Blogs

Don’t ignore Zimbabwe

An opinion piece that brings attention to the impact of Zimbabwe’s economic hardships on South Africa. With the economy of South Africa’s neighbour falling even further due to recent political events in the country, there could be potentially dire consequences for South Africa and its companies. Will the revenue earned from exports to Zimbabwe be placed at risk or will the tide turn? …

Read more at iAfrica.com or Africa.com

Manufacturing leads growth

Dear WOW User The South African economy pulled itself out of its second recession since 1994 in the third quarter of 2018 with a quarter on quarter GDP growth of 2.2% with contributions from the following sectors; Manufacturing – 7.5% Agriculture  – 6.5% Transport  – 5.7% Trade – 3.2% Finance – 2.3% State – 1.5% Personal Services – 0.7%   Of the 12 industries research by Who Owns Whom in December 2018 and January 2019 six where in the high performing manufacturing sector; The Confectionery Industry South Africa has a sweet tooth with the chocolate market valued at approximately R6.4bn and sugar confectionery at between R12.5bn and R13.5bn. However, increasing health awareness is a threat to the industry and innovation and product differentiation will be important to remain competitive to ensure brands keep up with health trends. Technology plays a vital role for manufacturers to remain innovative and competitive and the focus is usually on launching new products but sometimes ‘old favourites’ are relaunched such as Tiger Consumer Brand’s Maynard’s Apricot Halves, Frutip’s fruit pastilles and Mister Sweet relaunched Frutus. While some consumers are reducing their consumption of chocolate confectionery many are also switching to premium chocolates and an opportunity exists to train young South Africans in the art of Belgian chocolate making. Western Cape chocolatiers such as Von Geusau in the rural town of Greyton and La Chocolaterie Rococo in the coastal town of Grootbrak have found trained Belgian artisans to teach their staff. The Manufacture of Clay and Concrete Bricks Against the tide of the declining and troubled construction industry since 2010 major brickmakers continue to report good results due to growth in smaller construction projects, affordable housing as well as retail and townhouse developments. More than 1.5 million RDP houses will be built between now and 2020 at a cost of R30bn per annum and Industry leader Corobrik, which produces approximately 28% of total industry output has announced significant investment in expansion. This is reinforced by the state announcement in the Medium-term Budget Policy Statement that investment in social and economic infrastructure will be a focus of economic recovery over the medium term with public sector infrastructure spend estimated at R855.2bn in this period. In this respect it is also useful that the industry takes social investment seriously and provides employment in rural communities and actively engages in community development programmes and is a significant supporter of SMMEs. It takes 26 man-hours to produce 1,000 bricks, providing four jobs per million bricks produced. Manufacture of General Purpose Machinery The DTI has targeted industrialisation as a key policy driver for a long time and in the latest medium-term expenditure framework a further R18.8bn is allocated for industrialisation and manufacturing incentives over the next three years. Another industry advantage is that it is a major exporter into Africa and stands to gain from the future infrastructure build on the continent. On the downside the sector is energy-intensive and sensitive to the instability of price and supply created by the problems at Eskom. The industry is also very critical of the upcoming Carbon Tax which it feels is simply a tax on production which will further decrease manufacturing competitiveness against imports. …

Egypt Snapshot

Egypt’s economy grew 5.3% in the fiscal year to June 2018 from 4.2% in 2017 as the country continued its recovery through painful years of reforms, largely prompted by conditions of a US$12bn International Monetary Fund (IMF) loan. The 2016 floating of the Egyptian pound saw it immediately devalue by 50%, while inflation soared and import prices became prohibitive. At the same time, the government introduced value-added tax and withdrew fuel and food subsidies. These tough measures have seen the economy stabilise. Finance minister Mohamed Maait said recently that the budget deficit fell below 10% for the first time since 2011. Inflation has come down from over 30% in 2017 to 12.7% in January. Foreign reserves rose from less than $15bn in late 2016 to $44bn and the IMF is expecting growth of 5.5% in 2019. Standard Chartered recently said Egypt’s economy is set to become the world’s seventh largest economy in 2030, bigger than Russia and Japan. But the economy has structural constraints. Bloomberg said Egypt is a net food and fuel importer and depends on imports for essential production inputs. A Who Owns Whom report on the wholesale and retail of food in Egypt said 20% of Egypt’s import bill is spent on food. The country’s food retail sector is dominated by independent small grocers, kiosks and market stalls which account for 98% of the nearly 119,000 stores, but only 80% of food retail sales volumes. These traditional retailers are increasingly losing share to the growing formal sector, which makes up the remaining 2% of the market, but 20% of sales. Major players, which include France’s Carrefour in partnership with UAE-based Majid Al Futtaim, Turkish retailer BIM, Egypt’s Mansour group and the UAE’s Abraaj group are growing their investments and their footprints. According to the Who Owns Whom report, recovery in this sector will be aided by new laws to modernise and reduce barriers for international companies investing and operating in the country. These laws aim to expand economic growth, increase domestic production and exports, boost foreign investment and boost employment, the report said. But there are some red flags. The Washington institute said Egypt has failed to meet some of the IMF benchmarks and has deficits in terms of worker productivity, industry competitiveness, mismatched worker skills, and economies of scale. Foreign direct investment fell from US$7.93bn in fiscal 2017 to US$7.72bn in 2018 while foreign debt rose, indicating Egypt’s reliance on imports, and, possibly, IMF loans, is far from over. …

Democratic Republic of Congo Snapshot

The December 30 2018 election in the Democratic Republic of Congo (DRC), which was widely acknowledged to have been rigged, declared Felix Tshisekedi as the winner over Martin Fayulu, who got the most votes. It is understood that Tshisekedi’s election was the result of a deal made with former president Joseph Kabila, whose rule since 2001 was characterised by conflict, corruption, authoritarian rule and human rights abuses. The DRC remains the African country with possibly the greatest untapped potential – with great mineral wealth but an underdeveloped economy and an impoverished nation. The African Development Bank said real GDP growth was an estimated 4.0% in 2018, up from 3.7% in 2017, due to higher commodity prices and increased mining production. It expected growth of 4.5% in 2019 and 4.6% in 2020. Mining was expected to be the key driver of growth, while the outlook could be positively affected by firm commodity prices, positive election results (including acceptance of the results), progress in the security situation in the conflict-ridden central and eastern parts of the country, control of the Ebola epidemic, “and a start to diversification in the fabric of production”. The mining sector accounts for 99% of the value of exports, 34% of total government revenue, and two GDP points. But diversifying the economy requires some improvement in the infrastructure deficit and a more facilitative business environment. The DRC ranks 184 out of 190 countries on the World Bank’s Doing Business 2019 report. The DRC’s National Strategic Development Plan aims for it to become a middle-income country by 2022, mainly through transformation of the agricultural sector. Economic transformation includes the massive Inga hydro-electric power plant, where South Africa has committed to buying 2,500 MW and possibly a further 2,500 MW in Inga 3, which many believe to be uneconomical, as well as paying for a 1,600km transmission line from the DRC to South Africa. Despite calls for action following the election result, SADC, South Africa, the EU and US have not voiced concerns over the election outcome. The EU had extended sanctions on a number of officials just prior to the election while the US had imposed sanctions in June last year. Tshisekedi is reported to have called for sanctions to be lifted. The Institute for Security Studies said many may argue that potential voices of objection chose stability over war. “But the Congolese people chose change over the status quo, and the regional, continental and international response deprived them of that change.” …