for peanuts through multiple corporations. If you trace the companies who will be buying these subsidiaries, you will find the same majority shareholders as Steinhoff, repurchasing it at a significantly lower price. All the billions lost by fund managers and the Public Investment Corp are down the tubes and these shareholders will get to keep their companies. Clinton van Heerden

Why is this only about Markus Jooste and not about the chairman and the board? Is he the fall guy? Craig Hutton

Justice Malala’s reference to Malusi Gigaba (Food for Thought, November 2-8) has triggered further etymological research. A ba is the spirit of a deceased person, appearing in the guise of a human-headed bird and demanding offerings of food. The 2018 budget will doubtless show that a “gigaba” requires a billion times the offerings of an ordinary ba. However, a gigaba is not to be confused with “gigabaa” (the cumulative utterances of a National Prosecuting Authority chief), or indeed with “Gigabaas” (a respectful term of address used by government ministers when addressing their Saxonwold overlords). Etymologist Noordhoek

KPMG’s woes hit accounting students

Jooste was not the only bad guy in this story. They all knew. Werner Greef Jooste has messed up Stellenbosch for good. All the big-wigs there are running for the hills — there is too much attention. Barry Judd

Malusi Gigaba

The FM welcomes concise letters from readers. Letters must carry the name and address of the sender. They can be sent to The Editor, Financial Mail, PO Box 1744, Saxonwold 2132. Fax (011) 280-5800. E-mail fmmail@fm.co.za

The FM welcomes concise letters from readers. Letters must carry the name and address of the sender. They can be sent to The Editor, Financial Mail, PO Box 1744, Saxonwold 2132. E-mail fmmail@fm.co.za

December 21 - December 27, 2017

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between the chains by Sikonathi Mantshantsha CHOP THE UGLY, ROTTEN HEAD

ow that the ANC has elected a president who is neither beholden to nor trapped in a project of state capture, the clowns at the head of Eskom have lost their major enabler: the political protection offered by President Jacob Zuma through public enterprises minister Lynne Brown. If Ramaphosa and his team have any hope of leading the ANC in government after the general election in 2019, they need to assert their authority now and cut off the cancerous tumour of corruption in the country. As Niccolò Machiavelli put it in The Prince: “The first method for estimating the intelligence of a ruler is to look at the men he has around him.” Zuma, Brown, finance minister Malusi Gigaba, David Mahlobo at energy, and social development minister Bathabile Dlamini are among the people who should never have been allowed near any position of responsibility. Ramaphosa and his team must reduce cabinet to only 20 ministers and their deputies. But the starting point in their clean-up should be Eskom, the biggest risk facing SA. As I write this, I’m reliably informed that the board is meeting to rubber-stamp the return of former acting CEO Matshela Koko. He was absolved in a sham disciplinary hearing on charges of conflict of interest and other serious irregular conduct. We have documented previously how Koko’s disciplinary process was manipulated from the beginning by the board’s interference. Acting Eskom chairman Zethembe Khoza and audit & risk committee chairman Sathie Gounden, in particular, went out of their way to sabotage Eskom’s case against Koko. Damning evidence against Koko from a forensic investigation by law firm Cliffe Dekker Hofmeyr and auditor Nkonki Inc, sealed by legal opinion from two senior counsel — Azhar Bham and Terry Motau — resulted in 10 serious

@SikonathiM mantshantshas@fm.co.za

Ramaphosa must give Zuma, Brown and all they represent their marching orders

good week Billed as the biggest counterpunch yet by an old media company in the era of Faang (Facebook, Amazon, Apple, Netflix, Google), Walt Disney CEO Bob Iger clinched a scrip-based deal to buy most of Rupert Murdoch’s 21st Century Fox business for US$52.4bn. Disney will acquire Fox’s film and TV studios as well as its 39% stake in satellite broadcaster Sky, giving it a bigger role in film and TV production in the social media age, strong cable channels, and greater international reach in Europe and Asia. x 6

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December 21 - December 27, 2017

charges. Despite this, Khoza and Gounden went out of their way to manipulate the process in Koko’s favour. By its reinstatement of the compromised and unsuitable Koko — who might also be found guilty of commercial crimes, should Eskom have the stomach to test the many allegations of corruption against him — Eskom’s board has signed its own dismissal letter. Incompetent and unsuitable In this, the Eskom board will likely follow in the footsteps of the SABC board which, against all sensible legal advice and common sense, returned former COO Hlaudi Motsoeneng to the head office. A few months later, not only was Motsoeneng out of a job, but the disgraced board had melted away under parliamentary and public pressure. That will happen at Eskom — and the sooner the better. The job of removing the incompetent and unsuitable Eskom board will be made easier by the chairman’s own admission that it failed in its duties, the first of which is good corporate governance. In parliament three weeks ago, Khoza scored himself and his colleagues three out of 10 for this. Furthermore, the leadership of Khoza and his predecessors has left Eskom bankrupt, and played the single largest part in facilitating SA’s sovereign credit downgrades. There’s a lot more at stake. Eskom owes the markets R471bn that government cannot stump up if called upon to do so. Only the spineless Brown could reward that kind of performance. But she has long overstayed her usefulness — if she was ever of any use at all. The ANC’s reconfigured leadership would do well to heed Machiavelli’s advice: “He who wishes to be obeyed must know how to command.” And the first, urgent command is to give Zuma, Brown and all they represent their marching orders before parliament opens in February. x

bad week His woes seem to be mounting. Not only has Christo Wiese lost a chunk of his net worth, but the dealmaker, once thought to have the Midas touch, was forced to step down from the board of Steinhoff. More recent revelations that the Financial Services Board may investigate whether his sale of R98.5m worth of Steinhoff shares amounts to insider trading, signal a dramatic fall from grace. The “accounting scandal” at the heart of Steinhoff’s implosion has come at a cost of five decades of building a huge retail empire. x

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

NASPERS

Ten cents for your thoughts Share buybacks, unbundling Tencent, listing its underlying companies, moving its primary listing . . . what investors want Nick Hedley hedleyn@bdfm.co.za

ý Naspers CEO Bob van Dijk has hit back at a shareholder who accused him of destroying R600bn in shareholder value since his appointment three and a half years ago. Albert Saporta, a director of Geneva-based investment advisory firm AIM&R, which has a small stake in the Internet holding company, wrote a critical open letter to Van Dijk last week. This is the second letter written by Saporta, who wants the company to spin off its 34% stake in China’s Tencent to shareholders. In response, Van Dijk told the Financial Mail that it was unfortunate that Saporta did not attend Naspers’s December 12 investor day in New York “and take advantage of the opportunity to engage with management on the matter or make any other attempts to engage with us directly. “We would be more than happy to have a conversation with Saporta should he want to engage with us directly,” Van Dijk said. Owing to its stellar Tencent-fuelled rise, Naspers is grappling with a unique problem: the company has outgrown its home market and investors want a concrete solution. Naspers is trading at a hefty discount of nearly 40%, largely the result of structural issues related to where it is listed — the JSE.

Aside from the proposal to unbundle Tencent, investors such as Saporta have suggested that the company consider share buybacks, listing more underlying companies, and even moving the group’s primary listing. Saporta’s other recommendations include setting a discount hurdle rate that, once breached, would trigger the company to buy back some of its shares. To fund this initiative, the company should sell some of its Tencent stock.

Bob van Dijk

Saporta also suggests that Naspers “take a page or two from the Altaba playbook”. Altaba — an Internet investment firm — is seen by some as a cheap play on Chinese e-commerce group Alibaba. “While Naspers destroyed R300bn of value in the past six months, Altaba increased shareholder value by $5bn from an equally large discount initially,” he says. Altaba has been “aggressively buying back shares” and is transforming itself into a “pure Alibaba tracker”. “Hence I would advise the following: you do not want to sell one share of Tencent? So be it. In that case, spin out the entire investment portfolio [exTencent] to investors in a new company, with enough cash in it to sustain an investment strategy over the next two to three years. Hence Naspers will become a pure Tencent tracker.” Bloomberg/Halden Krog

December 21 - December 27, 2017

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Gallo Images/AFP/Yang yang / Imaginechina

ANOTHER WEEK

READY, SET, GO! A child dressed as Santa Claus takes part in a Santa Run event ahead of Christmas in

Shenyang city, in northeast China’s Liaoning province. Santa Run events have taken place in countries all over the world.

BY THE NUMBERS

Saporta reckons the discount on this new-look entity would probably settle within the 10%-20% range. The market would be able to value each entity “a lot more efficiently”. It says: “The only route to effectively reduce the discount is either to sell some Tencent shares one way or another and buy back shares and/or spin-out entirely the investment portfolio so Tencent is separated from the rest and investors will be left with a ‘Naspers We’re Tencent’ and a pushing ‘Naspers VC’.” really hard Management to try to told investors in address New York that the [the share discount is discount in large part issue]. attributable to SA’s There is haemorrhaging of no silver capital over the bullet past 18 months, and the fact that Basil Sgourdos local institutions cannot fill the gap. The magnitude of the discount is “not acceptable”, says CFO Basil Sgourdos, a shareholder in the business along with Van Dijk and other members of the management team. “We’re pushing really hard to try to address [the discount issue]. There is no silver bullet.” To tackle the problem, the group is working on getting its ecommerce business to profitability, improving financial disclosure and shareholder engagement and expanding its American depositary receipt programme to access new pools of capital, Sgourdos says. Naspers is not convinced the proposals put forward by investors would make a meaningful difference. The company is unable to move its primary listing because of SA’s exchange controls, while a secondary listing on its own would do little to reduce the discount. It will, however, list some of its underlying businesses “when the time is right”. But Naspers has no plans to unbundle its stake in Tencent as exchange controls dictate that the shares would have to be listed on the JSE, which “doesn’t fix the problem”, says Sgourdos. x

The most valuable company in history Dutch East India Company

20 modern companies

1637

$7.9 trillion

(Adjusted for inflation)

*At the height of the Tulip bubble in 1637, the Dutch East India Co was worth more than 20 of the world’s largest companies today. The company colonised Cape Town in 1652 and, with its own private army, went on to plunder countries in Asia in the 17th and 18th century Source: Visual Capitalist

December 21 - December 27, 2017

DINNER PARTY INTEL... “I have made no secret of the fact that I will consider legal action if the DA decides to remove me from my position.”

The topics you have to be able to discuss this week

1. BHP Billiton at climate change action coalface

Cape Town mayor Patricia de Lille

BHP Billiton, the world’s biggest miner, plans to withdraw from the World Coal Association in support of action against climate change. The move is something of a surprise, considering the firm derived just under 20% of its total revenue in the year to June from coal. The company says differences over climate and energy policies are behind the withdrawal. It supports tackling climate change by encouraging the use of renewable energy and cleaner technologies. It will also review its membership of the US Chamber of Commerce in light of President Donald Trump’s decision to withdraw from the Paris climate accord.

2. Uber hailed a cab?

TRENDING

Jet into hype space to escape the dark side The money generated by the latest Star Wars movie is huge, not least because of the hype Ray Hartley hartleyr@tisoblackstar.co.za

ý We all deserve a break from the intense intrigue, back-stabbing and political manoeuvring of 2017. That’s why we will be watching Star Wars: The Last Jedi, a movie about intrigue, back-stabbing and political manoeuvring. But it’s all done in a distant time in a universe far, far away with lightsabres and a cast of fabulous young actors. Well, mostly young. Mark

Hamill — the original Luke Skywalker — will be making a return for the fifth time. Only Chewbacca (six), R2-D2 (seven) and C-3PO (nine) have put in more appearances. At 66, Hamill is still the star of the franchise. The Last Jedi took US$220m on its opening weekend, second only to the $248m haul of The Force Awakens in 2015. The franchise’s 10 episodes have cost $926m to produce but have returned a staggering $8bn at the box office worldwide. That’s the equivalent of R11.5bn . . . R11.2bn . . . R11.1bn — damn this Ramaphosa rand. The money is huge not least because of the hype.

When Canadian prime minister Justin Trudeau wore a pair of Chewbacca socks during a visit to New York earlier this year, it resulted in a lighthearted Twitter conflict. William Shatner, star of Star Trek, tweeted: “@JustinTrudeau I thought we were friends? Chewbacca socks?” There is already hype over whether or not The Last Jedi has hit the mark or spun off the script. While it has very high scores from critics, its fan ratings have been low, leading to speculation that it is breaking with too many traditions. Either way, it promises a great escape from intrigue, back-stabbing and political manoeuvring on this planet. x

It’s a million-dollar question that will now be left to the courts to answer: is the world’s most valuable start-up a taxi company? Uber insists that it is a tech platform that connects passengers with drivers, not a transport firm, which means it isn’t subject to the same rules as taxi services. The vexing question will have an answer this week, when the EU’s top court is expected to rule on how the company should be treated by regulators. The ruling may affect Uber operations in the eurozone.

3. Sierra Leone taken to task over Ebola epidemic Two health workers in Sierra Leone who survived Ebola are suing their government, saying it mismanaged funds during the epidemic. The two — supported by the Freetown-based Centre for Accountability & the Rule of Law — blame a lack of resources provided by the government for their infection and for the deaths of their co-workers. They claim government’s mismanagement of funds violated their right to life and health. Ebola surfaced in Guinea in 2013 and spread to Liberia and Sierra Leone. At least 11,300 died of the virus in the region, mostly in these three countries. December 21 - December 27, 2017

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DIAMONDS & DOGS BY JAMIE CARR

HOT PROPERTY THE WOW HOUSE

@jamiecarr

There may still be a bit more juice to be made from bitcoin while the enthusiasm lasts 10

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Bitcoin

Steinhoff

Waiting for the ride to end

Destruction on a grand scale

It may cause the crusty old traditionalDIAMOND ist to splutter into his pink gin, but there’s little doubt that bitcoin has been the most banging investment of the year. The cryptocurrency has done a perky 2,300% since January at the time of writing, though at the time of reading this may well have changed — the price goes up and down at a rate that would place it comfortably in the premier league of global rollercoasters. Clearly there are some who would still feel safer if their currency were backed by something as substantial as the might and majesty of the US government, for example, rather than an obscure group of libertarians. And the currency’s early prominence as an anonymous means of exchange in the murkiest corners of the dark Web may not do a great deal to inspire confidence. Then there’s the suspicion that many of its loudest advocates appear to have been taking full advantage of the West Coast’s liberal attitude to marijuana, which doesn’t feature largely in the Warren Buffett guide to useful investment tools. It’s clearly a huge crash waiting to happen, and the wobbly nature of the trading platforms when prices tumble and investors attempt to sell should be a giant red flag. But there may still be a bit more juice to be made while the enthusiasm lasts — as long as you can find a greater fool to take it off your hands. Hedge funds have started to pile in, and the appearance of leveraged CFDs move the risk level from ridiculous to totally nuts, but there’s no doubt it’s been quite a ride so far. x

There’s a certain irony to the fact that the DOG best-performing investment of the year has been something that looks to the disinterested observer like it’s so flimsy a breeze could dispatch it, while the biggest catastrophe has been something that should have been as rock-solid as you could imagine. Flogging furniture in Europe, mattresses in the US and low-cost products into Africa sounds like the sort of enterprise into which you could happily stick your pension. But clearly this is not the case with Steinhoff. The normally festive streets of Stellenbosch may well be a spot to avoid in the aftermath of the debacle, with a town that has recently been known as an investor’s darling suddenly coming to terms with the reality that there has been value destruction of truly monumental proportions. It’s far too early to suggest what exactly has caused the collapse, and there will be much learned analysis to come. But for the average investor it’s an unhappy situation, given Steinhoff’s former position as a major slice of the JSE, and has flattened the performance of many a tracker. The truly bold investor might think the company has so many solid assets, acquired in its recent buying spree, that there has to be some value there, and arguing that at current levels the price is reflecting far too much nervousness. However, there is still limited clarity as to quite how bad the accounting issues and the restatement of accounts might be. It’s a total and utter crapshoot, and probably worth avoiding until the full extent of the manipulation of accounting becomes apparent. x

December 21 - December 27, 2017

WHERE: St Antoine Private Residence, Mauritius PRICE: From R8.3m Recent changes to Mauritius’s property investment legislation have made it easier for South Africans to invest in property on the Indian Ocean island. St Antoine Private Residence, close to Grand Baie on the north of the island, is one of the new developments available to foreign buyers. It boasts luxury apartments and penthouses with two, three or four bedrooms, and a clubhouse with a swimming pool, children’s play area, deli, bar, lounge, beauty salon and spa, as well as a boat yard and storage. ● Agent: Seeff Mauritius

WHERE: Yzerfontein, Cape West Coast PRICE: R7.8m Just over an hour’s drive from Cape Town, the unspoilt West Coast village of Yzerfontein is increasingly on the radar of Capetonians and international buyers looking for a weekend or holiday getaway. This luxury holiday house with sweeping views of Dassen Island and the Atlantic Ocean offers double-volume living areas, fireplaces, wooden floors, four bedrooms, walk-through bathroom and a self-contained cottage. ● Agent: Seeff

ENTREPRENEUR Ntuthuko Shezi Owner of Livestock Wealth

Creating a cash cow The ‘crowd-farming’ founder has enjoyed great success in just two years, and he has ambitions to grow his business elsewhere in Africa Stafford Thomas thomass@fm.co.za

ý Crowdfunding has become a popular means of bringing people together to finance a cause. But Ntuthuko Shezi has taken the concept to a new level with Livestock Wealth, a company that enables people to participate in what he terms “crowd-farming”. It’s a venture that has attracted enormous attention. “We enable people who do not own land or have the skills to own cattle [to do so],” says Shezi. “We call ourselves ‘professional herdsmen’.” The concept is simple: investors buy a six-month-old calf, which is reared on one of three farms leased by Livestock Wealth. The process is fully transparent. “Calf prices are published every week by Absa and Farmers Weekly,” says Shezi. The latest going price is R7,476, to which investors add a monthly

farming fee of R299, including full insurance. Each animal is linked to its owner by a unique number branded on it, says Shezi. When the animal is ready to be sold for slaughter at about 32 months — also at a freely available market price — the investor can expect to earn a return of about 15%/year. Shezi’s brainchild is proving to be a roaring success. “I started working on the business model in 2014 and began trading in October 2015,” he says. Just over two years later, 600 investors own 1,200 cattle between them. The biggest investor owns 14. Shezi’s investors come from all walks of life. “About 65% of our investors are black, 30% are mainly white foreigners and the balance are Indians and coloureds,” he says. “We are also seeing good growth in investment by stokvels.” News of the venture’s success has spread widely, attracting investors from countries such as

Australia, the US, Canada, Ireland, France, Australia and Germany. They no doubt appreciate the emphasis Livestock Wealth places on transparency, including keeping investors up to date with the state of play through a mobile app and monthly newsletter. “Our investors are also free to visit our farms,” says Shezi. “We want them to be part of our farming venture.” Shezi wants to take transparency to a new level. “We are going to let investors have our full income statements,” he says. The move into cattle farming was a big leap for the 37-year-old, who received a degree in electrochemical engineering in 2001 before working for Accenture as a strategy consultant. But the farming lure proved too strong. “Cattle were part of my life while growing up in Ndwedwe, in KwaZulu Natal,” he says.

Shezi is just getting into his stride. “I want us to reach 20,000 cattle next year. It is very achievable. People are seeing that what we are doing is working and are gaining confidence.” Growing his numbers will mean Shezi will need more farming land. He doesn’t expect this to be an obstacle. “Farmers with excess land are continually approaching us,” he says. Shezi’s long-term ambitions go way further: his target is a mindboggling 13m cattle. “We will take our model into neighbouring countries such as Botswana, Namibia and Zambia, and even go as far north as South Sudan,” he says. “There are 200m cattle in Africa, so 13m is a very doable number for us.” He is also confident that he will find investors. “I have yet to meet a black man who does not want to own cattle,” he says. x

December 21 - December 27, 2017

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ARTIFICIAL INTELLIGENCE

Machines that pack a punch Industries could be transformed by technology that uses data to accomplish complex tasks Nafisa Akabor

ý How close is artificial intelligence (AI) to changing how we see the world? The technology made a grand entrance into the world of mixed martial arts recently, in a way that has the potential to change how the story of a fight is told. At re:Invent, an Amazon Web Services (AWS) conference that was held in Las Vegas last month, a mock sparring session between two fighters used analytics and AI. Gloves, cameras and mats equipped with sensors measured everything from punch strength to the stress levels of fighters and even their family members. The vast amount of data that can be extracted from such sensors can be interpreted for audiences in real time, giving them entirely new information and interpretations about a fight. Mati Kochavi, one of the founders behind the tech, had this to say: “Shouldn’t sport be told in real time, with real data, with real information, with real insights and real emotions?” Also at re:Invent, online travel company Expedia took to the stage to share how machine learning has improved the customer experience of its 600m users. Expedia CEO Mark Okerstrom says the company is able to handle large amounts of data on the fly, servicing 1.6m customers daily. Expedia handles 750m searches a 12

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day, and is able to scan 3m hotels in a second for personalised results. When one considers applications of technology that range from voice-powered personal assistants like Amazon’s own Alexa to autonomously powered selfdriving vehicles with predictive capabilities it becomes easier to see how AI could allow the machines to take over. Computer-aided interpretation of medical images, heart-sound analysis and even the composition of classical music by means of AI are just some of the advances in the field. AWS recently

December 21 - December 27, 2017

123RF/Julian Tromeur

unveiled at least five new machine-learning tools, many of them intended for businesses. They let companies develop their own algorithms and allow software to translate in bulk, compile libraries of data, analyse video, extract key phrases from big data and transcribe from audio files. Matt Wood, GM of AI at AWS, tells the Financial Mail that AI and machine learning, specifically robotics, lead to greater business value, and allow businesses to grow at a faster rate. “If you evaluate Amazon’s growth by any metric, it’s been significant; and you can attribute some of that to investments we have made in AI from robotics.” Amazon has been investing in machine learning for over 20

years, and has thousands of engineers that are experts at it, says Wood. On the hardware front, the company has also created the world’s first “deep learningenabled” video camera. Called DeepLens, it uses neural networks to learn and make predictions. Wood says the camera can be programmed to do “almost anything you can imagine”. It can be taught, for instance, to recognise a car licence plate. This means that when you pull into your driveway, it can open the garage door automatically. Or you could programme it to send you an alert when your dog gets onto the couch, says Wood. Closer to home Wood says that the top three industries that could benefit from AI on the African continent sooner rather than later are transport (autonomous cars), health care, and manufacturing. “We have a lot of customers working on medical imaging, for example for the early detection of tumours,” says Wood. And the manufacturing industry

PATTERN RECOGNITION BY TOBY SHAPSHAK

The year of social media capture @shapshak

Amazon Web Services

could improve their processes through automation, he says, citing an AWS customer in France who is doing that for its silicon computer chip business. “Using a machine learning library that we introduced with Microsoft a couple of months ago called Gluon, the system automatically scans the surface of the silicon, looking for defects, enabling [the company] to improve the quality and output of the manufacturing process dramatically and reduce costs.” The power of data In the past, companies had a number of constraints on the amount of data they could collect, how much computation they had access to or what hampered databases and analytics. All that has changed with unlimited storage. Once those constraints start to fade away, Wood says, the true value of the data comes into play. “You are able to move from not having any machine learning to having very sophisticated machine learning in literally a week.” x The writer was a guest of Amazon

The death of our privacy will be the thing we regret the most when we look back at this period

The rot is there, and has taken hold of how our societies communicate

his is the year our social media innocence died. Sadly, the biggest tech trend this year is the one that has dominated headlines: how social media, despite its personal sharing intentions, has become a cesspool of hatred, trolling, threats of violence against women and revenge porn. It has been easily manipulated by Russian propagandists and right-wing fascists, as well as other fringe groups. And then there is the rampant misogyny, disgraceful attacks on prominent women (and the threats of rape) and the seeming indifference of Twitter and Facebook towards preventing such abuse. Social media, in short, has been weaponised. Created in a democracy and used by people to express themselves, it has been turned into a tool for powerful manipulation by narrow interest groups. Then there are the millions of “bots” used to foment propaganda, like those used by the Guptas and their various malevolent lackeys, including the disgraced Bell Pottinger. Social media is no longer just about fear of missing out, or reaching an audience, or building a community. Social media has been captured. A stream of high-profile former executives and investors, particularly from Facebook, have gone public to express their remorse at the monster they say they helped create. Justin Rosenstein, the man who built Facebook’s Like button, flagellated himself for helping create what he called “bright dings of pseudopleasure . . . everyone is distracted.

All of the time”. His comments follow former Facebook vice-president for user growth Chamath Palihapitiya’s that “we have created tools that are ripping apart the social fabric of how society works”. Social media not only takes people’s attention away from real news, and real sources of news, but is eating away at media organisations by stealing the digital advertising that supports a free and accurate media. Equally, fake news is a major threat to our democracy. But it was only towards the end of the year, during US senate hearings into Russian electoral manipulation, that executives at these powerful firms admitted just how bad it was. Perhaps the most damaging is the slow, irreversible way we have surrendered our privacy online — giving away this precious commodity to social media networks, oversharing our activities, posting endless pictures of our children and other things that should stay private. The death of our privacy will be the thing we regret the most. What is the solution? The jury will spend a long time debating that. But just as we know Markus Jooste did something that caused Steinhoff to implode, we know social media has moral accounting and democratic auditing problems whose far-reaching consequences are being revealed. The rot is there, and has taken hold of a now vital part of how our societies communicate. We just don’t know how gangrenous it is. x Shapshak is editor-in-chief and publisher of Stuff magazine (stuff.co.za)

December 21 - December 27, 2017

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HIGHER EDUCATION

UK study doors still open How Brexit may affect your plans to study in the UK, or even elsewhere in Europe David Furlonger furlongerd@fm.co.za

ý Bona-fide SA students hoping to further their education in the UK have nothing to fear immediately from Britain’s intended departure from the EU and its crackdown on the abuse of student visas, says John Board, dean of Henley Business School. However, the Brexit “divorce” could result in UK universities being excluded from EU accords allowing students to transfer academic credits between institutions in different countries. And if multinational financial services groups carry out threats to relocate their European headquarters from London to Frankfurt and other mainland cities, it could diminish

demand for some UK degrees. “It’s enormously important for London to remain a major global financial centre,” says Board, whose school, near London, is part of Reading University. “Ambitious people want to work for the big companies and if their main European office is in the UK, that’s where they study.” The UK crackdown on student visas is caused by foreign students, many from Asia, using study as an excuse to get a foothold in the UK, then staying on illegally after their visas expire. “A lot of people are linking this with Brexit but it’s something that has been building for many years,” says Board, who was in SA recently for the graduation ceremony at Henley’s Johannesburg campus. The issue mainly affects foreign students attending lesser-known UK educational institutions, where the fees are lower. “But if you are coming to a reputable institution to do a real degree for genuine, defensible reasons, you should have no reason to worry,” he says. “From Henley’s perspective, when it comes to business education, we expect to see no reduction in the number of foreign students coming to the UK to study for an MBA.” Just in case, some universities and schools are employing visa

GRIPPING GRAPH

Bleeding jobs Three consecutive quarters of job losses are yet another sign of a troubled economy ý New figures from Statistics SA show that SA’s formal nonagricultural sector shed 31,000 jobs in the third quarter of 2017, dropping to just 9.59m formally employed people. With losses of 41,000 in the first 14

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quarter and 31,000 by June, this marks the third straight quarter of job losses. In the third quarter, the community services sector (mostly government) lost 10,000 jobs, mining 9,000 and manufacturing 5,000. Meanwhile, gross earnings paid to employees increased by R19.5bn (3.3%), from R586bn in June to R606bn in September. x

December 21 - December 27, 2017

specialists to smooth the way. Board says the potential impact of losing reciprocal study rights between EU universities is not yet clear. Many “mainland” European students want to study in more than one country, so the ability to transfer credits across borders is welcome. “Student mobility across Europe has been a great success,” says Board. UK students are more inward looking and make less use of the opportunity. “But for foreign students who see the UK as a gateway for study across Europe, this may be something to bear in mind,” says Board. x

123RF/frannyanne

Number of employed in the nonagricultural formal sector (m) 9.75

9.59m 9.50 9.25

103,000 jobs

9.00 8.75 8.50 2013 Source: Stats SA

2014

2015

2016

2017

BY THE

BOARDROOM TAILS BY ANN CROTTY

NUMBERS Expats who have made SA their home

Top jobs: where hubris grows

68%

of foreign workers living in SA are satisfied with their lives in this country

Can corporate governance not counteract this? @anncrotty

A frightening number of business people are not only not very pleasant but believe they are accountable to no-one

t is an absolute waste. Hundreds of billions of rand of investor funds are wiped out and the reputations of many business icons are destroyed. The question is, was the Steinhoff implosion inevitable? And if it was, at what stage did it become so? As each dramatic twist of the story unfolds, you have to wonder: what does corporate governance hope to achieve? Under what circumstances, if any, is it appropriate to allow talented, driven individuals to manage hefty chunks of the savings of millions of investors? The question goes to the essence of the agency theory that lies behind shareholder capitalism. The fact is that a frightening number of top business people, globally, are not only not very pleasant but believe they are accountable to noone. Even more frightening is the possibility that their success rests on the fact that they are not very pleasant. They are driven by emotions the majority of us have in modest amount. The desire to achieve, to win and to be rich, or at least better off, most of us are familiar with. In a world obsessed with material consumption they are emotions we cannot afford to ignore. The most successful business people have them in spades. What they don’t seem to have is counter-balancing emotions, such as compassion, which would ensure they do not wreak mayhem on society. Read the biography of any leading business person and you’re likely to cringe at the appalling antisocial behaviour. An extreme case is Steve Jobs. He was filled with anger that presented in radical egocentricity. And

yet, through Apple, he left an overwhelming legacy. Should those around him have been expected to tolerate his intolerable behaviour? Is the chilling reality that if Jobs had not been so obnoxious he would not have been so productive? If the world consisted of decent humans with modest ambitions, would we still be cave dwellers? Jobs is an extreme case. But it looks as if a number of CEOs of more modest talents exhibit similar disturbing personality traits. Amazingly, it seems to make little difference whether they are the creators behind their businesses, have merely assumed the mantle of leadership or are within reach of that much-vaunted position. Our corporate leaders, like our politicians, cling to the company of like-minded individuals, to people who assure them they are making an amazing contribution to society. This must surely be the ideal breeding ground for hubris. Most of the time this hubris just ends in the awarding of inappropriately generous remuneration packages to the CEO and his cronies. In extreme cases, such as African Bank and Steinhoff, it ends in wholesale destruction. Controlling extreme egocentricity and preventing hubris is one of the key unstated objectives of corporate governance. It is an attempt to ensure people in powerful positions behave according to a code society believes is acceptable, a code that protects us from the destructive inclinations not of capitalism but of capitalists. It shouldn’t be necessary — but unfortunately leadership often seems to attract the worst sort. x

67%

are satisfied with their career prospects in SA

40%

moved to SA for its lower cost of living

Expat cash and investment in SA Below US$200,000 $200,000 $500,000

55% 5%

$500,000 $1m

More than $1m

Not disclosed

32%

Globally mobile individuals median in SA: $235,000+ All globally mobile individuals median: $200,000+

34%

of expats working in SA own property in the country, compared with an average of 18% of expats in all locations surveyed Source: Cigna 360° Well-being Survey

December 21 - December 27, 2017

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

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A LISTED CITY? NOT FOR SA

BRUCE LOOKS BACK

Cyril Ramaphosa will need all his skill to get a divided ANC on the same track â&#x20AC;&#x201D; not only to save its dignity at the polls in 2019 but to ensure he becomes SA president

Leaked e-mails show Canadian firm Bombardier was in talks about selling a second plane to the Guptas even after corruption allegations had been publicised

It sounds like a solution to SAâ&#x20AC;&#x2122;s service delivery problems, but placing a whole metropolitan area in private ownership is probably not a workable plan here

Veteran SA newsman and columnist Peter Bruce reflects on the state of the trade he has dedicated his life to and some of the challenges it faces

December 21 - December 27, 2017

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cover story / anc elective conference

ONE STEP FORWARD New ANC president Cyril Ramaphosa will need all his skill and charm to get a divided party on the same track — not only to save its dignity at the polls in 2019 but to ensure he becomes president of SA and gets the country working again Natasha Marrian, Genevieve Quintal, Theto Mahlakoana and Claudi Mailovich

yril Ramaphosa is the new ANC president, but his victory has been poisoned. He will be heading a mixed slate of ANC leaders after beating Nkosazana Dlamini-Zuma by 179 votes — not a commanding victory over the candidate favoured by outgoing party leader, Jacob Zuma. After a two-decade wait for the top position in the party, Ramaphosa was elected president with 2,440 votes to his rival’s 2,261. He is no newcomer to the ANC’s top six. In 1991 he was elected secretary-general (with Zuma his deputy) and was head of the party’s negotiations commission at the Convention for a Democratic SA (Codesa). Ramaphosa, a former leader of the National Union of What it means: If Ramaphosa hopes to win Mineworkers, was tipped to become Nelson Mandela’s trust in the lead-up to deputy and successor but elections and restore investor confidence, he will the ANC “collective” thought differently and he lost out to have to act decisively Thabo Mbeki. It was supposedly because of this that he resigned as ANC secretary-general and from parliament in 1996, and became a leading businessman. He has, however, served as a member of the party’s national executive committee (NEC) since then. He returned to the ANC’s top six at the party’s 2012 Mangaung conference, as deputy president on Zuma’s slate. Now he has succeeded Zuma as president of the ANC and possibly of SA. Ramaphosa will have to work closely with a mix of friends and foes elected beside him at the conference. He is effectively hemmed in by two current Zuma allies and one former supporter of Zuma. But he is tough, per18

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December 21 - December 27, 2017

sonable and has negotiating skills. His right-hand man and deputy president will be Mpumalanga chairman David “DD” Mabuza, a somewhat sinister and wily operator who — with all his faults — is seen by some to be strong on governance. Mpumalanga under Mabuza was one of only two provinces that registered improvement, according to the auditor-general’s 2015-2016 report on local government. Mabuza beat “princess” Lindiwe Sisulu for the party’s deputy presidency by a relatively comfortable 2,538 votes to 2,159. No member of the top six received more votes. Before the results were announced it was clear that Sisulu had lost. She cast a lonely figure on stage, speaking to noone and looking ever more sour as day turned to night. It was the Mpumalanga vote which swept Ramaphosa to victory — through a deal apparently not of his making. Mabuza, a former Zuma ally, had been keeping his cards close to his chest, vacillating over which candidate he would back. The Ramaphosa camp were aware that they would have to turn to at least one Zuma province for their man to stand a chance. Mabuza, who is hostile to the Guptas and worried about the ANC’s sliding electoral fortunes, was identified as an amenable potential ally. As a practical, ambitious politician, Mabuza was open to making a deal. He had for months been in talks with the provincial party bigwigs of Gauteng, the Eastern Cape, Limpopo, Northern Cape and the Western Cape. But on the eve of the conference he told regional leaders in his province that he was going with Dlamini-Zuma and that his attempt at forging a “unity ticket” had failed. This meant the votes of his province would go to Dlamini-Zuma. Ramaphosa backers were at that stage not too concerned as they had already “quarantined” 397 delegates from the province. But panic set in after Mabuza individually called a

large bloc of Ramaphosa delegates to convince them to switch. The chairmen of the five provinces again stepped in. It is understood that they agreed to give Mabuza Gauteng’s votes for the deputy presidency if he would back Ramaphosa for the top job. And just like that, the conference outcome was sealed. On Monday, shortly before the announcement of Ramaphosa’s victory, sources in the Dlamini-Zuma camp raged against Mabuza’s “betrayal”. Campaigners in her inner circle conceded that Mabuza had “done a deal”. The most contentious vote was the one for secretary-general. Controversial Free State chairman Ace Magashule snatched the position from former KwaZulu Natal secretary Senzo Mchunu, by a mere 24 votes. A few hours after the announcement it came to light that 63 votes, presumed to have gone to him, had not been counted. It sent the Ramaphosa camp apoplectic and they called for those votes to be tallied. But those who supported DlaminiZuma held a gun to their heads — drop the fight for a recount of the secretarygeneral position or they will demand a re-vote on all positions. The matter was finally closed on the conference’s last day after Mchunu received 17 additional votes, still failing to secure the position. But who is Magashule? His election as secretary-general is, at the very least, an interesting choice for the party. No-one disputes that Magashule is popular among ANC delegates: his name “Aaaace, Aaaace” reverberated with a looping cheer whenever he appeared. Magashule got by far the loudest and most enthusiastic applause when election results were announced, even though Mchunu was expected to land the role. Despite his charisma, Magashule is a less than savoury character. He has run the Free State in a dictatorial fashion since he took the chairman’s reins in

Cyril Ramaphosa: Big challenges ahead Bloomberg via Getty Images/Waldo Swiegers

December 21 - December 27, 2017

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cover story / anc elective conference

(From L) ANC top six elected: deputy secretary-general Jessie Duarte, secretary-general Ace Magashule, national chair Gwede Mantashe, president Cyril Ramaphosa, deputy president David Mabuza and treasurer-general Paul Mashatile celebrate on December 18 2017 Getty Images/AFP/Mujahid Safodien

1992. But in all this time he has not quite worked his magic to the benefit of the voters. The courts have banned the provincial executive committee (PEC), which he leads, not once but twice from attending a national conference — at Mangaung in 2012, due to alleged vote rigging, and again this year as Free State faced a barrage of court cases leading up to the national conference. First the high court in Bloemfontein had to order Magashule and his PEC members to hold a provincial conference after their mandate expired in May. Then the court, in a separate case, had to interdict the conference from taking place as 29 branch general meetings had to be re-run. The conference, first postponed, eventually took place. There was no real time for Magashule and the new PEC to celebrate before they were hit with another urgent court application. The least damaging outcome for the province was handed down in court, as the applicants had asked for all Free State delegates to be barred, but succeeded once again in stopping the 27 PEC members from voting. Magashule’s track record in handling internal disputes is less than optimal for a man who, as secretary-general, will have to deal with the ANC’s internal disputes. He is rumoured to be astute at “stealing elective conferences” as the court findings against his leadership suggests. Internal politics aside, governance in the Free State under Magashule’s leadership is also an issue, as Mangaung is seen as the worst-run of all of the metros. The auditorgeneral described the Free State, together with North West and the Northern Cape, as “the worst performing provinces” when the 20

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December 21 - December 27, 2017

2015-2016 report on SA’s 263 municipalities was released. For a party looking to hang on to power in 2019, it would have to prove it can clean up its act. Both those issues are red flags. But the biggest issue, in a climate of voter alienation from the ANC, is the damning allegation of state capture. Magashule has been linked to the Gupta family since R30m of public money for the Vrede dairy farm in his province was used to pay for an extravagant Gupta wedding in 2013. The Guptas also bankroll Magashule’s sons — the premier has been described as a “mini-Zuma”. His re-elected deputy, Jessie Duarte, has also been linked to the family accused of capturing the state and has caused major rifts in the ruling party. It has been said — only half jokingly — that the Guptas have effectively captured the ANC’s secretariat. The presence of Magashule and Duarte, if not Mabuza, in the top six could be a major stumbling block for Ramaphosa, who has promised to eradicate state capture and make those involved pay. Former secretary-general Gwede Mantashe, an old union ally of Ramaphosa, also returns to the top six — this time as national chairman. Before his election as chairman on Monday, Mantashe — in his final briefing with the media as secretary-general — joked that by the afternoon he would be unemployed and would be available for a job as an editor. Mantashe is very familiar with the workings of Luthuli House, as he spent a decade running the ANC headquarters. He was also

instrumental in elevating Zuma to his position of president and ensuring he got a second term. But there has apparently been a breakdown in the relationship between the two. Mantashe was coy about this as he left office, telling journalists his relationship with Zuma was professional and not personal, and that he did not keep a diary of their time together. When the dust settles and the congratulatory notes stop streaming in, Ramaphosa will have to focus on the implementation of ANC-sponsored policies in government to prove the party is not stuck in a rut. During his campaign, he promised the country and the ANC members who voted him into power a “new deal” and a number of other interventions to revive the economy. He has had many chances, as a leader of government business and an intermediary between the business community, the ANC and government, to hear the cries of leaders and activists who are concerned about SA’s lack of policy direction on economic growth. If he hopes to win public trust in the leadup to the national elections in 2019 and restore investor confidence, he will have to act decisively. That includes dealing with allegations against senior members of his party, some of them in the top six. The adoption of policies in the ANC is usually skewed towards the candidate who wins, with their suggestions supported by the majority of delegates who would have already shown their loyalty to the winner by backing them in the polls. Ramaphosa will also be pressured by the ANC’s alliance partners, the SA Communist Party (SACP) and Cosatu, to fulfil the elective mandates they gave him as they pushed for his appointment. They strongly backed him in the presidential race. Top of their list of demands is the reconfiguration of the alliance, which has all but broken down. Should Ramaphosa fail to deal with corruption or not carry through some of the proposals made in relation to job promotion and alliance unity, the ANC could — for the first time — face its old ally, the SACP, at the 2019 polls. The SACP has been threatening to exit the alliance and establish a “mass democratic movement” while Cosatu’s congress next year will decide on a plan of action should the SACP contest state power. As ANC president, Ramaphosa will want to take strides towards the presidency of the country — but may be hobbled by the makeup of the top six. Those celebrated negotiation skills, which helped to construct SA’s admired constitution, will be essential in navigating his way over difficult terrain. x

Losers

Winners • Jacob Zuma. The president’s body language when Cyril Ramaphosa was announced as the new ANC leader told a story of a man enraged by the prospect of having no power over the governing party as his legal woes multiply. Zuma endorsed Nkosazana Dlamini-Zuma, who is also his former wife, before the oﬃcial ANC campaign season was even announced, describing her as a capable leader with a proven track record. Critics said his support was self-serving, as he hoped to wield power though her and continue to pursue his own interests.

• Cyril Ramaphosa. His election as the new president of the

• Bathabile Dlamini. The leader of the ANC

• David Makhura. Gauteng, under premier Makhura, is seen as progressive for speaking out against the rot in the ANC and consistently warning the party of the dangers it faces if it stays on its present negative path. Two of the top six ANC leaders come from the province – Ramaphosa, whom it backed from the outset, and new treasurer-general Paul Mashatile.

Women’s League threw all the group’s might and resources behind Dlamini-Zuma. Theirs was nominally a push for a ﬁrst female president of the ANC and for gender equality. They not only failed to get their candidate elected but have only one woman in the ANC top six — the deputy secretary-general, Jessie Duarte.

ANC has provided reassurance not only to business but to the country at large, with some viewing him as the party’s chance to shed its disreputable image. Organised business has expressed its support, saying he and the rest of the top six now have to focus on restoring investor conﬁdence and reviving the economy.

• Collen Maine. The leader of the ANC Youth League had to swallow a large slice of humble pie when Ramaphosa emerged victorious on Monday. Not only did the league publicly disparage the deputy president, it cast aspersions on his business proﬁle and called him an “American puppet” a er he said he believed that Zuma’s rape accuser Fezekile Kuzwayo was indeed raped. The league will have to bow and scrape now as it cannot function without the support of the top guy.

• David Mabuza. Dubbed the kingmaker, the Mpumalanga premier ran easily the most clinical and strategic campaign, to emerge as ANC deputy president. His ruse of a unity ticket enabled him to manoeuvre between the diﬀerent leadership slates and become number two to Ramaphosa, whom he had never publicly endorsed and who had to swallow hard.

• Nomvula Mokonyane. The minister of water & sanitation hasn’t had a political home since falling out with the ANC leadership in Gauteng over her unsuccessful campaign to become party provincial chair in 2010. Her failure to garner support at the national conference could place her out in the cold, as her loyalties have always been with the Zuma camp.

• Ronald Lamola. The former deputy president of the ANC

• Mzwandile Masina. A keen supporter of the Zuma leadership, the Ekurhuleni mayor said on the eve of the conference that he would resign from his post if Ramaphosa was elected to lead the ANC. He now says he was misquoted.

• Bonang Mohale. Ba ing for business, the CEO of Business Leadership SA has long called for a reputable leader who would take the country forward. With Ramaphosa at the helm of the ruling party, business would expect not only a leader who understands their needs, but an ally.

• Sihle Zikalala. KwaZulu Natal, where Zikalala is ANC leader, enjoys the status of the province with the largest number of ANC members, but a court action nulliﬁed the results of its 2015 provincial elective conference. Not only were the delegates from the province barred from taking part in voting, the province does not have a representative in the new top six of the party for the ﬁrst time in decades.

• Pravin Gordhan. The former ﬁnance minister showed enormous courage and paid the price for resisting the Zuma-Gupta state capture project at its height. He has been vindicated by the defeat of the president’s candidate. Whether he or his co-defender, former deputy minister Mcebisi Jonas, are oﬀered their jobs back – and whether they want them — remains to be seen.

Youth League has been in the political wilderness since the crumbling of the executive he was part of when Julius Malema was kicked out of the party. Despite his criticism of Zuma over the years, Lamola has been nominated as a member of the ANC’s NEC.

December 21 - December 27, 2017

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ON THE GROUND AT NASREC BY NATASHA MARRIAN

SOMETHING AMISS How could it be that the Gupta-linked, Free State chairman-since-1992, whose provincial finances are in a mess, was elected to run Luthuli House?

s I pull an ANC provincial chairman aside for an interview he says: “You are stressed, I can see it in your face.” “You look worse,” I laugh. He is supporting Cyril Ramaphosa for the ANC presidency. It is the second day of the ANC’s 54th national conference and the so-important party credentials or attendance register has just been adopted. My anxiety is wrought by deadlines, frustration over the media’s

Senzo Mchunu

When 68 quarantined votes were eventually counted, Magashule’s victory was not overturned 22

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isolation from ANC delegates for the first time — in the past we were able to interact with them, talk about the weather and the food, interact as humans. This time the media were gated in a corner. His anxiety was over the elecDecember 21 December27, 27,2017 2017 21--December

tion race and whether his man would win. But he is mum about why his optimism over Ramaphosa’s chances has dimmed. Something is up. I wrap up my interview and hit the phone. It emerges that Ramaphosa’s backers have 397 delegates from Mpumalanga “quarantined” — they had committed to voting for him. But the Dlamini-Zuma faction has begun calling these delegates one by one and it is unclear if they’ve switched sides. This explains the Ramaphosa man’s anxiety. While there are critical battles being fought on the conference floor, the behind-the-scenes fights and lobbying are perhaps more important. In the end Mpumalanga came through for Ramaphosa and the Dlamini-Zuma camp saw this as a betrayal by provincial chairman David Mabuza, who was rewarded with the deputy presidency for his troubles. On the conference floor, the battle over credentials went by surprisingly quickly, even though it was tense. The next fight was over constitutional amendments — whether or not to have two deputy secretaries-general instead of one (the Dlamini-Zuma team pushed for two). Their loss on this issue, or “withdrawal” as they put it, was the first indication that Ramaphosa would win; it provided a smidgen of evidence in an extremely tight race marked by intense propaganda, particularly from the DlaminiZuma side. Delegates then voted in a long and tense process. By midafternoon on Monday, I began receiving elated messages from the Ramaphosa camp on the one hand and dejected ramblings from the other

side — one was kind enough to send me her “acceptance speech”, with a warning that the rumour of a Ramaphosa win was “white monopoly capital spin”. Ace’s odd emergence The announcement of his victory just after 7 pm confirmed my sense that he’d won, but I was blindsided by something else — the emergence of Ace Magashule as secretary-general. I did not see that one coming, and besides, he had twice been caught by the courts fiddling in his own, Free State, province’s election and here he was, elected to run elections for the mother body. The Gupta-linked, Free State chairman-since-1992, whose provincial finances are in a mess, now elected to run Luthuli House? It could not be. I hit the phones again; was there something amiss? There was. I was told the Ramaphosa-aligned Senzo Mchunu had been a shoo-in for that post. On the conference floor, as the announcement was being made, Mchunu was already being hoisted onto the shoulders of KwaZulu Natal delegates, so convinced were they that he had it in the bag. They gently set him down as Magashule went up to the stage. Back in the media centre, messages flooded in from sources in the Ramaphosa camp after I asked: “What happened to Senzo?” There followed a furious behind-the-scenes battle over whether 68 votes, which were set aside and not counted, would be added to the tally and cause Magashule’s election to be rescinded. This ANC national conference at least delivered on its promise — it was a nail-biter all the way. x

JACOB ZUMA

Dead president walking Former ANC president Jacob Zuma took a deep breath and clenched his fists as Cyril Ramaphosa’s name was read out as the new leader of the party. On stage Ramaphosa was wiping away tears. Zuma pursed his lips. He tried to smile but could only muster a smirk before his mouth pursed again. He shifted in his chair, unable to hide his disappointment even though there was a sea of reporters on the floor in front of him. The past year of ANC campaigning — so intense it was feared the party would not survive its elective conference — all boiled down to this moment. And in this moment, Zuma lost. He had set the stage for a bruising battle between Nkosazana Dlamini-Zuma and his deputy, Ramaphosa, when he pronounced ahead of the

2014 election that the next president of the ANC should be a woman. His allies in the ANC Women’s League defied party protocol by endorsing DlaminiZuma a day after the party’s national executive committee (NEC) ruled that no candidates to succeed Zuma should be named. Zuma, too, went against the party when he endorsed Dlamini-Zuma at a prayer meeting before the official nomination process began. He badly wanted her in the post. Had she won, he in all probability would have been asked to step dow Her national caucus had decided last month to ask him to make way for Dlamini-Zuma before the ANC’s January 8 anniversary statement, so that she could “prove her worth” before the 2019 general election.

And they would have protected his “legacy”. But she did not win. Zuma is now a dead man walking. Ramaphosa must remove him from his post to restore the integrity of the party and government, the cornerstone of his campaign. Zuma’s entanglements with the law are so many and so complicated that he is set to face an onslaught from all fronts, without the cover of the party. The key is: who will be elected to the 80-member NEC? Only it, or a national conference, can “recall” a sitting president. The decision is likely to be taken by the new NEC, unless the structure elected this week is packed with Zuma backers, as the last one was. This is why, despite Ramaphosa’s election, the battle for control

is not over yet. It is in government that Ramaphosa would be able to exercise his authority more effectively for now. The courts have already empowered him to appoint a new national director of public prosecutions (NDPP). Zuma is appealing but this is simply postponing the inevitable. Even if Zuma wins on appeal, Ramaphosa would probably appoint the next NDPP as SA president should he lead the ANC to victory in 2019, which is likely. Zuma has not yet indicated if he will appeal against the high court judgment on state capture — and that commission of inquiry will be appointed by Chief Justice Mogoeng Mogoeng. Zuma’s time is running out. x Natasha Marrian, Genevieve Quintal and Claudi Mailovich

December 21 - December 27, 2017

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ON THE GROUND AT NASREC BY GENEVIEVE QUINTAL

ACE UP THE SLEEVE? Magashule’s narrow victory in the race for the secretary-general’s post, and David Mabuza’s elevation to deputy president, rocked the conference

member of the ANC’s department of information & publicity walks past a colleague and me and asks: “Why do you look so nervous? You’d swear that you were voting delegates.” It is Monday, day three of the ANC’s 54th national conference. Delegates have been voting through the night for their new top six leaders and we, the media — and the rest of SA — are on tenterhooks for the results.

Mantashe said the media were cooped up to prevent a free-for-all and the conference collapsing 24

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At his final briefing on Monday, ANC secretary-general Gwede Mantashe was asked about this new secrecy and alienation of the media. He said it was to put a stop to a “free for all” and ensure communication was formal and structured. “[Imagine] the scenario of the conference becoming a festival of journalists talking to branch delegates and allowing delegates to have debates they are having in plenary with journalists. That destroys [the] essence of conversation, it’s a formula for a collapsing conference,” he said. But technology is Ace Magashule our friend. After nominations and the commencement of voting, backers of Cyril Ramaphosa and Nkosazana DlaminiZuma were hard at work trying to convince people that their candidate had it sewn up. Videos of large numbers of delegates caucusing on the sidelines were making the rounds. There were head counts of actual delegates attending these caucuses Ace Magashule and the numbers were sent out to show just how strong they were. ANC leaders took to Twitter to It has been a long three days make their endorsements and cerwith 1,000 journalists cooped up tain leaders, mostly provincial behind a fence with no access to chairmen and league leaders, were the delegates and limited informaushered into the media pen to give tion about what is happening. interviews about how confident This is starkly different to the they were that their candidate ANC’s Mangaung conference five would win. years ago, where Jacob Zuma was Some media houses, those who elected for a second term, or to the so badly wanted Dlamini-Zuma to 2007 Polokwane conference, say win, started calling it in her favour colleagues who were there. Then on Monday afternoon. Our motto the media were free to walk was, rather be right than first. around and talk to delegates. December 21 - December 27, 2017

So we sit writing for every possible scenario. With so much time on our hands waiting to be ushered to plenary, we might as well use it wisely. Finally we are taken into the main hall, only to spend almost two hours waiting for an outcome. Imagine hundreds of journalists on the floor, almost sitting on top of each other. What a way to get to know colleagues more intimately. The atmosphere is electric. Delegates from both sides are resilient; they keep singing and chanting as recount rumours do the rounds. Jelly and custard By this time there are a number of disappointed faces on the stage where the outgoing ANC leadership and national executive committee are sitting. Cellphone batteries are running low — every journalist’s fear ahead of a big announcement, especially in this day and age, as you’re not just expected to write a story but to tweet, blog, and take video and photos. Finally the electoral commission arrives and results are announced — with some shocks. I mean, who thought Ace Magashule would make it to Luthuli House on a Ramaphosa ticket? Even the media, who spend a lot of time with the ANC secretary-general, are shocked. But now the real work starts: interpreting what has happened, making deadlines and finding the back story. Another few hours of frenzied writing and the stories are written, we are exhausted but comforted by a little tub of jelly and custard. Oh wait, it is not over, we are dealing with a possible recount. Time for more jelly and custard. x

JZ’S PRESIDENCY A SNAP OVERVIEW SINCE MAY 9 2009 …

cover story / anc elective conference

THEN

NOW

JSE ALL SHARE INDEX

21,840

55,304

GDP

US$295.9bn

$294.8bn

MINING’S CONTRIBUTION TO REAL GDP

8.5%

7.3%

TAX REVENUE

R572.8bn

R1.14trn

CORPORATE INCOME TAX

26.7%

18.1%

UNEMPLOYMENT

21.5%

27.7%

5 4

Pravin Gordhan May 11 2009–May 25 2014

Nhlanhla Nene May 25 2014–Dec 9 2015

Menzi Simelane (2009–2012)

David Des van Rooyen Dec 9 2015–Dec 13 2015

Nomgcobo Jiba (acting)

Mxolisi Nxasana (Oct 2013–May 2015) Pravin Gordhan Dec13 2015–March 30 2017

Shaun Abrahams (2015– )

Cabinet appointments:

Zuma has changed ministers 62 times, and deputy ministers 63 times

Two of Zuma’s appointees, Simelane and Abrahams, removed from oﬃce by the courts

Malusi Gigaba March 30 2017

December 21 - December 27, 2017

financialmail.co.za

cover story / anc elective conference

POST-ELECTION INDIGESTION

For years, the faction close to Jacob Zuma has revelled in their position close to the trough. But the election of Cyril Ramaphosa meant the only thing on the menu for them now is humble pie

Premature celebration: Gala dinner held in honour of Nkosazana Dlamini-Zuma on December 13 Gallo Images / Netwerk24 / Felix Dlangamandlat

All dressed up and nowhere to go: Nkosazana Dlamini-Zuma and Bathabile Dlamini at the gala dinner Gallo Images / Netwerk24 / Felix Dlangamandla

Claudi Mailovich mailovichc@bdfm.co.za

he ANC’s 54th national conference was a surprisingly dry state of affairs. The sun was scorching, the delegates’ shirts were inoffensive, and when the rival factions sang songs of unity together, it was surprisingly out of rhythm for a party whose members can sing. Perhaps the culprit was the lack of booze. At its last conference in Mangaung, Bisquit cognac flowed freely. The party even extended the courtesy to journalists who covered the event. This time, the 1,000-odd journalists covering the event were, by circumstance, sober. Only a few rebels sorting out their nerves, courtesy of their own boot bars. The food served by the ruling party was serviceable, but the virtues of the pudding cannot be understated. Had there been a vote for the Nasrec trifle, you can bet 68 votes wouldn’t have vanished. Perception became everything. In the two days leading up to the vote at Nasrec, huge caucus meetings of delegates supporting either Cyril Ramaphosa or NkosazanaDlamini Zuma took place. It was a visual numbers game: the caucuses counted heads

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December 21 - December 27, 2017

and spread images to brag about whose was bigger. Dlamini-Zuma’s camp met in the December heat, singing about the hope of a woman president; Ramaphosa’s caucus met in the dark, with cellphone screens illuminating the crowd of faces who saw him as a new hope for the divided ANC. Until that point, many veteran ANC members had remained coy about saying who they supported. In the dead of night, they nailed their colours to the mast. ANC spokesman Zizi Kodwa tweeted: “Though we are in a holiday season, South Africans are depressed, we need a leader to change the mood of the country, SA needs a ‘Cyril moment’.” In the plenary, the tension was palpable ahead of the announcement, as the 4,700 delegates waited to see if they had mustered the numbers. To some extent, the faces of the party’s national executive betrayed the results. And when Ramaphosa was declared the winner, half of the plenary erupted. Half of KwaZulu Natal was elated, while the rest sat silently, echoing the gloom of Dlamini-Zuma’s supporting provinces.

Lindiwe Sisulu, who lost out as deputy president to David Mabuza, looked particularly livid. ANC Women’s League president Bathabile Dlamini burst into tears and had to be consoled in a small room in the media lounge. Afterwards, the bumbling Dlamini told journalists that the party had “regressed on the issue of women”, saying “patriarchy has once again reared its ugly head”. Yet when asked if she’d voted for Mabuza or Sisulu as deputy president, Dlamini could only mumble that her vote was a “secret”. She wasn’t the only one of Ramaphosa’s critics to taste this particular Nasrec vintage of humble pie. Carl Niehaus, the disgraced spokesman for the Umkhonto WeSizwe Military Veterans Association, and ANC Youth League president Collen Maine had to go on national television and welcome “comrade Ramaphosa”, even though they’d earlier derided him as the face of white monopoly capital. Considering their particular faction had spent many years at the trough, both of them seemed uncomfortable with the generous portion of humble pie dished up. x

THE TREASURY AFTER NASREC BY PETER BRUCE

FEAR AND FOLLY When he becomes head of state Ramaphosa probably won’t keep Malusi Gigaba on as finance minister but he is likely to keep him inside the tent

lmost as sure as night follows day, President Jacob Zuma will not be delivering the state of the nation address in February. Cyril Ramaphosa’s victory as the new ANC president virtually guarantees that Zuma will be gone soon. He is by any standards an electoral liability. Even had Nkosazana Dlamini-Zuma won, there was general agreement in the party that Zuma would have to vacate the Union Buildings quickly. It doesn’t matter that the new national executive committee might be divided. Ramaphosa would have no trouble persuading it, should he need to, to recall the sitting president. Zuma is history. Talk of how Ramaphosa is “hemmed in” by the Zuma faction

Zuma’s ministers lived in fear of him or were secure because they believed he knew what he was doing

Malusi Gigaba

is babble from people who don’t appreciate how much leaders matter in our politics. Zuma will soon be gone. But because of the narrow vote Ramaphosa will try his utmost to hold the party together. Any political leader would. He will become head of state when Zuma goes in the next few weeks and his cabinet picks will be careful and critical. He will need to ensure that KwaZulu Natal is adequately represented. Two names are easy to add: former KZN ANC bosses Senzo Mchunu and Zweli Mkhize, also the former ANC treasurer-general. Some KZN ministers would obviously go. Bathabile Dlamini should already be clearing her office. Police minister Fikile Mbalula is a tricky call. My guess is that Ramaphosa would find something for him. But the big question would be about finance minister Malusi Gigaba, brought in to national treasury in an extremely unpopular cabinet reshuffle earlier this year. Gigaba was home affairs minister at the time and his landing at treasury has been hard. Zuma had already made a mess of the economy by hiring and firing finance ministers, cosying up to the corrupt Guptas, making bad policy or not making decisions. His ministers either lived in fear of him or were totally secure because they were not only loyal but believed he knew what he was doing. Gigaba fell between the blind loyalists and the fearful. It’s where he has spent much of his adult political career. He’s an interesting man because he has made his own way and he holds on to his own ambitions.

Sure, he dresses foolishly at times. And his dalliances with the Guptas have been poorly judged. But in the absence of a judicial inquiry into state capture or an actual trial, real malfeasance on his part has yet to be proven. I know for a fact that he kickstarted state capture when, as public enterprises minister, he fired the chairmen and boards of Eskom, Transnet, Denel and other state-owned companies and replaced them with Gupta proxies in many instances. But that reveals his strengths and weaknesses. He follows orders. He could not possibly have known the people he was appointing. Zuma was given a list by the Guptas and Zuma gave it to Gigaba and Gigaba implemented it. Much the same would have applied to the special arrangement the Guptas used when Gigaba was home affairs minister, to bring Indian citizens to SA illegally to start up their TV channel, ANN7. Nine months in treasury will have taught Gigaba invaluable lessons, the main one being that money doesn’t grow on trees. Real economic success has nothing to do with radical economic transformation. It has to do with hard, painstaking work, attention to detail and integrity. He went in wet behind the ears. He will come out a man. Integrity is what he sacrificed to please Zuma. I don’t think Ramaphosa will keep Gigaba at treasury. He’d try to bring back Pravin Gordhan or perhaps put Mkhize in the job. But Ramaphosa would, I think, rather keep Gigaba inside the tent than outside. x

December 21 - December 27, 2017

financialmail.co.za

feature / bombardier

THE FLIGHT OF MONEY

he Gupta jet registered as ZS-OAK faces being impounded as the Saxonwold family close to beleaguered President Jacob Zuma appears to have run out of money to make scheduled repayments. The Financial Mail has reliably learnt that the Canadian government’s export credit agency, which provided a soft loan for 80% of the finance required for the jet, has instituted legal action against the Guptas for defaulting on their payments. The agency, Export Development Canada (EDC), promotes the growth of Canadian businesses abroad by providing finance to international customers who buy products from that country. Documents contained in the Gupta e-mail leaks show that by October 14, when the next US$1.4m payment for the aircraft fell due, the Guptas still owed $28.3m to EDC. Sources in the aviation industry told the Financial Mail that EDC had in November grounded the aircraft at Lanseria airport for 48 hours “due to nonpayment. It would appear that a bank (unknown to us) provided the guarantee of funds and the EDC released the aircraft”. This was confirmed by another source. Flight records for ZS-OAK show that since it departed from Lanseria, the aircraft travelled mostly between India and Dubai, where the Guptas have property and business interests. But on December 13 it flew from Dubai to Zurich, where it remained for

Leaked e-mails show that Canadian firm Bombardier was negotiating with the Guptas about the possible sale of a second plane to them even after corruption allegations had been widely publicised Stephan Hofstatter stephanh@businesslive.co.za

six days before taking a 36-minute hop to EuroAirport Basel Mulhouse Freiburg in France on Tuesday evening. Asked this week if the Guptas have defaulted on their loan, EDC spokesman Phil Taylor confirmed that the Canadian lender has cancelled the finance agreement. “EDC monitored the performance of the transaction, as it would for all of its counterparties,” Taylor says. “Consistent with EDC’s underwriting principles and policies, we exercised our contractual rights and the transaction was terminated.” He declined to comment further. However, the Financial Mail understands that the Guptas are currently embroiled in a legal dispute with EDC, which apparently wants to seize the jet to settle the outstanding debt. The Gupta family had not responded to emailed questions by the time of going to print. The Gupta e-mail leaks contain several revelations that raise uncomfortable questions about the business dealings of both Canadian aircraft and train manufacturer Bombardier and EDC with the Saxonwold family. They show that in 2015, despite being aware of the political risks attached to the Gupta family, EDC funded $41m towards the purchase price of the Gupta family’s now infamous Bombardier Global 6000, registered as ZS-OAK. The aircraft was used to fly cabinet ministers and parastatal bosses who furthered the Guptas’ business interests around the world, including to Mumbai and Dubai, where several were put up in luxury hotels.

April 2013

November 2013

February 2014

March 2014

June 2015

December 2015

The Gupta brothers cause an international scandal when they commandeer Waterkloof air force base to fly in guests for the four-day wedding of their niece, Vega

Bombardier makes its ﬁrst sales pitch to the Guptas for a Global 6000 aircra later registyered as ZS-OAK

Bombardier makes a generous “revised” oﬀer to sell the aircra to the Guptas for US$52m. The price includes “extras” worth $2m, $1.35m in credits and free pilot training. Export Development Canada (EDC) provides 80% of the funding

Transnet awards Bombardier a R13bn tender to build 240 locomotives. EDC provides $450m of the funding

Bombardier oﬀers to sell the Guptas a second Global 6000 with funding from EDC

• President Jacob Zuma replaces

financialmail.co.za

December December21 21- -December December27, 27,2017 2017

respected ﬁnance minister Nhlanhla Nene with small-town MP and Gupta conﬁdant David Des van Rooyen. He is removed four days later, a er the rand reaches record lows. Fears that the Guptas are intent on capturing treasury intensify

• Absa decides to close the Guptas’ bank accounts, citing suspicious transactions suggestive of money laundering

ne nt our

nk s

The leaks further reveal that in 2016, a year after the Guptas bought ZS-OAK and amid an international outcry at allegations of the family’s role in state capture, Bombardier was putting the finishing touches to the sale of a second Global 6000 to Gupta companies. Zuma’s son Duduzane Zuma was involved in this deal. Though this sale never materialised — apparently because the Guptas were running short of funds — the negotiations documented in the leaked e-mails show the degree to which Bombardier was comfortable doing business with a family deeply mired in highly publicised corruption allegations. In fact, negotiations for the sale of the first Global 6000 were being finalised eight months after the Guptas first hit international headlines for commandeering a military airbase to fly in guests for the wedding of a relative in Sun City. The e-mails indicate that Bombardier appeared to be offering a generous deal to the family at a time when the Canadian company was bidding for state contracts in SA. In 2013, when Bombardier first offered to sell the Guptas the aircraft, US-based Flying Magazine gushed that “this kind of beauty and capability comes, not surprisingly, with a breathtaking price tag — the Global 6000 starts at about US$58.5m, a bit more if you want the shower”. In 2014 the list price was $60.5m. It increased to $62.3m in 2015. However, in February 2014 Bombardier offered the Guptas a “revised price” of $52m. The aircraft company also increased the number of pilots it offered to train from two to three and provided credit memos worth $1.35m along with extras and “special customisations” for the jet worth $2m. On February 19 2014 Trevor Lambarth, Bom-

bardier’s vice-president for aircraft sales in Europe, e-mailed Ajay Gupta, thanking him for the “hospitality and kindness” he’d shown him and Bombardier’s Africa sales director, Hani Haddadin, during their visit a few months earlier. Since then Lambarth and Haddadin had held discussions with potential financiers, including a private equity firm based in Chicago, in the US. An internal Bombardier e-mail says the funders were “okay, broadly, with the politically connected nature of the Guptas”. Lambarth’s e-mail to Atul Gupta concludes with the hope that clinching the deal “will lead to further opportunities for our organisations to explore working together, whether on infrastructure or aviation-related business”. Another funder “broadly okay” with the Guptas’ political connections was EDC. A repayment schedule and sale agreement contained in the leaks shows the agency loaned the Guptas $41m at preferential rates. The first of 28 instalments fell due in July 2015. By then the Guptas and close business associate Salim Essa, who is widely regarded as a front for the family, were already shopping for a second Global 6000 and hoping to secure the funding from EDC again. In June 2015 Haddadin sent an e-mail to Ronica Ragavan, CEO of Gupta holding company Oakbay Investments, following their discussion about buying another aircraft.

February 2016

November 2017

December 2017

Bombardier enters the final phase of negotiating the sale of a second jet to the Guptas and Duduzane Zuma, but the deal later falls through

EDC impounds ZS-OAK at Lanseria airport for 48 hours a er the Guptas default on payments

EDC takes legal action against the Guptas a er cancelling their aircra ﬁnancing agreement

“I am excited to be able to offer Mr Gupta a second aircraft to meet their growing travel needs,” Haddadin wrote. “Adding a second aircraft from a common fleet [will] have significant advantages to your daily operations, fleet commonality among others.” He added he was “currently in discussion with EDC bank and [would] be reverting back shortly with the steps going forward”. Eight months later, in February 2016, Haddadin e-mailed Ragavan again, asking the Guptas to approve the colour scheme for their second Global 6000. By then the Guptas had already become embroiled in a series of highly publicised corruption scandals involving Jacob Zuma and his family, with major banks closing their company accounts after flagging suspicious transactions over a year earlier that were suggestive of money laundering. “Following my meeting with Mr Salim [Essa], please find attached the exterior paint concepts, as requested,” Haddadin wrote in the e-mail, dated February 19 2016. “Kindly confirm which of the options they approve.” Ragavan forwarded the e-mail to Essa, Rajesh “Tony” Gupta and Duduzane Zuma. Bombardier confirmed last week that the sale of a second Global 6000 to the Guptas had not materialised, without providing reasons. The company bridled at the suggestion that the Guptas had received a discount. “I’m sure you are well aware that business jets are rarely sold at list prices, but at market prices,” spokesman Mark Masluch

December 21 - December December 21 -27, 27,2017 2017

financialmail.co.za

What it means: The Canadian company appeared to be offering a generous deal to the family when the firm was bidding for state contracts in SA said. “In fact, the price you mention here was well within a ‘normal’ sales price range for Global 6000s sold that year. Any suggestion otherwise is entirely false and lacks any factual basis.” He did not respond to a question about whether Bombardier had given any consideration to the reputational risk these sales could result in, given the controversies surrounding the Gupta family. EDC told the Financial Mail it had been “aware of potential political exposure risk” when it decided to finance the Gupta aircraft in 2014. “But we did not [uncover] any opportunities for the potential risk to manifest within the transaction itself,” says Taylor. “We felt that the indirect risks, which were speculative in nature but still present within the broader corporate structure and part of EDC’s review, did not present a material risk to the transaction itself at that time.” The Gupta leaks have demonstrated that the family alleged to have the country’s president in its pocket had grown accustomed to running a parallel state to serve its own business interests. But as Zuma’s power wanes, so do the fortunes of his shadowy network of benefactors. The days when the Guptas could seemingly snap their fingers to appoint cab-

inet ministers who would do their bidding are over. Their money squabbles with EDC might well be another indicator of their fall from grace. Two years ago the bank was eager to advance the Guptas a soft loan to buy one of the world’s most prestigious corporate jets. Today it just wants its money or its plane back. x

Transnet’s costly train detour In March 2014 Bombardier was awarded a R13bn contract to supply Transnet with 240 electric locomotives. The contract formed part of a R54bn Transnet tender, split between four bidders, for a total of 1,064 diesel and electric locomotives. Export Development Canada (EDC), the government agency that finances export deals for Canadian companies, provided US$450m towards Transnet’s contract with Bombardier. EDC also provided 80% of the funding for Bombardier’s sale of a private jet to the politically connected Gupta family, though the company has stressed the two deals were not connected. Since then the larger locomotive tender has become mired in controversy and will be the subject of a parliamentary inquiry early next year. 30

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December 21 - December 27, 2017

One of the issues under scrutiny is how total costs escalated by 40%. In November David Fine, a senior partner at global consultancy McKinsey, told parliament that Transnet had estimated it would cost R38.6bn to buy the 1,064 locomotives over seven years, including hedging and escalation costs. The estimates were provided by Transnet Freight Rail and were based on recent acquisitions and “expert input from [UK firm] Advanced Railway Technologies”, Fine said. McKinsey led a consortium of advisers to the project until shortly before the tenders were awarded. “After McKinsey withdrew from the project, I am aware that Transnet signed a three-year locomotive acquisition contract with four manufacturers for 1,064 locomotives at a total cost of around R54bn (including contingencies) on March 17 2014, which compares with the original R38.6bn,” Fine said. Transnet had originally estimated electric locomotives would cost R34m each. This would have put the price tag for Bombardier’s 240 locomotives at R8.2bn, rather than the final price of R13bn, or R54m per locomotive. Bombardier says the price differential is explained by the fact that the company initially put in a bid for 599 locomotives “with a certain unit price”. After Transnet reduced this to 240 units, Bombardier “had to adjust its price accordingly (including amortising the development cost over a much smaller number of locomotives)”, spokesman Mark Masluch says. “This constitutes a fair and competitive market price considering the type of product, the number of locomotives to be delivered, the local content requirement, the delivery schedule and the safeguards requested by the client against inflation and rate variation.” The Transnet contracts that came under the most scrutiny were those with China South Rail, which won the lion’s share of the tender for the 1,064 locomotives, and several smaller tenders. An investigation by the amaBhungane Centre for Investigative Journalism showed that China South Rail had since 2014 paid “consultancy fees” totalling R5.3bn to Hong Kong-based Tequestra, a company owned by close Gupta business associate Salim Essa. Transnet later announced it would investigate these claims, as well as whether it had been overcharged and had followed its own procurement processes. x

feature/ eskom

A SWITCHED-OFF IDEA Eskom seems to be seeking to draw power — and rebuild its shredded reputation — with a quirky campaign of radio ads, despite being told by the minister to stop spending money on advertising Sunita Menon menons@businesslive.co.za

s you switch between radio stations, between songs and between segments, you’d be hard-pressed not to hear an Eskom advert reminding you how much you need electricity— in case you’d forgotten. It’s a given that you need energy, along with water, food and shelter, and that people will buy into this need regardless of an advertising campaign. After a slew of stereotypes – “like an Indian needs toilet paper after curry” to “like the Zulu say Limpopo ” – Eskom makes its case: “SA needs electricity.” Given the magnitude of the campaign, Eskom’s extravagant spending on advertising raises the question: why does a monopoly — particularly a monopoly that is struggling financially — need to advertise? It sparks the debate about whether a state-owned entity should advertise at all. Eskom has admitted that its financial position is not where it should or could be. A report by EE Publishers says that without further funding‚ the utility would move into negative liquidity of about R5bn by the end of January. Eskom was downgraded by Moody’s at the end of November. Wasteful expenditure has been persistently flagged — particularly deteriorating liquidity levels and continued constrained access to funding. The response seems to be to embark on a public relations campaign through adverts. The utility says: “As the national electricity provider, Eskom has traditionally run various advertising and public relations campaigns, focusing on educating customers about its product, creating awareness around the safe use of its product, and combating the theft of electricity, which has become a national problem.”

What it means: If Eskom doesn’t have any competitors, why does it run advertisements? Though Eskom admits that it doesn’t have competition, it says it has the responsibility to educate customers and all users about its product. Earlier this year, public enterprises minister Lynne Brown slated Eskom for spending money on sponsorships or advertising, because everyone knows the brand. “People know Eskom. I even get called the minister of Eskom because of load shedding,” she said. “I have encouraged it to stop advertising. It doesn’t need to advertise.” But since then, the entity’s adverts have been unrelenting. The campaign spans radio adverts about the importance of having electricity to the borderline horror movie of the izinyoka (snakes), which warns against cable theft. It ranges from offensive to brilliant, but the motive remains questionable. Shukri Toefy, CEO of creative agency Fort, says Eskom isn’t using an advertising campaign to beat off competition or to change people’s ideas about using its service. “I think Eskom is clearly trying to strengthen and legitimise its reputation as a company that is aiming, or trying to increase tariffs, though controversial, and has been seen to perhaps misuse money or be at the centre of various scandals,” he says.

While Eskom makes use of SA stereotypes, which Twitter will tell you has alienated certain customers even more, Toefy says it almost creates an understanding of different identities within SA which makes for a successful campaign. “I think people would find it humorous and enjoyable, and in this case I think Eskom is perhaps trying to tap into a tone, a brand tone, that is less formal and different to the other discussions happening on a different scale of the likes of government, cabinet, bureaucracy, energy regulators and tariff rates,” says Toefy. But he says advertising on its own is not the best means to rebuild a reputation and there needs to be a concerted effort from Eskom’s leadership. Brand Finance Africa director Jeremy Sampson says the big draw of an advertising company is to attract staff and employees. “But based on stereotypes, I’m not sure if that works. Given that [Eskom’s] reputation is shredded, it’s terrible. It would be better to do nothing.” Sampson says the ideal strategy would be to wait for the bad news around Eskom to pass or for there to be good news before it tries to rebuild a reputation. “They’re under siege at Eskom, so you’d think they’d be very careful. Advertising with thinking like that is strange. They should be more accountable to the public. Quirky little radio adverts don’t seem the best way to rebuild,” he says. x

December 21 - December 27, 2017

financialmail.co.za

feature / megacity

A LISTED CITY? NOT FOR SA

Nick Hedley hedleyn@bdfm.co.za

t’s 2025, and shares in New Durban City have tumbled more than 15% on news that the metro is being investigated for accounting “irregularities”. Shareholders are demanding a speedy and thorough investigation — particularly seed investor Sanlam, which says it will sell its 7% stake if there is any evidence of corruption in Africa’s first publicly traded city. This sounds like the plot of a futuristic movie, but is entirely possible. The concept of a listed city came to the fore in October this year, when Saudi Arabia announced plans to develop a US$500bn megacity. Crown Prince Mohammed bin Salman made headlines when he told Reuters that the metro would be floated on financial markets. The world’s first “capitalist city” would be revolutionary, the crown prince said, adding that “it’s as if you float the city of New York”. Klaus Kleinfeld, former chairman and CEO of Siemens, is leading the project. Naturally, it’s almost inconceivable that SA would follow in the oil-rich nation’s footsteps, especially considering that government still wants to keep control over ill-run state-owned enterprises despite its

financialmail.co.za

December 21 - December 27, 2017

Steyn City, SA

It sounds like a solution to the country’s service delivery problems, but placing a whole metropolitan area in private ownership, or building one from scratch for the purpose, is probably not a workable plan here

deteriorating fiscal position. But it’s tempting to imagine how a listed city would fare in a country that struggles daily with service delivery problems. Whether such a city would be built from the ground up or would simply be an existing metro that filed for an IPO, this would be the ultimate litmus test of whether the private sector can outdo the state on governance, efficiency, spatial planning, and, ultimately, service delivery. If given the chance, the private sector — and government, for that matter — might actually be keen to fund this type of project. Anchor Stockbrokers head of research, Craig Smith, says: “There certainly could be strong upside [for shareholders], but I guess it would come down to who controls that vehicle, [who is] behind it, and what his or her track record is in delivering sizeable mixed-use projects.” Developing a city from scratch would require patient capital, and lots of it. The controlling company would most likely approach large insurance companies and pension funds. These investors would have to see the project through the development phase before the city starts generating revenue by means of property sales, rental income, advertising space, parking, public transport,

or port charges, if the city is by the sea. Thereafter, the vehicle could be listed, allowing both retail and institutional investors to earn dividends from the metro, analyse its financials and vote at AGMs. There are examples of this around the world, albeit on a far smaller scale. JSE-listed Capital & Counties effectively controls precincts in London, while Attacq develops and manages a large chunk of Waterfall City. Two-thirds of Attacq’s assets generate rental income, and the company earns revenues from advertising in and outside its buildings, each of which is made to meet the requirements of tenants, says Jackie van Niekerk, chief operating officer of Attacq. Van Niekerk says Attacq has “a continuous relationship with government, our tenants and customers in our malls, who are very important stakeholders in the ecosystem we are creating”. A development like Steyn City, north of Johannesburg, created by billionnaire Douw Steyn, is a private “city”. Unlisted group Rendeavour is developing cities in other parts of Africa, while Rabie Property Group essentially controls Century City in Cape Town. It could be argued that these groups have a vested interest in being more forward

looking than local governments. The more successful the estate, the higher the rentals and the better the returns. “You would have a landowner that would have a direct incentive to make that development sustainable in the long term,” says Smith. “In Waterfall, we benefit from our control of the urban design, which [relates] to the sustainability of a city,” says Attacq’s chief financial officer and interim CEO Melt Hamman. A fully listed city, however, would simply not work in SA, says Karen Heese, an economist at Municipal IQ. The concept “goes against all policy and thinking about building inclusive cities and countering the legacy of spatially biased inequity brought about by apartheid. “Planners tend to agree that the biggest challenge for SA’s urban areas lies in finding ways to better integrate communities and economic activity — an exclusively private sector option would counter this and perpetuate the inequities of the past,” she says. Working-class people would face long commutes to work and economic exclusivity and unrest could follow. Heese says private-estate developments can place strain on infrastructure “often in ill-suited areas”. x

What it means: Listing a city on the stock exchange would be the ultimate litmus test of whether the private sector can outdo the state on service delivery December 21 - December 27, 2017

financialmail.co.za

feature / tourism

EXCITEMENT IS THE GOAL Adventure tourism is drawing a new wave of visitors to SA â&#x20AC;&#x201D; they are content to stay at game farms and BnBs, as long as they can do something thrilling and Instagramworthy while they are here Stafford Thomas thomass@fm.co.za

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December - December December21 21December 27, 27, 2017 2017

Young travellers want to visit a game farm where they can go on walking safaris and help with things like game capture. It gives them bragging rights on social media Monika Iuel

What it means: Adventure tourism could spread SA’s tourism load beyond oversubscribed Cape Town

hange is sweeping the international tourism market, and it’s being driven primarily by millennials — those in the 20- to 30-year age cohort. “They are looking for new experiences instead of mundane sightseeing tours,” says Martin Wiest, CEO of Tourvest’s destination management division. “SA has emerged as one of the best adventure travel destinations.” Gone are the days when young adventurers set off on a globe-hopping journey armed with not much more than a backpack. “They now have money,” says Private Safaris CEO Monika Iuel. “Young travellers shun luxury accommodation. They want to live like locals among people of their own age and would rather stay in a bed-and-breakfast or self-catering establishment,” she says. Much the same goes for game lodges. “They are not interested in super-luxury lodges,” says Iuel. “They want to visit a game farm where they can go on walking safaris and help with things like game capture. It gives them bragging rights on social media sites such as Snapchat and Instagram.” Beyond game farms there is no shortage of adventure tourism pursuits open to millennials, or people of any age group looking for something different. “There is huge potential in adventure tourism,” says David Frost, CEO of the Southern Africa Tourism Services Association. “SA has 10 times as many products to offer compared with a country like New Zealand.” Bungee jumping is just one hair-raising way to get the adrenalin pumping. SA’s premier offering is the jump off Bloukrans Bridge in the Tsitsikamma region of the Garden Route. “About 70% of our visitors are foreign and we are seeing strong growth all year round,” says Thomas Ngomana of Face Adrenalin Sports, which manages the Bloukrans jump. “We do a lot of promotional work, including attending international trade shows.” The attraction is the world’s highest bridge bungee jump. “The jump is 216 m but with the stretch of the bungee people can fall quite a lot further,” says Ngomana. “It is perfectly safe. We have been operating since 1997 and have not had anyone with so much

as a broken fingernail.” The jump is for the young at heart as well as the young. “The oldest person to do the jump was a 96-year-old man,” says Ngomana. “After the jump he went on to go skydiving.” Bloukrans has only 111 m jump at Victoria Falls in Zimbabwe,” says Ngomana. “But they charge R2,000 for a jump, payable in US dollars. We charge R990.” Wiest says one of SA’s big advantages is the “extremely low” prices of adventure activities. SA’s price competitiveness is also evident in what many would regard as an extreme adventure pursuit: dual paragliding. “We charge R1,300 for a flight,” says Grant van Rooyen, co-owner of Cape Town-based Hi 5 Tandem Paragliding. “It will cost you at least three times as much in a country like France.” Hi 5, which has a flying staff of six and operates from Lion’s Head and Signal Hill, also draws about 70% of its clients from overseas. Not all of them are millennials. “The oldest person to fly with us was a 93year-old [woman],” says Van Rooyen. “We have a 100% safety record.” This is not by chance. “It takes up to eight years to get a tandem-rated licence in SA,” he says. That companies such as Face Adrenalin Sports and Hi 5 are enjoying robust demand is unsurprising. SA is set to end the year with the number of non-African foreign arrivals up 18%, at about 3m. This will follow a similar increase in 2016. In part this is a result of tourists running scared of terrorist threats in countries such as Turkey and Egypt. But it is not all just good luck. “Local tour operators have done an exceptional job of promoting SA,” says Otto de Vries, CEO of the Association of Southern African Travel Agents. However, to an extent, SA is now the victim of its own success. “SA’s tourism infrastructure is stretched to the limit,” says Wiest. This is particularly true of the country’s biggest foreign tourism drawcard, Cape Town. “All accommodation in Cape Town is booked for this festive season,” says Iuel. “You will be hard-pressed even to find a place to pitch a tent in a caravan park.” What is needed is to spread the tourist load through other provinces. Here adventure tourism can play a key role. “People looking for adventure tourism opportunities are far more likely to visit places off the beaten track,” says Iuel. x December 21 - December 27, 2017

financialmail.co.za

feature / peter bruce

his month Peter Bruce retired from his formal duties at the Financial Mail and Business Day, though he will continue to write his various columns. He leaves at a particularly fraught moment, for journalism and politics alike. I spoke to Bruce about the state of the trade he has dedicated his life to and some of the challenges it faces. Bruce’s experience is vast. He worked, briefly, for the Rand Daily Mail, and for 18 years at the the Financial Times. Back home in SA, he has run Business Report and both the Financial Mail and Business Day as editor and, later, editor-in-chief, for the bulk of his career. Bruce’s role in establishing the latter as the daily authority on the political economy was significant. He is deeply knowledgeable about journalistic best practice and the economy. Bruce says any journalist who aspires to be excellent must “know your subject and know your readers”. His own columns, of which the standard bearer has long been The Thick End of the Wedge, are testament to this. He has an uncanny knack for tapping into the spirit of the time and talking to, sometimes talking up, its fears and anxieties. “I feel a very intimate relationship with the people I imagine I’m writing for,” he says. Of his various apprehensions, the state of the ANC and the insidious influence of the Gupta family on the economy and politics are perhaps ground zero. He has expounded on both at great length in 2017. As a result, he tends to dominate the Most Read list on the BusinessLive website. There have been real-world implications. Earlier this year, a ragtag group of protesters from Black First Land First, which tends to act as a toothless guard dog for the Guptas’ public reputation, set up shop outside Bruce’s residence. He, along with Jacques Pauw and many other journalists targeted by the Gupta propaganda machine, became the news in 2017. That is something any journalist wants to avoid. “I guess when journalists are under attack it is not unreasonable to write about the attack,” says Bruce, “But I’m uncomfortable being the subject of news stories and I suspect other editors are too.” It is, however, not a fight from which Bruce shrinks. He believes, for example, that newspapers need not necessarily be neutral. He says: “There isn’t enough of an ideological spread in the media, in my view. “Newspapers should take sides and the readers would read the newspapers that best reflect their biases.” 36

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On one level, that’s what has happened. Certainly, among English-language SA media, the likes of the Independent Group, The New Age, ANN7 and the SABC are regarded as generally pro-government. If not, then in the case of The New Age and ANN7, pro-Zuma. In turn, though not explicitly stated, Business Day, the Financial Mail and the Sunday Times appeared generally supportive of Cyril Ramaphosa, in the run-up to the ANC elective conference. But, one way or the other, it is the ANC’s political universe that tends to define how the SA media positions itself. The DA, for example, could not point to any publication that primarily supports its cause or, at least, interprets politics through its lens, though some do share its general ideological framework. On another level, then, it hasn’t happened at all. Media outlets don’t explicitly align themselves with one party or ideology. One odd by-product of this is that, in a generally conservative, extremely religious society, there is no media platform dedicated to conservative thought. “I’d like to see a conservative publication in SA,” Bruce says, “but I’m not sure I’d have the guts to edit one.” Like that comment, there is a frankness and beguiling informality to Bruce’s columns. They read as though you were having a conversation over dinner. Often, he situates an argument around a personal anecdote before rapidly expanding to those far larger forces at play. He deals in grand narratives, big-picture stuff. That requires considerable courage, for the bigger the picture, the more you tend to rely on theory than evidence. And he draws on much international experience to situate his ideals more widely. Thus, a Editors, copy Peter Bruce column editors, are the often does one of two heart of the things: it is either right on the money, or, occa- newspaper and they have sionally, right off it. sadly been That is the price any marginalised in columnist in the makSA over the years. ing-sense-of-the-world And it shows business must pay to some degree. The point of an opinion piece is to have an opinion. It’s why people read them. Bruce is a maverick and a speculator, and an invaluable one at that. He forces you to think in the way any good polemicist does. On the odd occasion when he does get it wrong, he is quick to fall on his sword. He does not suffer any pretentiousness. It is a rare and endearing quality. But the cavalier nature of his columns cuts a stark contrast to his eye for detail as an editor. There is much about the publication of a newspaper the public does not see. And for Bruce it is with regard to those generally

BRUCE LOOKS BACK Gareth van Onselen

What it means: Bruce regards the lack of money to hire good people as the biggest threat to journalism today

Veteran SA newsman says journalists aiming to excel must know their subject and know their readers. He is known as an outstanding columnist but still relishes the feeling of ‘getting a good story first’

unseen but critical components of the machine that the various pressures on contemporary journalism are most evident. “Editors, copy editors, are the heart of the newspaper and they have sadly been marginalised in SA over the years. And it shows. You must “People refer to remember the ANC ‘journalists’ and takes newspapers ‘sub-editors’, when very seriously in fact they are all journalists. Without sub-editors, there is no newspaper.” At the heart of all this is the dire financial condition of modern journalism the world over. No-one has yet fully cracked the puzzle that is the Internet and, as print sales decline, it remains difficult to generate significant revenue from online advertising. “Money, or the lack of it, to hire good people”, is for Bruce the biggest threat to the profession today. “I grew up on the Financial Times, where every reporter was a specialist. It’s why the FT thrives today. But it gets harder to have specialists when newsrooms are shrinking.” Newsrooms certainly are getting smaller. Bruce, before handing over the Business Day editorship to Songezo Zibi in March 2014, was forced to make several cutbacks. It is a terrible undertaking for an editor, and was by no means particular to Business Day. The whole of the Tiso Blackstar group has in recent years been forced to retrench and downsize. This applies to almost every other news group too. Times are tough. Bruce says: “I did journalism at Rhodes, which is not something I tell a lot of people. For me, the perfect recruits have a BA with English and history as majors. That way they can think and analyse, and write.” The Internet is a challenge on this front too. Unless you are an expert, Bruce says, “you become less interesting to people who know the subject and who may know more than you do. Then you’re just ordinary.” Bruce is perfectly capable of serious introspection. In recent years, he has produced a number of detailed essays — a passionate piece on race relations and, on May 11 2017, an economic manifesto for the Financial Mail titled “How to fix SA”. Current Business Day editor Tim Cohen says: “Peter loves capitalism and dedicates much of his writing to how best to reform it.” But, for all that, he must miss being an editor. I ask Bruce what the moments are that make him feel most alive? He replies: “Getting a really good story first. It’s all that matters sometimes. It’s a rush.” He is passionate about journalism for its

own sake and reads widely on the subject, revelling in good writing. In a weekly online column for the Financial Mail, he sets out key stories and opinion pieces from the world of current affairs, stitched together around a theme. The New Yorker on Donald Trump or The Guardian on Brexit. “I used to do it daily but it was just too much.” That’s a pity. But as the SA crisis grows, even that column has tended more towards local writing. Tensions between the ANC and the media have always run high. But Bruce doesn’t believe it will bubble over into an actual attempt to control the free press. “You must remember the ANC takes newspapers very seriously. The leadership grew up reading newspapers and they take print especially seriously. I don’t think they have much stomach for control.” That is partly true. The ANC has always had designs on its own newspaper, and that, of course, is the ultimate manifestation of direct control. Nevertheless, as the ruling party turns in on itself, and chaos and confusion reign, it has been exceedingly difficult to make sense of our political reality. Fact and fiction merge. Truth and secrecy compete. Bruce sees one solution in international best practice. “The Germans managed it best. Every morning, in a building close to the Bundestag the media would organise a 10 am press conference that anyone could go to and which all government spokesmen would attend. Some would bring their ministers if they were involved in a running story or had something to announce. You could ask questions and the beauty of it was that everyone heard the same thing at the same time so there was little room for government spin afterwards or for stories which inaccurately reflected what was said.” It’s a good idea, but possibly a bridge too far for the ANC today. Maybe down the line someone will take him up on the suggestion. Either way, it is indicative of the optimism that runs through so much of Bruce’s contribution. When all is said and done, be it the state of the economy, politics or journalism, he is concerned primarily with solutions. And while he wears his heart on his sleeve about the state of the nation, you get the sense that what he desperately wants, more than anything, is for SA to work. SA journalism is under great pressure, on a variety of fronts. Money, expertise and politics are all proving difficult to manage. Being fiercely loyal, he will no doubt be available to advise and mentor, but his departure comes at a time when we could really do with a few more Peter Bruces. x

December 21 - December 27, 2017

financialmail.co.za

feature / congolese rainforest

Education Images/UIG via Getty Images

AT LOGGERHEADS

The DRC is considering reopening its virgin forest to commercial logging. But some NGOs, scientists and activists say government is not seeing the wood for the trees Mélanie Gouby

t’s part of our planet’s second lung, and one of the largest expanses of virgin forest still remaining on earth. Seen from the window of a plane, the Congolese rainforest is a truly remarkable sight: a swathe of green treetops resembling a giant broccoli head that covers most of the Democratic Republic of Congo (DRC). As the world slowly awakens to the threat of climate change, the forest’s future has come into focus as a key issue in determining the longevity of our planet and life as we know it. While the Amazon and the forests of Southeast Asia have already shrunk as a result of logging, agriculture and mining, the Congolese rainforest has remained largely untouched. But in the past decade deforestation there has accelerated to about 1m ha/year, mostly because of the expansion of agriculture and the production of charcoal, the only source of energy available to most of the population. Illegal logging has also taken off. This is due to demand from China as well as a growing local need, and the opportunity it

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December 21 - December 27, 2017

presents for criminals. How best to protect the rainforest in the long term — given these new threats — has become a heated debate involving the Congolese government, international NGOs and global governance bodies. In particular, a moratorium on new logging concessions, instituted in 2002 due to poor governance, has become the centre of discussion on the forest’s management. The Congolese government, looking for new sources of revenue, is considering lifting the ban. A controversial proposal by the French Development Agency (AFD) appears to support this. The AFD argues that, with the right support, industrial logging companies could exploit the forest sustainably. “A well-managed exploitation is the guarantee for forest conservation,” says AFD DRC project manager Philippe Bosse. He says the What it means: Stakeholders are at odds over how to preserve the forest for climate change mitigation while benefiting local communities

AFD plan aims to support the replacement of artisanal loggers with a professional sector. This will generate revenue for the state, thus solving problems arising from corruption, unpaid taxes and illegal exploitation. The proposal is under review by the Norwegian government under its Central African Forest Initiative (CAFI). However, the plan has been rejected by 30 international scientists in an open letter to Norway’s minister of climate & the environment, Vidar Helgesen. In it, they suggest that important areas of peatland, a fragile ecosystem that stores carbon, have been discovered in the rainforest, and these require protection. Several international NGOs have also denounced the project as irresponsible. “There is a lack of transparency in the DRC,” says Greenpeace senior forest campaign manager Irene Wabiwa. “It is impossible to lift the moratorium without exposing the forest. AFD claims that industrial companies will be more reliable than artisanal loggers, but our experience indicates the opposite.” Political instability and corruption are also of concern, as they could transform the reopening of the forest for industrial logging

Getty Images/DeAgostini

into a free-for-all. ministry, admits to being torn by competing President Joseph Kabila’s final presidential forces. He puts it bluntly: “It is not a priority for mandate ended in 2016, but a date to elect his the government to protect the forest.” successor has only just been wrestled out of his Katanga blames the situation on the interadministration. Though the poll has been set for national community, which he says has failed to December 2018, many believe this deadline take the DRC seriously. He points out that Brazil won’t be respected. has been given billions of dollars for forest conPoliticians have been playing a servation — all the while continuing game of musical chairs, vying for to overexploit the resource. Do we have to government positions that they use “Do we have to start destroying start destroying for personal gain. our forest to start receiving someLast year, Greenpeace exposed a our forest to start thing?” he asks. receiving [money former minister of the environment Like Katanga, experts say for conservation]? that recognising the DRC’s contrifor illegally allocating logging conJoseph Katanga cessions in violation of the morabution to climate change mitigation torium. A new minister has since and allocating funds to help comcancelled them. But a quick succession of minmunities move away from subsistence farming isters in this portfolio in recent years has made and charcoal use — the main drivers of deforit difficult for government to establish a clear estation in DRC — would be a more efficient vision for the forest’s management. solution than reopening the country to comThis has also complicated government’s rela- mercial logging. tions with its international partners. The DRC is “If we improve agricultural productivity, the still waiting to access funds that CAFI allocated population and the forest will benefit,” Katanga in 2016 for the protection of the forest. argues. Joseph Katanga, government’s forest adviser But the main requirement — perhaps the and one of the few continuous figures in the hardest to achieve — is political will. x December 21 - December 27, 2017

financialmail.co.za

feature / media & advertising

CONNECT AND EMPOWER Brands need to understand the strength in the wisdom of African women — not least because of their growing control of household spending power Jeremy Maggs jmaggs@iafrica.com

rands across the African continent for the most part are failing to connect with women, and their agencies often “bemoan the female marketing challenge”. But, says Rebone Masemola, brand project manager at Kantar Added Value SA, with more than 600m females on the continent — and a projection that 75% of household spending power will be controlled by women by 2028 — the opportunity for brands is enormous and they need to get their act together. Markets beyond Africa are doing a lot better. “Many global brands are creating layered narratives that resonate strongly and empower women to express themselves freely,” says Masemola. “Procter & Gamble, for example, has secured its share of voice within the equal-pay movement that seeks to ensure women smash the glass ceiling to get paid the same salaries as their male counterparts.” Another example she cites is the sports brand Nike, which has aligned itself with strong, iconic women athletes such as Serena Williams, Megan Rapinoe and Dalilah Muhammad. Against this backdrop Kantar Added Value has just completed a survey in a bid to gain a deeper understanding of the struggle brands face when marketing to African women. The study finds 75% of the marketers in Africa don’t believe brands in their industry are marketing effectively to African women, and 70% of these marketers say their own marketing efforts aren’t resonating strongly with African women. Masemola says marketers are fail-

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ing to recognise “an African women’s complex and multifaceted nature and her need to live without limitation, but still be represented with dignity”. Consumers in the study asked why SA brands were doing little or nothing for women empowerment and why black women were still depicted doing laundry. The study identifies key areas marketers need to understand and master to better connect with, and win over, African women. An example is African women want to see brands portray and address the challenges they face as parents in Africa. One of these Rebone challenges is wanting Masemola their children to succeed in a modern world, but not at the expense of losing their African identity. The survey also finds that women are open and willing to support local brands that develop products and services that are driven by the real needs of African women. For instance, a beauty brand like singer Rihanna’s Fenty Beauty offers cosmetics foundations that match the different skin tones of all kinds of black women. The survey also finds that successful women don’t want to be showcased with overt masculine qualities. Notes Masemola: “The strong African woman doesn’t want to be shown as a business mogul in a pinstripe suit taking over from a man in an aggressive manner. Neither does she need to belittle men to get ahead. Brands need to understand the strength in the wisdom of African women and that they do not want a weak man, they love the strength of their men.” x

December 21 - December 27, 2017

NUMBERS 34 70% 70 % out of

of c clients clien ie e sur surve surveyed urveye ve d believe b belie elilie that marketing eﬀorts ma mar ar orts in orts businesses bu busin ussin u s don’t d don on’t resonate strongly esonate ona ate stro s rong on ong with Africa African women

811% 8 81% %

clients don’t believe that their bran brands are eﬀectiveﬀectiv lyy markete marketed to African Afr women wo omen

of clients surveyed believe surve elieve that “winning with w African an women” is important im nt

600m women wom wo ome men en n in nS SubbSaha Saharan ah haran an Afric Africa A Africa i – over ov ve err 50% 0% % of o the the e Africa population Af ffrica ica ca po popul popu pula atio atio on o

75% 75 5%

$6bn

i the esti is estimated value of the val th female hair care are industry in i Africa Afric

of s spending spe pendi p is projected to be c controlled by women by 22018 01

Source: Kantar Added Value SA

Mist-directed ad The 4x4 brand vehicle Isuzu has been forced to apologise after it was hauled before the Advertising Standards Authority for a misleading radio commercial. The spot claimed that daytime running lights would make navigation through fog easier. The complaint stated that running lights were not a safe replacement or substitute for head lights and fog lights in misty conditions. Isuzu said it was not its intention to mislead or confuse, apologised and said the campaign ended as scheduled in October and would not be used again. x

IN GOOD FAITH BY CARMEL RICKARD

WIN-WIN JUDGMENT Zambian supreme court ruling in favour of Murray & Roberts a boost for confidence in that country

@carmelrickard

hen a major project collapsed, construction firm Murray & Roberts could not have predicted that collecting on the debt it was owed would involve courts in two countries and become a test case before Zambia’s highest judges. The failed project, Lusaka Premier Health Clinic, near the international airport in Lusaka, was to provide a world-class hospital facility for the central African region.

123RF/ lightwise

We have no hesitation in concluding that it was a serious misdirection on the part of the trial judge

In 2011, after the scheme collapsed, the company won a judgment in the SA courts against the developers for more than US$6.5m, but the scheme’s backers could not satisfy the debt in SA.

So Murray & Roberts then litigated in Zambia, where Lusaka Premier Health had assets. The plan was to obtain a judgment in the courts there, in terms of which it could sell a property owned by the debtor. The company obtained a default judgment authorising payment of the money due as well as possession and sale of certain land in Lusaka. But a high court judge refused to allow enforcement of the default judgment, setting it aside as “irregular” and dismissing the whole action as an “abuse of court process”. Murray & Roberts appealed to the Zambian supreme court — and its luck changed. Three judges of that court have now overturned the earlier high court ruling, calling it “demonstrably wrong”, and confirming the steps that a judgment creditor, armed with judgment from the SA courts, must take to enforce such a judgment in Zambia. There must have been some heart-stopping moments when the company first read the earlier decision against it. The judge said he had no difficulty finding that the process was “devoid of any legal basis” and that the default judgment, already obtained in Zambia, was the product of “a flawed and incurable procedural process”, largely because Murray & Roberts had “ignored the provisions of the Foreign Judgments (Reciprocal Enforcement) Act”. Appealing to the supreme court, however, Murray & Roberts argued that SA was not one of the countries listed on the schedule of this Zambian law and so it had not been able to use the provisions of that law to realise the debt.

The three Zambian supreme court judges who heard the appeal — among them Mumba Malila, a judge with a growing international human rights reputation — said the high court judge “fell into a serious error”. For a company from SA, the only avenue available to a judgment creditor armed with a judgment from SA was to act exactly as Murray & Roberts had done. “We therefore have no hesitation in concluding that it was a serious misdirection on the part of the trial judge to hold that the process used by [the company]” in starting a fresh action to enforce the SA judgment “was devoid of any legal basis”. Make reasons known The high court judge was also at fault because he gave no reasons for why he said the company was incorrect. A judge should not leave the parties “surmising” as to how a particular decision was arrived at, said the supreme court. Rather, the judge must make the reasons known to the parties. Finally, if the high court judge had believed there was some irregularity in the way the default judgment had been obtained, and that there was an abuse of the court process, he ought to have asked the parties to address him on the disputed issues before making any order. “We must fault the trial judge for setting aside the default judgment and wholly dismissing the entire action.” Setting aside the flawed high court decision, the supreme court did more than simply permit the company to make good the debt: it will also help retain general SA confidence in Zambia as a country with which to do business. x

December 21 - December 27, 2017

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money& investing Analysis and coverage of SA's top companies and investments - the guide to where your money should be CORPORATE GOVERNANCE

No bottom in sight for Steinhoff Wiese’s resigned, its lenders are closing the funding taps, and its accounts are in chaos. It’s only getting worse . . .

Bloomberg/Waldo Swiegers

Giulietta Talevi talevig@bdtv.co.za

ý This week, Steinhoff confirmed what even its most optimistic investors are beginning to accept: the embattled furniture retailer doesn’t know what it doesn’t know. On Tuesday, Steinhoff’s new acting CEO Danie van der Merwe gave a revealing presentation to its jittery bankers at an unnamed hotel in London. Only, it read more like a sales pitch for why they shouldn’t pull the plug on its Pepkor, Conforama and Star Retail assets, rather than a lucid explanation of the ominous “accounting irregularities” that had forced CEO Markus Jooste to quit two weeks ago. There were enough figures in that 58-page presentation to deeply unsettle investors. For a start, Steinhoff now says it is “not possible” to give a date for when it will release its September 2017 accounts, nor its “restated” 2016 financials. Nor can it say if other years’ accounts were cooked, or even provide a sense of the “magnitude of the accounting irregularities”. It seemed to confirm investors’ worst fears, after an already blisteringly bad week, in which chairman Christo Wiese, the totemic figure seen as central to Steinhoff’s fortunes, resigned. After the banker presentation emerged, Steinhoff’s already-frail stock collapsed again to

December 21 - December 27, 2017

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Sunday Times

money&investing individual operating company cash flow forecasts”. This, it assured investors, is being fixed. It’s the sort of accounting chaos that the anonymous research unit Viceroy (which had taken a short position on Steinhoff’s stock some weeks ago) had flagged. Viceroy reckons Steinhoff overstated its 2016 earnings by at least ¤1.047bn.

Markus Jooste

T De

7m • Asset €2 fi Unitrans Automotive (SA)

Steinhoﬀ Finance Holding (Austria)

De b

Redee ma

Debt € 2

4.7bn t€ Steinhoﬀ Europe (Austria)

Debt €93 8

December 21 - December 27, 2017

Finance leas e

€504m bt Steinhoﬀ Services (SA)

Operating companies (Austria)

Pref shares R ble

Ainsley Holdings (SA)

Debt € 9m 15

Steinhoﬀ Africa Holdings (SA)

Stripes US Holdings (USA)

9m 16

€936m bt

Debt €

Steinhoﬀ International Holdings (Netherlands) G

n .6b

DEBT €10 AL .7 OT

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WHAT STEINHOFF OWES, AND WHERE

€137m nce na

downside, as one analyst points out, is that “they do have a liquidity problem as short-term facilities are being withdrawn. At this rate their prospects are quite dire”. The problem is, the company’s cash-flow projections are also fuzzy because, Steinhoff revealed, it “did not have detailed visibility of

n (€382m) 6b

R4.87/share at the time of going to print, takings its overall fall in market value to R219bn in the past three weeks, an 91% plunge from the R55 at the beginning of this month. You can imagine the conniption Steinhoff’s admissions caused at its meeting with the bankers, who’re not exactly renowned for their poise under pressure. Curiously, Steinhoff’s presentation did not make any mention of the shadowy deals involving three Swiss and German companies — Campion Capital, Genesis Investment Holdings and Southern View — at the heart of the mess. Insiders have told the Financial Mail that Deloitte refused to sign the accounts because they feared those companies were secretly run by people close to Steinhoff, who may have helped the furniture retailer overstate its revenues and understate its liabilities. Still, Steinhoff did reveal enough heart-stopping detail to rattle the bankers. For a start, Steinhoff’s debt has swollen to ¤10.7bn — more than the ¤9.1bn at last count. (Of this, ¤8.6bn sits in Europe, with ¤1.9bn in SA.) This becomes a somewhat serious problem because of this admission, elsewhere in the retailer’s presentation: “Credit facilities are increasingly being suspended or withdrawn by lenders” in some of Steinhoff’s operating companies. The upside for Steinhoff is that it doesn’t appear to have an immediate solvency problem, as its assets still exceed its liabilities. But the

Steinhoff ’s woes dovetail with those of Wiese, who until last week owned 30% of the retailer’s stock. But his personal collapse in wealth (a fall of R60bn in his personal fortune in three weeks) led to a trader’s nightmare: a margin call. This is because last year a group of banks including Citigroup and Bank of America lent Wiese ¤1.6bn to buy more shares in Steinhoff, as the acquisition-hungry firm snapped up Mattress Firm in the US and Poundland in the UK. At the time, the banks took 628m of Wiese’s 1.29bn Steinhoff shares as collateral, worth ¤3.2bn at the time of the deal. The collapse of Steinhoff’s share, however, shredded that value to less than a quarter of the loan’s value — leading them to dump 98.5m of Wiese’s shares on the market. Early this week Wiese dumped shares worth R2.15bn he held in food retailer Shoprite. That was only 10% of the 101m shares he owned in the food retailer (he still holds R20,5bn worth of Shoprite), but it’s an indication of the stress he appears to be under. Overall, this collapse — the most severe in SA corporate history, eclipsing such disasters as

Hemisphere International Properties (Netherlands)

G Guarantor for international and South African debt Source: Steinhoﬀ International

Bloomberg/Waldo Swiegers

Tigon, Fidentia, Masterbond and LeisureNet — has affected thousands of South Africans whose pensions were invested partly in Steinhoff. The big asset managers that run those funds, meanwhile, have gone to ground. Coronation and Old Mutual, both among Steinhoff’s top 20 shareholders, have avoided questions from the Financial Mail. Perhaps it’s understandable, given how poor Steinhoff’s disclosure has been about how serious these “accounting irregularities” actually are. Sanlam Private Wealth’s Greg Katzenellenbogen says: “It’s extremely poor on the company’s [part]. Never mind the people directly involved and huge amounts of their wealth that has been written off, there are hundreds of thousands of people who are directly and indirectly affected by the collapse in the Steinhoff share price.” Katzenellenbogen believes that Steinhoff’s deafening silence “indicates that many of the directors themselves don’t know the full extent of what has happened”. At least, in the presentation to its bankers, Steinhoff made some crucial concessions on its governance, admitting it needs to “reset” its corporate governance. This will no doubt be seen as something of a slap in the face for its board — led by supposed governance luminaries such as Len Konar, former Sanlam CEO Johan van Zyl and former Absa CEO Steve Booysen. As the Steinhoff story unravels, new disturbing details are emerging of the company’s lessthan-savoury methods of doing business. This is the view of Gregory Gomes (52), who now owns a high-end furniture business called Classic Working Life. Gomes says Steinhoff went out of its way, including years of legal wrangling, to avoid paying him a R2m sales commission — curious behaviour from a company that reported ¤16.4bn in revenue in its past financial year.

Back in 2008, Gomes was the chief salesman at Grant Andrews’ furniture firm Emergent Office Solutions — which was 51% owned by Steinhoff, and 49% by Andrews. Then he signed a new “high-risk, high reward” commission deal with Andrews. Emergent then hit the jackpot — a R45m order. “This meant I got a big chunk of the profits and Grant

got a small chunk, and when Steinhoff saw this they flipped,” says Gomes. Though Steinhoff was unhappy, it couldn’t do much about it. Eventually, Steinhoff decided it wasn’t worth it — so it closed down Emergent with a single day’s notice. Gomes says Steinhoff told him it wouldn’t pay out a retrenchment package of about R700,000. “I asked about the outstanding commission due to me, which was in excess of R2m, and they said: ‘Well, we’ll see at the end when we’ve closed the company if there’s anything left’,” he says. Emergent was then liquidated. Gomes says: “Every time I submitted a claim, the liquidator found something wrong with it, or Steinhoff would object to the numbers.” Eventually, three years after Gomes had spent nearly half a million rand in legal fees, Steinhoff agreed to pay him R200,000 “to stop fighting”. Gomes believes Steinhoff’s actions were nothing more than spite — which he feels was confirmed by one of Steinhoff’s lawyers. “I said to him, off the record: ‘Just tell me, is this costing Steinhoff more than what they owe me?’ He said: ‘Far more’.” x

Christo Wiese

Bloomberg/Waldo Swiegers

December 21 - December 27, 2017

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money&investing JOOSTE’S HORSES

Shutting the stable door . . . The ‘Robin Hood of Epsom’ spent enormous sums on thoroughbreds. Now he is having to sell them Stafford Thomas thomass@fm.co.za

ý In recent days, Marcus Jooste has become the whipping boy of the investment industry. This week, the epidemic spread to the horse racing world, in which Jooste (56) had been the owner of the largest number of thoroughbred horses in SA. This week Jooste’s company, Mayfair Speculators, sold one of his prized horses — Legal Eagle — to former Tekkie Town owner Braam van Huyssteen for R3.2m. Expect more sales. It will be a bitter pill for the sport’s fallen “Mr Big” to swallow. Jooste is so enamoured with racing that Steinhoff’s UK discount retailer Poundland this year clinched a 10-year deal to take over the famous Epsom Hill, which overlooks the track where the Epsom Derby is held every June.

“Just call me ‘Robin Hood of Epsom’,” Jooste quipped in May, when the news broke. In light of revelations in the past three weeks of Steinhoff’s “accounting irregularities” and Jooste’s abrupt resignation as CEO, that comment seems deeply ironic. As British tabloid The Sun put it: “Jooste decided not to buy a ticket to watch his Derby prospect Douglas Macarthur at Epsom — instead he bought a hill.” Though he is seen by some local racing enthusiasts as a brash owner, he has been lauded by others. “He has only done good things for the sport,” says Larry Weinstein, CEO of the Racing Association of SA. Catherine Hartley, CEO of the Thoroughbred Breeders Association, says he has “been a massive contributor to the thoroughbred industry for many years”. This year, for the 10th time in a row, Jooste was named the Equus SA racehorse owner of the year. Klawervlei Stud, which is situated near Bonnievale in the Western Cape, and in which Jooste has a stake, was named the Equus best breeding stud. Last year, Jooste told the Financial Mail: “Outside of rugby, horse racing is the sport I love the most. I watch all the races on my computer in the evening, because every day there are horses running somewhere in the world. I’m in the breeding busiIf you breed a ness privately and if you horse that wins, breed a horse that wins, né, that’s like né, that’s like watching watching your your child competing at child competing primary school. at primary “It’s very relaxing to school me and gives me the Markus Jooste comfort of thinking in a

Legal Eagle: One of Jooste’s prize horses

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December 21 - December 27, 2017

Gallo Images/Peter Heeger

different world to that of Steinhoff.” Jooste owns Klawervlei with close friends businessman Chris van Niekerk and Investec Plc MD Bernard Kantor, and John Koster. Now, with his wealth on the rocks (his personal stake in Steinhoff has fallen by R3.2bn to R316m in the past three weeks), Jooste could become a liability to the industry. “Jooste will have to liquidate assets to pay fines and legal costs to keep himself out of jail,” says Warren Jervis of Old Mutual Asset Management. Says 36One Asset Management’s Evan Walker: “Civil and criminal litigation could drag on for 10 years.” Certainly, Jooste has never been afraid of parting with money to get the horses he wants. He proved this in characteristically grandiose style at the Cape Premier thoroughbred yearling sales in January 2016, when Mayfair Speculators, partnering with Coolmore Stud in Australia, bought a colt called Silver Coin for R6m — R800,000 more than the previous record. Actually, Silver Coin was just one of 22 yearlings bought at the auction by Mayfair Speculators for a total of R24.5m, while Klawervlei was the top vendor, raking in R38m. But Jooste was not content to be the biggest fish in the relatively small pond of SA horse racing; he tried to emulate this in Europe, too. In France in 2014, he made a splash at the Arqana August yearling sale. First, Mayfair Speculators snapped up a filly for €700,000, then it topped this by bidding €1.1m for a colt. Jooste acted to increase his firepower in Europe in 2016 through partnerships with Coolmore, China Horse Club and Qatar Racing. The alliance kicked off by buying 20 yearlings. The Epsom Hill deal, which made headlines in the UK, considering the track’s much-storied history, spoke of Jooste’s desire to plant a flag firmly in Europe as well as in SA. The Epsom deal was struck with Investec, the banking group that sponsors the Epsom Derby. Considering Jooste’s friendship with Kantor, it probably wasn’t especially difficult to nail down the deal. Today, that hill has been renamed Poundland Hill. Now that Jooste is having to sell his horses, will his partners take them off his hands at market prices? Or will they follow human nature and go on the hunt for bargains? Either way, Weinstein believes the racing industry is resilient enough to overcome the challenge. “Jooste is the biggest racehorse owner in SA but, even then, he has a total of only 300 horses in training and a number of [about 100] brood mares,” says Weinstein. “There are 5,000 race horses in SA so Jooste’s number is not enough to cripple the industry.” x

123RDF/Sergei Polivanov

TRUSTCO

Reasons to be careful: continued There are some pressing issues that shareholders must pay close attention to in the months ahead

Marc Hasenfuss hasenfussm@tisoblackstar.co.za

ý The calamitous collapse in the market capitalisation of a share as popular as the (once) mighty Steinhoff International does inevitably sharpen investors’ senses in detecting warning signs of pending value erosion. In this light, the recently released interim results of Namibian-based investment company Trustco — like Steinhoff, a widely diversified counter — make for an intriguing scan. This is especially so because Trustco’s shares have defied gravity and more than doubled in price over the past 12 months. Unaudited interim numbers to end-September show earnings dropped by two-thirds to just 7c/share but did nothing to shake sentiment — though it must be said that Trustco shares are tightly held, with scant interest from mainstay institutional investors. Straight off, in the half-year to end-September Trustco reported much-reduced profit before tax of R28m (previously R150m). Profit after tax, though, came in at R53m (R168m last year), bolstered by a tax credit of R25m. The tax credit is listed under Trustco’s investment segment, which shows that neither the insurance nor the banking segments — which are both reporting profits — paid tax. The situation was the same in the 2016 interim period (with another R16m tax credit listed under investments). For the full financial year to end-March 2017 Trustco reported a tax bill of just R51.5m, despite posting net profit after tax of almost R530m. Trustco’s effective cash tax rate

over the longer term is startlingly low — literally a sliver of reported headline earnings. One should be able to safely presume a listed company would not be underpaying its taxes, and assume that the assessed tax loss of R50m from financial 2007 can’t really be a factor any more. So, then, is it possible to deduce that Trustco is not generating “real” profits — that is to say cash profits? The cash flow statement shows a net cash outflow from operations of R108m. Finance costs on the R1.7bn debt alone was R121m. While Trustco’s operating companies have taken strain due to tougher economic conditions, it seems that previous profits were mostly “generated” by large fair value gains in the company’s property portfolio. In financial 2017 the property segment claimed a profit after tax of R440m compared with a group profit of R530m. In the previous three financial years the property segment profits accounted for more than three-quarters of group profit. With the Namibian property market in a funk it would have been difficult for Trustco to record more fair value gains (as well as bumper sales transactions) through the income statement on its key Elisenheim and Lafrenz real estate developments. The interim numbers show the investment properties to be worth R1.04bn — not much higher than the R1.01bn reflected in the corresponding interim period in 2016. It is at this critical juncture that Trustco is weighing up rotating auditors, pointing out that

BDO has crunched the numbers for more than 10 years. While the appointment of a new auditor will provide more intrigue, there are more immediate issues that shareholders might pay close attention to in the months ahead. At the end of the interim period Trustco held just R21m cash on hand, which hardly provides directors with the ammunition to “continue to exercise its mandate to aggressively repurchase its shares”. It is also not the kind of war chest needed when looking to expand aggressively into diamond mining — after striking a staggering R3.6bn scrip-funded deal to acquire assets from Trustco’s CEO and major shareholder, Quinton van Rooyen. The mining assets acquired from Van Rooyen have not exactly kicked in with any vigour. The interim results disclosed that diamond mining at the Northern Namibia Development Company as well as diamond polishing operations at Morse Investments had been suspended pending the granting of a long-awaited mining licence. The low cash levels might have worried shareholders a lot more if US-based investment company Riskowitz Value Fund (RVF) had not recently pumped in R250m via a convertible loan agreement. That loan has since been converted into new equity at 425c/share, markedly increasing RVF’s already large exposure to Trustco. Then, last month, RVF pumped more money into Trustco, proposing to buy 20% of Trustco insurance subsidiary Legal Shield for R1.2bn — a deal that sparked a huge rally in Trustco’s share price on suspiciously low trading volumes. RVF has already paid over the first R600m “as a deposit”, with a due diligence still required early next year before the transaction is officially closed. These cash injections are clearly critical for Trustco. Readers may remember that in late 2016 Trustco announced it would embark on a specific share buyback of 5.4% of its issued shares from US-based investment group Buckley Capital. At that stage, the buyback price — to the surprise of many market watchers — was set at roughly a 20% premium to Trustco’s ruling share price. The interesting part of the deal was that Trustco would only need to settle up with Buckley in January 2018 — more than a year after the buyback was announced. This transaction value is about R200m, which Trustco might arguably have strained to settle without the R250m convertible loan from RVF. Naturally, the fallout in sentiment if Trustco could not fund the share buyback — or needed to sell off assets to raise the necessary capital – could have been nasty. A case of cash crisis averted . . . for now? x December 21 - December 27, 2017

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money&investing FIRSTRAND

R20bn UK deal gets thumbs-up Aldermore shareholders vote yes, but that doesn’t mean it’s all sunshine and roses for Africa’s biggest bank Moyagabo Maake maakem@bdfm.co.za

ý The blessing of the UK courts, and the regulatory green stamp, is all that stands between Africa’s largest bank by market value, the JSElisted FirstRand, and popping the champagne cork on its biggest overseas foray — the R20bn takeover of British high-street bank Aldermore. In recent days, more than 95% of Aldermore’s shareholders voted to accept FirstRand’s offer of 313p/share to buy the bank — more than the 75% needed. The next step is that the UK Prudential Regulation Authority, Financial Conduct Authority and the SA Reserve Bank must put their stamps of approval on the scheme. It’s a big deal for FirstRand and will push its overseas profits from 5% to 12% of its total. But some analysts are wary, particularly as it follows a string of disasters from SA-based firms going overseas to “diversify” their profits. The worst such deal was Brait’s takeover of UK high-street retailer New Look for R37bn in 2015. This ended in tears, with Brait writing down the entire business to zero this year. However, FirstRand’s investors seem to believe the banking group’s takeover of Aldermore will be done far more judiciously. Since the deal was announced in October, the share price has gained 22% to R65.31 amid a wider resurgence of confidence in SA’s banks. FirstRand CEO Johan Burger has been coy about his plans for Aldermore, apart from saying it will give FirstRand an opportunity to diversify the products and customers of its UK vehicle arm, MotoNovo. MotoNovo’s main business is to finance secondhand cars, but it has ambitious plans to provide personal loans and insurance. Aldermore’s expertise in the British small and medium-sized business sector, especially with mortgages, will help. In the long run, the deal appears more beneficial for FirstRand’s MotoNovo than for Alder48

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December 21 - December 27, 2017

more’s shareholders. So why did Aldermore’s investors sell? “FirstRand’s offer of 313p represents a 22% premium to Aldermore’s closing price of 245p the day before both companies announced they were in talks,” says Adrian Cloete, portfolio manager at PSG Wealth. Cloete says Aldermore shareholders were faced with a choice: accept the 313p offer, or risk seeing the price fall. To shun FirstRand’s advances, Aldermore’s investors would have had to be “really excited” about the bank’s earnings prospects as a standalone company. Aldermore was formed in 2009, when a former Barclays executive, backed by private equity group AnaCap, merged two smaller banks — Base Commercial Mortgages and Ruffler Bank. It listed on the London Stock Exchange in 2015.

21%

Who Aldermore lends to

£8.1bn

19%

47%

25%

Who deposits money with Aldermore

£7.3bn

70%

Based to 100 140

Barclays Africa share price Standard Bank share price FirstRand share price Nedbank share price

130 120 110 100 90

J Source: Iress

S 2017

offer does not undermine the group’s capital position, beyond the purchase price.” Mensah says FirstRand has a proven ability to generate earnings thanks to its diversified franchise — including a retail bank in First National Bank (FNB), the corporate and investment bank in RMB, vehicle financier WesBank and asset manager Ashburton. The deal will come at a cost, though. Analysts at Bloomberg Intelligence say FirstRand’s core capital ratio — a measure of its equity, as a percentage of its risk-weighted assets — will drop by a hefty 260 basis points to 11.7% just from paying the R20bn. “It would remain ahead of its regulatory requirement and internal targets, but surplus capital will be largely eliminated and dividend hikes delayed,” say the analysts. 2% “FirstRand will likely prioritise raising the size of its capital buffer organically before any further deals or boosting dividends.” Asset finance But if the deal will be a strain, it Invoice finance won’t break the bank. SME commercial Cloete says FirstRand has morgages always been strongly focused on Buy-to-let shareholder returns, so it has been Residential morgages quite disciplined in approaching acquisitions. “FirstRand will only do an acquisition at a price that is value-enhancing to shareholders, and will not overpay just to get an acquisition done,” he says. In the past six months, FirstRand’s stock has rallied 37% — more than rivals Nedbank (21%) or Barclays Africa (up 32%), but Retail deposits behind Standard Bank (up 40%). However, its stock is more pricey SME deposits than that of its competitors, indiCorporate deposits cating that its shareholders have higher expectations. x

Laurie Dippenaar, FirstRand’s outgoing chairman, told the Financial Mail recently that this is an “earnings-enhancing deal, [but] not a destiny-changing deal. It will create incremental value”. Still, analysts seem divided about whether the deal is positive for FirstRand over the long term. Ratings agency S&P Global Ratings flagged this deal specifically when it downgraded SA’s banks last month. But Samira Mensah, senior credit analyst at S&P, says: “The group has been operating with sufficient excess capital, and the

11%

BETTER SENTIMENT

PLATINUM CRUNCH Based to 100

MINING

Sibanye’s Lonmin gamble

its offshore shareholders, which would allow it to better use its equity for offshore transactions. With the Lonmin deal, Sibanye has achieved its PGM ambitions — but it is still interested in expanding its position in gold, particularly in North America, Froneman says. Investec’s global mining analysts say the Lonmin deal is good news for that company’s shareholders, but it remains to be seen if Sibanye can turn Lonmin’s Marikana operations to profit without a major improvement in PGM prices. The key value case for Sibanye could be Lonmin’s smelting and refining assets. Daniel Sacks, portfolio manager at Investec Asset Management, says the deal with DRDGold is essentially a disposal of Sibanye’s interests in the tailings project, as it will get DRDGold shares as payment, which it can sell.

140 130 120 110 100 90 80 70 60 50 40

Sibanye Stillwater share price Lonmin share price

F M A M

Source: Iress

J J A S 2017

O N D

to plan, and social and labour plan commitments. It will acquire good senior executives Three big deals this year have allowed from Lonmin, who will slot into Sibanye’s manthe miner to diversify its exposure to agement team. foreign and domestic gold and platinum However, Sibanye’s shares fell 5% to R15.30 after the Lonmin deal was announced. Sibanye’s However, it is not inevitable that Sibanye stock has been trending downwards, from Charlotte Mathews mathewsc@fm.co.za will sell its shares in DRDGold, Sacks says. The above R20, ever since the tie-up with DRDGold retreatment project used to be high on the list of was announced in late November. At the same ý After three ambitious takeovers in the past 12 Sibanye’s priorities, but these have shifted now time, Lonmin’s stock has soared. months — of Stillwater in the US, a joint venture that the company is trying to reduce its debt. Vayej says the drop in Sibanye’s shares and with DRDGold to exploit gold and uranium tailThe project is now being run by a proven operrise in Lonmin’s are a fair reflection of the allings dumps and a proposed all-share takeover ator in tailings retreatment and it no longer preshare offer. The ratio is approaching the offer of troubled Lonmin — Sibanye-Stillwater has sents a distraction for Sibanye management, level, indicating a high probability that it will be built up a portfolio of assets in different geograwhich is already stretched with other projects. approved. phies, resources and types of mining. Shoaib Vayej, a portfolio manager at Afena He says the deal has been widely anticipated This is very different from the way in which for some time. It will help make the industry — SA gold and platinum miners used to expand, by Capital, says the deal with DRDGold “is quite a neat way to build scale in that business without and Lonmin’s mines — more sustainable. sinking new deep-level shafts. Instead, SibanyeLonmin’s balance sheet has been increasingStillwater has chosen to buy existing assets with incurring the cash-flow impact”. Asked if the spate of deals has put Sibanye’s ly strained by prolonged weak PGM prices. It short-term or turnaround potential. executives and efficiencies under strain, Fronedeferred the release of its year-end financial In the company’s latest annual report, CEO man says it is a good question — and one that results and was considering selling some of its Neal Froneman says uncertainty about policies Sibanye’s board has asked. assets to raise cash. Shareholders were appreand regulations in SA has made it complex to Sibanye has restructured its executive team hensive of another rights issue. commit to projects that have long lead times and made a couple of new appointments to Lonmin CEO Ben Magara insisted the comand are capital-intensive. focus on three key areas: integration, producing pany had net cash of $103m at the end of Earlier this year, Sibanye bought North September and still had the supAmerican platinum group metals port of its lenders. (PGM) producer Stillwater for SIBANYE-STILLWATER BECOMES A HEAVYWEIGHT Lonmin has huge PGM US$2.2bn. It is also selling 100% 2016 palladium production 2016 gold & gold equivalents production resources and valuable processof its West Rand tailings retreat(m oz) (m oz) ing infrastructure, but its older ment project to DRDGold in Barrick 5.5 shafts are reaching the end exchange for 38% of DRDGold’s Norilsk 2.6 of their lives. Developing big shares, with an option to raise Newmont 5.2 new mines such as K4 and this to 50.1% within two years. Sibanye-Stillwater 1.3 Sibanye-Stillwater (post production) 3.8 (post production) Pandora will require substantial Its latest deal is a takeover of AngloGold 3.6 capital spending between 2022 Lonmin through offering 0.967 1.3 Amplats and 2026. of a Sibanye share for every one Gold Corp 2.9 Froneman says a revised plan of Lonmin’s — a 40% premium Kinross 2.8 Impala 0.9 still requires closing certain to Lonmin’s 30-day volumeNewcrest 2.4 shafts, but delays the substantial weighted share price. Lonmin 0.3 capital investments. Froneman says Sibanye’s Gold Fields 2.1 There is an option to spend strategy has not changed. It still Polyrus 2.0 Northam 0.1 R1bn on a DC arc furnace, which aims to consolidate its position Agnico-Eagle 1.7 would be able to treat the as a precious metals producer, RBPlats 0.1 higher-chrome ore once Sibanye deleverage the balance sheet Sibanye-Stillwater 1.5 switches its processing from (the Lonmin transaction will be Lonmin’s contribution to Sibanye-Stillwater Anglo American Platinum to neutral for its debt) and address Lonmin. x the “SA discount” in the minds of Source: Sibanye-Stillwater December 21 - December 27, 2017

financialmail.co.za

market watch by Marc Hasenfuss GLOBAL MARKETS

Choose carefully

The simplicity of a company’s business model was consistently emphasised as a prudent concern in selecting an investment strategy 50

financialmail.co.za

December 21 - December 27, 2017

Berkshire stock hits $300,000

that acquisitions add meaningful value without dangerously stretching the balance sheet. In addition, these companies produce financial statements that allow investors to easily glean the underlying value and evaluate prospects. I must confess that my two best investments this year were alternative energy group Montauk and wannabe lithium miner Tawana Resources. Both these shares provided fun by the barrelful — but I don’t think I could summarise the “story” on the back of a cigarette box (to use old-style presentation parlance). That’s probably something for me to mull over during the year-end merriment. A man of means There has been a lot of intrigue around the damage done to investment tycoon Christo Wiese’s wealth by the valuepulverising events at Steinhoff International. No doubt Wiese has taken a serious bath at Steinhoff, but he still has plenty stored away in supermarket giant Shoprite and even in the muchdeflated investment house Brait. Wiese is also a survivor — having emerged from Pepkor’s ill-timed offshore loan catastrophe in the mid-1980s and from the black hole that sucked in the broader BoE/Boland Bank constellation about 16 years ago. I suspect Wiese will struggle through the Steinhoff setback — perhaps thanks to the fact that he has built such an extensive investment portfolio. When I scanned the shareholder register to take stock of Wiese’s shareholdings, I was rather surprised to see that one of his biggest investments is a “small” stake in technology giant Naspers. As of November 24 Wiese held — through his Titan nominee companies — 445,000 shares in Naspers, worth a princely R1.45bn at the time of going to press. Interestingly Wiese, who is well known for “sideline” investments in Invicta, Trans Hex, Tradehold, Pallinghurst Resources and Stellar, also holds meaningful stakes in Sibanye-Stillwater, Montauk, Adcock Ingram and Aspen — collectively worth close to R380m. x

Berkshire Hathaway Inc’s stock price touched US$300,000 for the first time on Tuesday, reflecting investors’ confidence in Warren Buffett’s conglomerate despite four straight quarters of lower operating profit. Crossing the $300,000 threshold put Berkshire’s class A shares up 22.9% for the year, compared with a 20% gain in the Standard & Poor’s 500. The gain occurred even though 2017 has been Berkshire’s second straight year of mediocre operating performance relative to prior periods. Reuters

Bloomberg/Christopher Goodney

@marchasenfuss

he fallout from the Steinhoff debacle continues to frazzle the nerves of investors. The market buzz is horribly cynical — but let it be said that some of the illogical panic selling in unrelated shares has created certain attractive festive-season buying opportunities. Like most punters, I can’t predict what will transpire at Steinhoff — or when, for that matter. To date nitty-gritty details are frustratingly scant, and if I were a Steinhoff shareholder (fortunately I’m not) I would be in a terrible huff. In light of developments unfolding at Steinhoff, conversation at a recent lunch with a couple of my investment-minded pals revolved mainly around the most prudent investment strategy for 2018. Understandably, the thematic thread was the importance of investing in companies in which there is an easyto-understand business model, steady demand and trusted management. These are, of course, standard considerations when weighing up an investment. But the simplicity of the business model was consistently emphasised, reflecting just how convoluted the operational structure and reporting lines are at the gargantuan Steinhoff. When it came to nominating companies that we would back if forced to invest our life savings in a JSE share, we collectively only settled on a handful of counters: poultry business Astral Foods, packaging conglomerate Transpaco, property specialist Stor-Age and building materials supplier Afrimat. My wife has a small position in StorAge, but I don’t hold any of these shares. In fact, when I reviewed my portfolio I could, at a stretch, claim that industrial conglomerate Deneb Investments and appliance specialist Nu-World Holdings might be regarded as dependable, valueladen and conservatively managed firms. I can understand why counters such as Astral, Afrimat, Stor-Age and Transpaco might be regarded as sturdy bastions. Though these firms are dependent largely on economic activity, their management teams have run the core businesses leanly and made damned sure

Warren Buffett (87) has run Berkshire since 1965.

IMF: Zimbabwe commits to economic reforms The International Monetary Fund said the new Zimbabwean government has pledged that it will address an economic crisis to unlock international aid. An IMF mission just concluded its first visit this week to the Southern African nation since the removal of former president Robert Mugabe, to assess the struggling economy, fund spokesman William Murray said at a briefing in Washington. The government’s unsustainable fiscal deficit and “severe” liquidity shortages, which fuel inflation, are hobbling the economy, he said. Bloomberg

shop talk by Zeenat Moorad

@zeenatmoorad e: mooradz@bdlive.co.za

Simpsons nail it

n 1998, an episode of The Simpsons predicted that The Walt Disney Company would buy Rupert Murdoch’s 21st Century Fox. That prediction is now a US$52.4bn reality. The deal, Disney’s largest, includes the 20th Century Fox movie and TV studios, most of its cable channels (like National Geographic) and its international assets. Plainly put, the deal means two things: Rupert Murdoch has cashed out, and Fox’s assets give impetus to Disney’s own streaming ambitions. Allow me to explain: the all-stock deal results in the Murdoch family trading control of 21st Century Fox for a 4.25% stake in Disney. After mutual fund Vanguard, they become the largest House of Mouse shareholder. Rupert Murdoch (86) will be left unencumbered to focus on what he’s always has a soft spot for: the news industry. The Fox network and Fox News are not included in the deal. There is some speculation that the Murdochs might reunite Fox with News Corp, which holds the family’s publishing assets, including The Wall Street Journal, New York Post and The Times of London. For Murdoch, who has long felt that the market undervalued his assets, the deal makes him richer, as his stake will be in a stronger Disney. Globally, people are consuming entertainment differently. Paid TV and movie-streaming services have been siphoning audiences away from traditional pay-TV subscriptions. 52

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Disney wants Fox to create more movies and shows to show on Netflix, Amazon Prime Video and HBO. The reality is that major studios, as well as cable and subscription companies, are struggling to compete with Netflix. This year alone, Netflix (which has 109m subscribers) spent $6bn on creating original content. By comparison, Amazon dropped $4.5bn. That Amazon, essentially a technology company, won three Oscars this year is, I guess, vindication of this strategy. Iger’s Disney dream The Disney mega-deal is expected to take at least a year to close, assuming regulators give it the all-clear (unlike AT&T’s bid for Time Warner, which has faced stiff resistance). Disney boss Bob Iger, who has deferred retirement four times already, has made it his mission to reposition Disney. He’s a guy that one would unashamedly call ballsy. Three months after taking the helm at Disney, he engineered the $7.4bn takeover of Pixar Animation Studios. At the time, most thought Iger was bonkers. I’ll tell you what happened: Frozen, the highest-grossing animated film yet. Bagging Pixar was transformative for Disney, and the subsequent slew of box-office home runs restored the company’s standing to its 1990s The Lion King heyday. Everyone assumed the Pixar deal would be the hallmark of Iger’s tenure. The Fox deal, however, is his boldest move yet. By the way, The Simpsons accurately predicted the future at least 13 times. Here are just three of them: ● Greece’s debt default: when Homer appears as a guest commentator on a news show, a ticker runs across the screen that reads: “Europe puts Greece on eBay.” This was in 2012, three years before Greece became the first developed country to default on a loan from the International Monetary Fund. ● FaceTime: in 1995, Lisa has a conversation with Marge using a phone’s video-chat function — predating the iPhone FaceTime feature by 15 years. ● Donald Trump’s presidency: Bart flashes forward into adulthood and viewers learn that Lisa is president. Her predecessor is Trump — 16 years before he beat Hillary Clinton. x

December 21 - December 27, 2017

CHECKOUT COUNTER

Unilever goes natural Unilever has announced that it will acquire Schmidt’s Naturals, a personalcare company based in the US city of Portland, for an undisclosed sum. Schmidt’s Naturals, founded in 2012 as a deodorant brand, has extended its offering to bar soap and toothpaste. The move by Unilever follows that of rival Procter & Gamble, which last month bought the Native natural deodorant brand.

AB InBev in Asian megabrewery play AB InBev, which now owns SABMiller, has opened a new brewery in China — the company’s largest in Asia. This is in line with its ambitions to take advantage of rising demand for high-end beer in the region. AB InBev, which is the world’s largest brewer, says the Fujian Province plant can produce 160,000 cans of beer an hour.

Nestlé in good health after Atrium deal Swiss food giant Nestlé will buy Canadian vitamin maker Atrium Innovations for US$2.3bn, continuing its expansion into the consumer health products sector. Atrium is expected to report sales of almost $700m this year. Given shifting consumer tastes and weak global economic growth, consumer conglomerates have been eyeing health care as a growth opportunity.

H&M looks to boost its online sales In an effort to boost e-commerce, H&M will expand its co-operation agreement with the Alibaba Group’s Tmall to add additional brands on the Chinese digital platform. This comes as the Swedish retailer reported the biggest drop in quarterly sales in at least a decade after losing ground to Zara parent Inditex.

investor’s notebook by Stephen Cranston

Looking ahead

@scranston

Factors such as expenses and the ownership of fund shares are often ignored in favour of past performance

future performance. I am not so sure. Of course it is no guarantee, and it would be absurd to expect good performance to repeat precisely over short periods such as a month or a quarter. But just as some advocates, architects or musicians are better than others, fund managers can show more skill. And as investment is a team sport, the quality of the house culture is equally important. I have heard anecdotal reports, usually from poor-performing managers, about how it is better to keep switching to the worst unit trust rather than the best. And there are certainly inflection points when, for example, John Biccard’s Investec Value Fund flipped from the bottom to the top of the table. Now Morningstar has produced a paper, based on North American and European-based funds, looking at the extent to which its analyst ratings have predicted future performance — the best prospects are expected to come from “gold” funds, then “silver” and “bronze”, down to “neutral” and “negative”. It is a much more balanced and sane system than Morningstar’s star system, which looks purely at past performance. The funds were assessed using two heavyweight but reputable techniques: the Fama-MacBeth regressions (with no witches to stir the pot, unfortunately) and the event study framework. In equity funds, gold funds outperformed over five years, with bronze ahead of silver. Those who adopted the strategy of investing in the worst performers would have had a return at least 10 percentage points below the gold medal funds. Gold, silver and bronze were also well ahead of negative funds in asset

allocation. The main anomaly was that in the fixed income category, silver funds were far ahead of gold — but all the medallist fund classes were well ahead of the neutral and negative funds. The Morningstar Analyst Rating does not take a crudely mechanistic approach. It is compiled by people, not machines, and it’s clear Morningstar’s experts have worked hard at acquiring insights into the sustainable advantages of each fund. It looks at factors such as expenses and the ownership of fund shares, which are often ignored in favour of past performance. Backward-looking system Morningstar has five pillars: process, performance, people, parent and price. When it comes to parent, it prefers a hands-off parent as it prefers stewardship to salesmanship, and it likes a firm which knows how to retain talent — not always easy when the parent is a bank or a life office. Increasingly, investors also recognise the importance of price, and the value that a fund can destroy compared with cheaper alternatives. Let’s hope the analyst rating system will be rolled out comprehensively in SA soon. True, the star system is here — but who wants a backward-looking system focused on past performance? Maybe it is some use in picking funds for the next five years, but it only adds to the confusion over shorter periods. Fund managers will hate Morningstar’s findings. But it’s still possible for experienced manager research teams to select funds which, over an economic cycle, are likely to outperform the index. Just don’t judge them on one-year performance. There’s a good reason why Allan Gray, Investec and Coronation are so dominant in the pension fund space. They have a lot of skill, and I suspect they will all do well in the SA edition of the Morningstar Analyst Rating. x

BITCOIN / TRADING IN THE CRYPTOCURRENCY’S FUTURES HAS STARTED ON CBOE GLOBAL MARKETS’ FUTURES EXCHANGE December 21 - December 27, 2017

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123RF

e have all heard the warning that past performance is no indication of

money&investing

ANALYSE THIS...

Andries Kotzee Chief financial director, BDO’s Celerity Investments

If someone came to you tomorrow with R100m to invest in just one company, which would it be? My own. If that’s not an option, I’ll suggest Alphabet (Google). You get a lot of diversified income streams in one company. Which talent would you most like to have? Writing. The pen is mightier than the sword. What was your first-ever job? I was a waiter at Mike’s Kitchen. If you could fix one thing in SA today, what would it be? South Africans’ propensity to litter. And we can all stop — for free. What’s the best investment you’ve ever made? Apart from relationships, education and my career? Investing in global property in March 2009. What was your worst investment mistake? Investing in Brainware in the late 1990s. For some time it was also the best investment but I got greedy. What’s your favourite song? It’s like asking which is my favourite day of the week — I like all of them. So I investigated this, as one would expect from a professional analyst, and the song on my playlist that I’ve listened to most is “Bring me to Life” by Evanescence. On what occasion do you lie? When I am tired and can’t run, walk, stand or sit any more. How much was your first pay cheque and what did you do with it? R3,627. I deposited it into my Volkskas account — my budget was not going to be funded in any other way. What was your last purchase? Dog food. Name a place you’ve been to that lived up to the hype. Cancún, Mexico. And London — I love the place. Do you own bitcoin? And why? No. I also don’t invest in gold or play the lottery. Bitcoin does not pay an income (either interest or dividend) so we view it as a type of money or currency rather than an asset which produces future income. If you found a lottery ticket tomorrow that had won $100m, what would you do with it? Frame it — that would illustrate a lot of self-discipline. Given that even my iron will is not strong enough for that, I’ll invest it in my own company. And probably buy a Mini Cooper for my wife and a Lego set for each of my two boys. x 54

financialmail.co.za

December 21 - December 27, 2017

economic indicators AFRICA TOP STOCKS (EXCL SA) Company

Maroc Telecom Dangote Cement Attijariwafa Safaricom Banque Centrale

ECONOMIC INDICATORS

Country

Market Cap (Us$000s)

Price Total Return Ytd

Morocco

12,633.57

135.85

0.28

Nigeria

10,856.83

230.00

39.08

Morocco

10,419.66

483.95

20.39

Kenya

1,009.88

26.00

41.20

Prime

10.25

Producer price index

Nov

5.1

5.0

NCD*

7.20

7.13

7.48

Repo

6.75

7.00

Credit Aggregates (% change y/y)

5.65

73.01

0.54

Morocco

3,948.84

208.00

-4.59

Guaranty Trust

Nigeria

3,261.07

40.00

74.47

Industry (% change y/y)

Nestlé Nigeria

Nigeria

3,214.65

1,464.05

85.25

Nigerian Breweries

Nigeria

3,129.91

142.50

-1.09

Ciments du Maroc

Morocco

2,550.18

1,670.00

Nigeria

2,228.19

25.62

Morocco

1,959.01

294.00

Zimbabwe

1,888.08

Kenya

1,878.41

Wafa Assurance

Morocco

1,821.55

4,920.00

8.63

Managem

Morocco

1,744.93

1,651.00

73.11

East African Breweries

Year ago

4.8

295.10

Delta Corp

Month ago

4.6

4,755.24

Cosumar

Dec 15 Nov

5,689.55

Zenith Bank

Short-term interest rates (%)

Consumer price index

Egypt

Banque Marocaine

Month ago

Inflation (% change y/y)

Morocco

Commercial Intl

INTEREST RATES

Latest

Claims on the domestic pvte sector

Oct

5.4

5.5

Total loans and advances

Oct

5.4

5.3

Total domestic credit extension

Oct

6.5

6.2

New passenger car sales

Nov

16.4

7.9

New commercial vehicle sales

Nov

-9.0

-2.2

34.52

Retail sales

Oct

3.2

5.7

98.86

Wholesale sales

Oct

-0.9

-9.1

32.87

Manufacturing production

Oct

2.2

-1.7

1.50

76.88

Mining production

Oct

5.2

-0.3

245.00

3.39

Mineral sales

10.50

Jibar*

7.14

7.07

7.36

Safex†

6,73

6,72

6,98

* 3 months

† Overnight rate

Bond yields (%) Dec 15

Month ago

Year ago

R186

9.010

9.390

9.020

R 204

7.430

7.755

8.030 8.250

Sep

7.0

19.1

R207

7.835

8.075

Imports

Oct

99.95

97.74

R208

8.080

8.330

8.410

Exports

Oct

104.51

102.22

R209

9.700

10.145

9.605

Trade balance

Oct

4.56

4.48

Trade (Rbn)

Gold & Forex Reserves (US$bn)

DIVIDENDS & DISTRIBUTIONS Q Quarterly

Company

Amount (c)

Telemasters Holdings

Trade by

1.00

Jan 9

Payable

Jan 15

Gold reserves

Nov

5.16

5.13

SDR holdings

Nov

2.53

2.51

Forex reserves

Nov

42.61

41.26

Gross reserves

Nov

50.30

48.90

Net reserves

Nov

42.69

42.49

COMMODITY PRICES Dec 15

Week ago

Year ago

EXCHANGE RATES

12-mth low 12-mth high

Precious metals (US$/oz) Gold

Dec 15

Month ago

Year ago

12-mth low 12-mth high

Developed Markets — Rand per foreign currency unit

1,255

1,249

1,129

1,128

1,349

US dollar

13.10

14.43

14.02

12.43

Platinum

895

888

897

880

1,029

Euro

15.39

17.02

14.60

13.42

17.02

Palladium

1,027

1,009

703

656

1,035

UK pound

17.46

19.01

17.44

15.51

19.02

Silver

16.07

15.86

15.97

15.62

18.55

Japan yen (100)

11.63

12.76

11.89

11.15

12.76

Canada dollar

10.18

11.29

10.49

9.30

11.39

Base Metals (US$/t) Aluminium

2,051

1,992

1,743

1,693

2,176

Copper

6,855

6,537

5,724

5,456

7,122

Nickel

11,522

10,891

11,250

8,736

12,870

Lead

2,546

2,447

2,335

1,952

2,585

Tin

19,174

19,522

21,360

18,753

21,360

Zinc Iron Ore

3,205

3,090

2,800

2,429

3,365

67.37

66.01

81.46

54.24

94.91

Energy

14.49

Switzerland franc

13.23

14.59

13.60

12.54

14.59

Australia dollar

10.02

10.94

10.32

9.48

11.05

Emerging Markets — Foreign currency unit per rand Brazil real

0.25

0.23

0.24

0.22

0.26

China yuan

0.50

0.46

0.49

0.46

0.55

India rupee

4.85

4.53

4.85

4.52

5.26

Russia ruble

4.49

4.17

4.41

4.06

4.62

0.31

0.29

0.32

0.29

0.36

Brent ($/bbl)

63.80

63.67

53.41

44.21

65.21

Malaysia ringit

Coal (US$/t)

97.70

91.50

80.00

72.75

97.70

Thailand baht

2.47

2.29

2.55

2.28

2.78

Botswana pula

0.76

0.74

0.78

0.73

0.82

Agriculture (R/t) White maize

1,862

1,900

4,142

1,678

4,205

Yellow maize

1,966

1,992

3,332

1,804

3,444

Wheat

3,965

3,997

3,944

3,922

4,717

Sunflower

4,490

4,580

5,925

4,230

5,970

Economist: Global Markets Research,

Soya

4,798

4,965

6,565

4,387

6,702

Rand Merchant Bank (tel) +27 11 282-4716 or e-mail: isaah.mhlanga@rmb.co.za.

The information in the commodities column is provided by Isaah Mhlanga,

SHAREHOLDER MEETINGS Company ZCI

Date

Type

Dec 27

AGM

Place Zambia

December 21 - December 27, 2017

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jse top stocks COMPANY

CLOSING PRICE (MONDAY) (C)

ANHEUSER-BUSCH INBEV BRIT AMER TOBACCO NASPERS LTD-N BHP BILLITON PLC GLENCORE PLC RICHEMONT-DR FIRSTRAND LTD ANGLO AMER PLC STANDARD BANK GROUP SASOL LTD VODACOM GROUP MTN GROUP LTD SANLAM LTD OLD MUTUAL PLC SOUTH32,LTD MONDI PLC MONDI LTD BARCLAYS AFRICA SHOPRITE HLDGS REMGRO LTD ASPEN PHARMACARE KUMBA IRON ORE NEDBANK GROUP CAPITEC BANK HOLD DISCOVERY LTD RMB HOLDINGS LTD BID CORP LTD ANGLO AMERICAN PLATINUM INVESTEC PLC TIGER BRANDS LTD GROWTHPOINT PROP MEDICLINIC INTL PLC BIDVEST GROUP RAND MERCHANT INVEST HOLD STEINHOFF AFRICA FORTRESS REIT LT B FORTRESS REIT LT A WOOLWORTHS HLDGS RESILIENT REIT MR PRICE GROUP REDEFINE PROPERTIES EXXARO RESOURCES SAPPI LTD ANGLOGOLD ASHANTI IMPERIAL HLDGS GOLD FIELDS LTD CLICKS GROUP LTD ASSORE LTD TFG LIFE HEALTHCARE TRUWORTHS INTL AVI LTD SPAR GRP LTD/THE STEINHOFF INT NV LIBERTY HLDGS SIBANYE GOLD LTD NETCARE LTD BARLOWORLD LTD PICK N PAY STORES MMI HOLDINGS LTD PIONEER FOOD GROUP SANTAM LTD DIS-CHEM PHARMACIES MASSMART HLDGS HYPROP INVESTMENTS AFRICAN RAINBOW TSOGO SUN HOLDINGS NORTHAM PLATINUM

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144,400 85,746 324,000 24,573 6,275 11,632 5,989 24,870 18,500 42,600 14,800 13,446 8,469 3,682 3,231 31,833 31,719 17,150 21,800 22,600 27,641 37,232 24,000 100,100 17,100 7,025 29,100 34,850 8,819 44,107 2,671 10,287 21,450 4,498 1,920 4,080 1,850 6,096 14,542 22,750 1,055 15,500 8,903 12,025 24,300 5,360 17,600 29,527 17,030 2,682 8,745 10,934 19,877 848 12,003 1,549 2,256 15,420 6,700 2,050 13,639 26,546 3,490 13,458 11,190 12,569 2,300 5,163

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 (%)

2,915,786 1,966,695 1,424,185 1,401,704 903,270 667,909 335,952 321,398 299,565 278,184 254,769 253,359 183,479 181,615 167,656 153,714 153,714 145,389 128,912 127,627 126,168 119,919 119,546 115,743 110,610 99,172 97,603 93,965 85,582 84,716 78,373 75,840 72,150 68,273 66,240 66,227 66,227 63,889 61,797 61,366 59,957 55,600 49,608 49,498 48,877 44,034 43,291 41,222 40,320 38,873 38,658 38,452 38,284 35,882 34,353 33,593 33,179 32,797 32,726 32,311 31,831 30,563 30,017 29,223 27,801 27,586 26,382 26,320

December 21 - December 27, 2017

2.73 14 61.29 17.8 36.68 30.87 18.45 31.23 28.62 10.4 2.4 12.73 40.37 10.57 23.83 17.09 16.14 9.43 30.2 3.75 -1.61 154.33 6.73 46.35 51.35 11.49 20.78 31.8 1.49 14.02 11.22 -19.95 21.96 16.21 NA 32.19 20.77 -9.85 33.08 48.48 2.86 84.06 0.65 -20.46 37.86 25.64 55.86 31.48 12.19 -10.37 15.91 24.78 3.91 -88.03 15.58 -4.3 -26.78 34.93 8.3 -6.11 -9.33 17.51 57.1 8.99 1.09 35.89 -12.8 27.48

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

1.97 2.27 8.01 1.1 0.29 2.91 4.38 2.93 14.64 33.26 6.92 4.34 5.06 0.17 0.23 1.29 1.29 17.81 9.58 15.23 11.22 31.83 20.29 35.17 6.84 5.81 12.04 -5.7 0.48 18.77 2.67 0.09 14.22 2.22 NA 2.01 2.01 5.64 7.91 9.43 0.69 20.83 0.63 -0.41 13.02 0.13 5.06 48.67 10.78 0.56 6.59 4.75 9.39 NA 6.94 -0.81 -0.42 7.75 2.34 0.97 3.65 11.39 0.77 5.83 11.14 6.98 2.76 -1.82

5.07 3.05 8.59 1.36 0.39 0.33 4.77 2.12 16.81 36.97 10.02 6.75 5.34 0.22 0.21 1.59 1.59 19.15 11.88 17.92 18.19 20.81 26.32 45.66 8.96 6.28 14.18 17.59 0.55 24.67 2.13 0.31 13.26 3.19 1.15 2.21 1.64 4.5 6.74 11.31 0.98 19.18 0.64 0.79 17.18 0.19 5.88 35.75 12.51 1.55 6.73 5.78 10.85 0.36 13.4 1.62 1.77 11.77 3.36 2.17 7.88 18.55 1.12 6.92 7.79 17.61 2.06 0.05

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

3.62 3.52 NA 4.32 1.41 NA 4.26 2.42 4.54 2.96 5.88 5.21 NA 3.25 3.9 2.72 2.71 6.09 2.31 2.19 1.04 4.29 5.17 1.32 1.09 4.65 1.72 0 4.61 2.45 7.33 1.3 2.29 2.62 NA 8.71 8.71 5.13 3.9 3.16 8.72 4.58 0 0 2.67 1.8 1.83 4.74 4.26 1.68 5.17 3.7 3.4 NA 5.76 2.51 4.21 2.53 2.68 7.66 2.68 3.41 NA 2.24 6.21 5.17 4.43 0

3.54 3.94 0.23 4.28 3.74 2.47 4.82 4.36 5.22 3.1 6.24 4.47 3.73 3.52 4.13 3.72 4.4 6.19 2.78 2.61 1.22 3.9 5.7 1.92 1.18 5.06 2.03 1.67 5.09 2.88 8.04 1.36 2.72 3.08 3.09 5.39 7.97 5.2 4.67 3.27 9.32 4.22 2.98 1.04 3.34 1.67 2.07 5.15 4.83 4.2 5.35 4.25 3.75 27.24 6.07 3.41 4.1 3.08 3.4 7.76 2.76 3.85 1.35 2.52 7.01 5.95 4.48 NA

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

12.08 67.6 16.86 0.83 -0.45 10.39 24.16 -7.71 15.69 10.92 45.74 11.82 20.42 9.26 NA 20.24 20.24 16.31 22.9 9.81 13.22 NA 14.47 25.87 17.57 21.42 NA -8.92 9.86 18.19 10.28 NA NA 18.16 NA 5.72 5.72 NA 16.58 47.9 9.92 9.5 21.5 -2.58 14.95 -0.32 48.92 NA 21.17 25.33 33.61 33.67 38.32 NA 15.9 2.36 11.92 9.21 33.28 8.98 16.42 23.38 NA 22.05 15.29 1.3 24.31 -7.76

13.87 24.02 21.11 11.93 11.46 11.43 20.16 11.74 16.62 10.36 26 11.36 18.42 11.74 9.78 19.67 19.67 15.54 22.33 8.66 16.94 21.99 15.35 25.82 15.35 19.74 17.98 11.71 12.93 22.13 8.16 5.36 19.61 24.24 8.24 6.64 6.14 21.46 7.92 38.93 8.49 15.38 18.62 10.69 16.02 4.77 39.33 15.55 21.7 14.64 27.57 35.7 29.29 9.77 14.65 13.72 22.5 11.54 35.62 16.92 17.72 28 52.07 21.41 6.74 13.14 15.7 -0.16

P:E FORWARD P:E

56.91 21.73 97.21 17.36 33.93 26.55 14.14 6.69 12.2 12.12 15.95 32.72 16.55 14.92 11.03 16.34 15.83 9.46 21.31 15.21 21.27 11.52 10.16 28.33 24.99 12.51 24.64 58.18 10.17 20.47 14.87 65.05 19.36 20.09 NA 11.16 11.16 14.48 21.17 22.93 12.66 8.27 11.11 NA 19.6 22.18 32.82 5.85 15.69 34.65 13.21 21.54 20.87 NA 16.83 NA 20.53 NA 27.48 20.83 33.26 23.08 39.84 22.38 17.36 7.46 10.22 NA

22.42 16.51 30.27 14.29 12.63 23.39 12.57 9.23 11.01 11.55 14.78 19.95 15.86 9.66 12.16 13.32 13.27 8.95 18.41 12.68 15.27 17.97 9.12 22.06 19.19 11.21 20.61 20.14 9.46 17.91 12.56 19.48 16.23 14.15 16.72 18.65 11.29 13.58 21.64 20.17 10.8 8.08 10.94 16.7 14.19 22.23 30.01 8.57 13.66 17.35 13.01 18.97 18.35 1.57 8.97 NA 12.79 13.13 20.06 9.48 17.37 14.33 31.38 19.48 14.38 7.35 11.17 NA

TOTAL SELL

TOTAL HOLD

TOTAL BUY

3 0 0 5 2 0 0 5 3 2 3 7 0 3 8 0 0 1 2 0 3 12 0 4 2 0 1 3 0 2 0 2 2 1 1 2 1 3 3 4 1 0 1 1 6 6 7 4 1 0 7 1 3 0 0 0 2 3 3 2 2 1 3 4 4 1 0 3

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

23 17 15 9 17 4 2 11 3 5 6 5 4 3 3 9 3 8 7 3 8 1 4 3 3 1 3 6 5 6 0 5 2 1 1 0 1 3 0 2 2 4 5 9 3 7 0 0 7 10 2 2 4 2 3 4 6 2 4 0 3 1 1 5 3 5 5 7

jse top stocks COMPANY

CORONATION TELKOM SA SOC LT KAP INDUSTRIAL IMPALA PLATINUM VUKILE PROPERTY SUPER GROUP LTD TONGAAT HULETT ATTACQ LTD RCL FOODS LTD/SO JSE LTD OCEANA GROUP LTD SA CORPORATE REAL EST ASTRAL FOODS LTD NAMPAK LTD PPC LTD HARMONY GOLD MNG FAMOUS BRANDS LT GRINDROD LTD TRANSACTION CAPITAL WILSON BAYLY HOLMES ADCOCK INGRAM HOLD EMIRA PROPERTY FUND SUN INTERNATIONAL REBOSIS PROPERTY RHODES FOOD GROUP PAN AFRICAN RESOURCES CITY LODGE HOTELS ROYAL BAFOKENG PLAT MURRAY & ROBERTS THARISA PLC ARCELORMITTAL SO

CLOSING PRICE (MONDAY) (C)

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 not withstanding.

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

7,138 4,722 855 3,096 2,055 4,010 11,000 1,930 1,503 15,150 8,911 477 25,097 1,548 648 2,297 10,149 1,310 1,578 15,200 5,465 1,385 6,400 957 2,236 247 12,400 2,700 1,102 1,800 362

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

4.36 6.94 0.51 -11.44 2.26 2.83 9.28 0.89 0.59 9.56 3.67 1.09 19.46 0.36 0.18 -8.89 1.94 -1.16 0.92 13.54 3.33 1.43 NA 4.16 0.92 0.01 8.08 -0.06 0.12 0.22 -5.9

DIVIDEND FORWARD YIELD (%) DIVIDEND YIELD (%)

24,969 24,883 24,583 22,749 15,827 14,897 14,862 14,465 14,065 13,162 12,077 12,071 10,755 10,672 10,315 10,215 10,135 9,989 9,636 9,605 9,605 7,239 6,982 6,147 5,674 5,520 5,403 5,288 4,901 4,698 4,120

8 -31.49 17.2 -27.56 19.66 3.81 -13.86 14.27 20.72 -3.97 -22.71 -7.93 97.81 -16.59 17.18 -24.82 -35.15 -2.6 12.1 1.98 15.89 7.26 -26.44 -6.78 -15.75 -1.22 -13.3 -24.18 -1.51 -11.45 -68.52

5.15 5.45 0.69 1.34 1.73 3.69 13.19 1.22 1.37 10.79 5.03 0.48 26.6 1.85 0.56 2.65 6.05 0.81 1.19 18.1 4.06 1.46 7.55 1.33 1.25 0.02 8.82 0.67 1.75 0.21 -0.4

LAST BID

LAST OFFER

PREVIOUS CLOSE

CLOSING PRICE

6.12 8.66 2.46 0 4.58 0 2.73 0 2 NA 1.01 9.22 4.2 0 0 0 0 0 2.53 3.13 2.54 10.34 NA 13.41 1.89 3.42 4.03 0 4.08 3.53 0

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

7.12 7.18 3.07 NA 8.7 NA 4.26 4.15 3.29 4.18 3.83 10.17 5.62 2.56 NA 2.37 2.58 1.21 3.2 3.87 3.5 10.82 1.92 13.94 1.87 5.48 4.34 NA 4.39 2.31 NA

77.12 12.87 13.29 -7.76 18.11 15.13 7.48 8.15 5.21 31.77 20.29 18.6 26.69 10.96 NA -10.64 30.7 -5.98 15.9 13.44 NA 12.91 NA 18.97 21.92 11.49 40.44 -7.18 8.63 9.91 -31.14

77.38 9.63 14.7 2.01 10.35 13.85 11.03 5.53 12.2 24.18 17.42 13.54 28.3 11.15 8.38 3.19 26.56 4.48 18.56 16.93 17.68 8.26 20.19 7.95 13.26 14.47 NA 1.67 10.04 14.23 -4.69

P:E FORWARD P:E

16.32 6.85 15.77 NA 16.39 13.9 12.5 83.88 23.67 15.67 22.74 10.95 13.22 12.5 54 NA 27.21 NA 17 11.62 17.48 13.7 NA 2.91 23.94 9.68 15.3 NA 40.81 6.43 NA

13.87 8.68 12.54 37.35 11.89 10.91 8.47 16.49 11.38 14.06 17.86 9.85 9.44 8.35 12.07 8.74 16.98 16.6 13.27 8.43 13.53 9.49 8.54 7.17 18.05 6.87 14.08 169.44 6.3 6.85 NA

TOTAL SELL

TOTAL HOLD

TOTAL BUY

1 2 0 5 0 1 0 1 0 0 1 0 0 3 0 2 1 1 0 0 1 3 0 0 0 0 0 2 3 0 4

4 6 1 7 1 2 1 0 4 1 2 6 0 4 0 7 2 0 1 1 3 3 1 2 3 0 3 4 1 0 1

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

zar x exchange NAME

SENWES LIMITED TWK INVESTMENTS LIMITED SENWESBEL LIMITED

ISSUED SHARES

CHANGE

VOLUME

VALUE

MARKET CAP (Rm)

YEAR HIGH

YEAR LOW

TRADE DATE

180,789,308

0.00

13.00

0.00

2,350,261

13.00

10.30

18/12/2017

35,100,993

0.00

14.55

0.00

510,719

14.55

12.33

18/12/2017

116,409,842

0.00

5.82

0.00

677,505

6.00

5.50

18/12/2017

December 21 - December 27, 2017

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life

CHASING CHARTS ý Following his successful single “Africa Ema”, DJ Chase now displays his producing prowess on DJ Ganyani’s House Grooves 10 album, out this month.

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

PHOTOGRAPHY

A DISTINCTIVE DEPTH OF FIELD Mark Lewis ghosts through the streets of inner-city Joburg with his camera, often catching people off guard, between heartbeats, between coughing and choking, between laughing hard and falling down

Lin Sampson

ý Photographer Mark Lewis has an eye that is unbeatably intense. At the same time he can also be light and ironic, sketching out a grudging half-smile. As a photographer he is aesthetically agile and acute, but it is the years of uncompromising work, doing his time, that give his work depth. Seldom seeking the limelight, he has covered ground from high-tone fashion in Vogue to inner-city brutalism. But it is his considered and easy acceptance of any world he finds himself in that makes people open to him. “The series Wake Up, This Is Joburg was inspired by William Dalrymple’s, book Nine Lives,” he says. As with Dalrymple, travel often plants the seed for Lewis. “Travel has absolutely played a big part, but due to circumstances over the past six years I have had to cut back and this has forced me to look at my own environment with a fresh eye. Tanya Zack reintroduced me to Joburg, where she has walked the streets as an urban planner. She has shown me how the city works and flows.” Lewis could turn up anywhere, always fitting in like a local. Here he is riding a bike between Charlotte and Berwick streets in Soho, London. In his beanie, carrying an old leather bag; his face as concentrated as a monk’s. Here he is standing on a bleak hillside in Welkom, beside the graveside of a boy killed on the border. Here he is in Paris, cycling through an underpass, eating garlic sausage, his eye triggered by fissures in a building, quirky textures — always December 21 - December 27, 2017

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The Grande Hotel, Beira

It is easy to think of a photograph as one truth. I think there are many truths in life and we choose which ones to highlight Mark Lewis

Waste picker on a landfill site, Johannesburg

60 60

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alert to offbeat sublimits. He is immediately a part of his surroundings, and though he relishes the country — his pictures of hunting dogs in Swaziland are among his best — he is essentially a city guy, scraping through the layers of life, an urban sleuth. “My focus now is around urbanisation and suburbanisation,” he says. He is a home boy, rediscovering the beautiful neglect that is Joburg and photographing it in a way that avoids hysterical realism. As a photographer Lewis details much, but leaves much to the imagination, rather like a good novelist. “It is easy to think of a photograph as one truth,” he says. “I think there are many truths in life and we choose which ones to highlight. “When I walk into the discarded space that the informal butchers occupy, the first reaction is one of horror: the smell, the rats — that is the truth of the place. But the longer one engages, other truths become clear: how hard the work is, how everyday the situation is, the social engagements that take place.” Lewis comes from a background of fashion photography, featuring in highly lit magazines such as Face, Blitz and Vogue, and he is represented in Aperture’s prestigious new book, Fashion Photography: The Story in 180 Pictures. The book is compiled from the past eight decades of fashion photography. “I have two images out of the 180, which is a pretty good way of ending that part of my life,” he says with characteristic modesty. The step from fashion to the fringes of other lives has been easier than expected. “Fashion is more constructed,” he says, “but I think of some of my photographs as tableaux with that particular sense of space, rather like a performance. The same applied to photographing fashion. “I went fully digital in 2008 and have not looked back. I find the immediacy enticing, especially when working out of the country. It’s put an end to all those fights at airports on the continent where they insist the film needs to go through very dodgy X-ray machines. “On a shoot in Sudan we had to wait for four days to shoot the president, Omar al-Bashir. “He kept cancelling. When I arrived home and processed the film none of the images of Bashir was exposed — not

December 21 - December 27, 2017

good for the stress levels. “I am not very technical and work with a minimum of stuff, one camera and one lens. In the final days of using film I worked with a Rolleiflex [camera]. I enjoy working with very basic equipment and walking as opposed to zooming if I need to be closer.” Have there been influences? “The world is awash with images and I tend to not look at other work as much as I used to. I find it rather overwhelming, how much there is and so I now tend to be more interested in friends’ work or my own,” he says. However, he admits to being influenced by photographers such as Lewis Baltz, an American who photographed motifs that usually were not thought worth snapping, such as deserted industrial buildings. The new Zeitz Museum of Contemporary Art Africa in Cape Town features a high percentage of photographs in its collection. Is photography the new art? “I don’t think of my work as art or not art,” says Lewis. “I take the work very seriously and the stories I pursue are very considered, not only for the aesthetic but also for the narrative. I am fascinated by how people live — particularly those who live on the edge — and how they carve out a space for themselves in a harsh urban environment like Joburg.” Slice of life “[The English writer] Geoff Dyer once said to me: ‘If you ever want to learn about something, write about it,’ ” says Lewis. “Well the same can be said about photography. My photographs are stories, which can only really happen with the participation of the person. They get to choose which aspects of their lives they wish to share. We never assume to tell their story. They all have much bigger stories than the ones we get to tell. “I am always amazed at how the one recycler we followed lived under the M1 South. He would climb up and sleep in a metre-deep concrete pit under the road, with the cars and trucks above. He would awake looking into the plushness of Saxonwold without giving it a second thought, without bitterness. He had too much else to think about.” Lewis often works in marginalised spaces and with people from the informal sector, but he says he does not see himself as a photographer of mutilating scenes. “The landscape that holds these people also holds the secret of their fate and I tend to concentrate on how people rise above that,” he says. The extraordinary thing in Africa is that people do manage things — sometimes better than in the First World. “When I was working in Somalia there had not been a government for 15 years but the country functioned. You could get a landline on the same day that you applied, something that [for me] coming from Joburg was pretty startling.” There are many stories like this, and a favourite photograph shows labyrinthine electrical wiring in Mogadishu. Lewis is now working on the periphery of the city with all its fortifications, aspirations and determination. “This city has turned into the most extraordinary place I have ever encountered,” he says. x

life inbox BOOKS Five aspiring SA writers get the go-ahead

PITCH PERFECT ý If you are an aspiring writer who has submitted a manuscript to several publishers and received the same rejection letter, here is an inside tip: if a submission doesn’t grab the publisher right away, — if that first paragraph isn’t gold — then that stock reply letter is what you’ll find in your inbox. Publishers receive thousands of manuscripts each year, and they find it impossible to read each one thoroughly, or grant the writer’s meeting request. But they always have a lurking fear that there is one gem in the pile that has slipped through their fingers. As a result, the people at Jacana publishing decided to do things a little differently, taking the time to read a little more of the manuscripts than just the first paragraph or so.

From this, they short-listed 20 writers, who were invited in August to make pitches along the lines of those on television show Dragons’ Den. Five writers who made the cut will be published by Jacana next year. Mpho Dagada’s How to Become a Millionaire at 21: Bitcoin will be published in May; Christel du Toit’s Divorce Smart will be published in June; Lerato Mogoatlhe’s Vagabond: Wandering and Praying through Africa will be published in June; Vannesa Tedder’s Beaten but not Broken will be published in July; and Wandile Ngcaweni’s We are No Longer at Ease: Rhodes Must Fall and Youth Struggles for Decolonisation in SA will be published in August. x Prakash Naidoo

WINES Local winemakers scoop up the awards once again

STELLIES RULES THE ROOST ý If you are looking for a tipple to enjoy this festive season you may be surprised to find that local outfits are still top-notch. Stellenbosch has stood out as the region producing some of the world’s best wines, bubbly and brandies. In the Prescient Cabernet Sauvignon Report 2017, 14 of the 15 top wines selected came from Stellenbosch while in the Prescient Chardonnay Report 2017, 23 wines from the region made it into the top 42 that scored 90-95 points. At the Veritas Wine & Brandy Awards, Stellenbosch clinched 29 out of the 71 double golds. This year’s top three producers also come from SA’s premier wine region. For the second year running Stellenboschbased Distell was named top achiever, with seven double golds and 18 golds. It also triumphed in the brandy category, with

six double golds and two golds. Another famous local, Spier, received the first Veritas Vertex Award for the competition’s overall champion wine, the 21 Gables Chenin Blanc 2015, and was ranked second-best performer overall with six double golds and nine golds. In third spot was Kleine Zalze, with four double golds and four golds. In Platter’s SA Wine Guide, wines from Stellenbosch clinched 36 out of the 111 five-stars awarded. The guide’s Winery of the Year accolade went to a Stellenbosch producer, Raats Family Wine Estate, which garnered five five-star results — the most of any producer.

At the Absa Pinotage Top 10, more than half the winners came from the region and this year the Diners Club Young Winemaker of the Year Award went to Proudly Stellenbosch ambassador, Wade RogerLund of Jordan Estate. On the global front, Stellenbosch took four of the six varietal trophies at the International Wine & Spirit Competition, while the SA Wine Producer of the Year Award went to Kanonkop, with the estate’s Abrie Beeslaar also named International Winemaker of the Year — an accolade he collected in 2008 and 2015. x Prakash Naidoo December 21 - December 27, 2017

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life outbox Maynardville Open-Air Festival January 18-March 3

THEATRE Theatre, ballet and classical music

THE BARD IN THE PARK ý The Maynardville Open-Air Festival of theatre, ballet and classical music kicks off in January with a decidedly Shakespearean theme. The theatre production this year is the Taming of the Shrew by Tara Notcutt, and produced by Siv Ngesi, with an all-female cast and a 2018 pop treatment of the comedy which is bound to shake theatregoers from their comfort zones. For classical music fans, there is a special treat. From January 18 to January 20 the Cape Town Philharmonic Orchestra (CPO) will feature some of the most popular music set to the bard’s plays. Under the baton of Brandon Phillips, with narration by Rodney Trudgeon, there will be Nicolai’s Merry Wives of Windsor as well as Romeo and Juliet with music by Tchaikovsky, Berlioz and Prokofiev. The CPO is followed by a season of ballet — Les Sylphides and The Firebird with Cape Town City Ballet. x Prakash Naidoo

ART Kemang Wa Lehulere solo exhibition

CAPE CREATIVE’S HOME SHOWING ý He was born in Cape Town and is intimately involved in the art community of the Mother City as co-founder of the Gugulective, an artist-led collective. He was also the inaugural winner of the Spier Contemporary Award in 2007, so it is only fitting that Kemang Wa Lehulere should have an exhibition of his latest works opening in Cape Town in the new year. Here I am, a Concrete Man, Throwing Himself into Abstraction is a solo exhibition in which Wa Lehulere explores new visual materials. Wood is deconstructed and singed, metal is reconstituted and glass is weighted as the artist

exploits familiar materials to create unexpected objects. Wa Lehulere has exhibited widely around the world, including in London, Chicago and Berlin, as well as in SA. He has won several top awards, including the 2015 Standard Bank Young Artist Award for Visual Art, the 2010 MTN New Contemporaries Award and the 2012 Tollman Award for the Visual Arts. Wa Lehulere is Deutsche Bank’s Artist of the Year for 2017 and was recently the recipient of the fourth Malcolm McLaren Award, presented at Performa 17 in New York. x Prakash Naidoo

Here I am, a Concrete Man, Throwing Himself into Abstraction will be at Cape Town’s Stevenson Gallery from January 18 to March 10 62

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December 21 - December 27, 2017

food for thought by Justice Malala

NO EXCUSE FOR BAD SERVICE A president who takes no responsibility for his actions and a waiter who declines to serve his customers both encourage a parting of the ways @justicemalala

ou should be very grateful, dear reader. The column you are reading was dispatched piping hot from the ANC conference in Nasrec (renamed Nas-wreck by spin master Chris Vick) in Joburg, where all self-respecting journalists have rushed to come and wait, and wait, for the ANC to make its mind up about who should lead it and what policies to adopt. As you know, I like a big ANC party. The food is always interesting. But it’s the comrades I love. I mean, some of the goings-on at these conferences are just too precious for words. For example, former ANC youth league deputy president Ronald Lamola surprised the entire country when he told a television interviewer that the Holy Ghost had “intervened” and instructed Mpumalanga delegates to vote for Cyril Ramaphosa. My word! I think the Pope should be informed. By the way, this was a dry event. No

Zuma blamed trade unions, the media, business, NGOs, the judiciary and the opposition for everything that had gone wrong in the past decade

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December 21 - December 27, 2017

wine on the premises. We were all, like President Jacob Zuma (he does not drink), sipping on juice and water, and hoping for the Holy Ghost to show his benevolent face again. Nothing happened. This conference was bitter-sweet for me. I have been following and banging on about Zuma since 2007, when he elbowed former President Thabo Mbeki out of power and took over. What a horrid time he has brought us. He gave the country away to the Gupta family, destroyed the SA Revenue Service and others, turned our politics into a circus and then nonchalantly told us at the conference that it was everyone else’s fault. On the first day of conference he announced that university education would be free (a noble goal, but where is the cash?) without even notifying his finance minister, Malusi Gigaba. Then he gave an interview to the SABC in which he said he could not

really recall anything he could say he should have done differently. Then he gave his farewell speech, essentially suggesting that he had not been in power for 10 years. He blamed trade unions, the media, business, NGOs, the judiciary and the opposition for every single thing that had gone wrong in SA over the past decade. I wish I had such a skill for finding fault with everyone except myself. I would sleep very soundly at night. One of my good friends and I visited the new-ish The Grillhouse in Sandton. My friend is a lover of The Grillhouse in Rosebank. I don’t blame him. Possibly the best service in the world. The Alice Lane Grillhouse has the same red brick, banquette, steakhouse decor and atmosphere. The menu is pretty much the same. The clientele is also similar — men and women in expensive suits pulling huge bags heaving with legal briefs, plus bankers and all sorts of other professionals. It is huge and has a fantastic view of Joburg. But this place is new. The starters of livers, carpaccio and snails were good and the steaks for mains were succulent and near perfect. The service, though, was just not good. Maybe it was because all those Sandton office Christmas parties were on, but we sat there waving at our waiter several times. At some point he decided he was too good for us and asked a trainee to look after us. Poor boy — he scuttled about with very little knowledge of how anything worked. Not cool. We paid for our meal and went to The Grillhouse in Rosebank. x The Grillhouse Sandton ★★★ Building #1, 11 Alice Lane, Sandton Tel: (011) 783-6132 ★★★★★ Thuli Madonsela ★★★★ Excellent ★★★ Good ★★ Poor ★ Jacob Zuma

FM's ANC election special edition:​ Dec 2017

FM's ANC election special edition: Dec 2017