SA Blook, Chapter 2: Is SA rich or poor?
Originally written by Geoff Candy and Hilton Tarrant
[republished here as tycoon.co.za is no longer online]
02 June 2008
Are we rich? And could we also be poor?
The answer we would venture is: both.
Indeed the contrasts between the rich and poor elements of South Africa are at the heart of much of the art and conflict that respectively unite and rip apart the country.
So, in what way are we rich?
From a tourism point of view, our country is phenomenally wealthy with every sort of destination – barring the polar icecaps – pretty much on our doorstep. We also still have some of the cheapest land, particularly coastal property, in the world.
In terms of raw natural resources, South Africa is one of the wealthiest nations in the world. The bushveld igneous complex contains about 90% of the world’s known platinum reserves, 80% of the manganese, 73% of the chrome, and 45% of the vanadium. The country is also the world’s third-largest diamond miner by value, with its annual production of around 15m carats making it the fifth largest.
Gold too is something we are blessed with and, until very recently, we were the largest gold producer in the world (until China took our number 1 spot!)
On the topic of China, both South Africa and the rest of the continent have a rich and deepening relationship with China – which stands us in good stead as that country continues to grow with its voracious appetite for raw materials.
As a renowned business strategist, and one of only three people to be invited to speak at the Chinese central party school in the last 50-odd years, Clem Sunter said of the superpower and South Africa: “They regard us as the leading nation on their continent of choice – what they feel is that the West in many ways has forsaken Africa, and they regard this continent very much as full of opportunities, whereas the West has seen it a bit as a developmental burden.”
Proof of this recently has to be the investment by the Industrial and Commercial Bank of China into Standard Bank which, at R37bn, is the largest investment by a Chinese company outside Chinese borders.
The deal has been a massive boost for Standard Bank, who is sitting on a pile of cash in turbulent markets, when it is a very good thing to have. Some of this cash won’t ever see our shores directly, as Standard Bank has kept most of this money offshore for acquisitions. Profits from those ventures, however, will channel into SA.
Indeed South Africa, largely as a result of exchange controls, which limit the ease with which one can transport money in and out of the country, has been only very slightly affected by all this sub-prime turmoil.
But, as far as the deal is concerned, although it is massive it is hardly surprising when one thinks of the quality of our banking system. While, there are huge parts of the population that do not even have a bank account – there are projects afoot to increase that number (the Mzansi account for example). And, although these sorts of programmes take time, in that flurry it is easy to miss the fact that the South African banking system, in Bankserv, has one of the most sophisticated payments exchanges in the world.
This could be the reason we pay so much for bank fees but, then again at least the competition authorities are looking into that.
The country not only has a very strong banking system, it also has a thriving stock exchange – the largest in Africa and it continues to grow.
Last year there were upwards of 70 new listings on the bourse and retail interest in the market is increasing – although as JSE CEO, Russell Loubser says, the number of South Africans with stock broking accounts in their own name is well below 10% of the tax paying population, but adds there is no reason this can’t get increased to 50%. Not to mention, the JSE is also the largest single-stock futures market in the world if one looks at it from number of contracts sold.
Indeed many of the country’s companies punch well above their weight internationally. Both Anglo American and BHP Billiton emanate from South Africa in some way or another and they are two of the four largest diversified mining stocks in the world.
Anglo American is worth $90bn while BHP Billiton’s market capitalisation is over $230bn.
Sasol too has done phenomenally well for its self; it has just recently finished construction on its Oryx gas to liquids plant in Qatar and remains at the forefront of technology to convert coal and gas into liquid fuel.
From humble origins in South Africa 100 years ago, SAB started with a share capital of £350 000 and £300 000 of debentures it is now a global powerhouse with brewing interests and distribution agreements in over 60 countries across six continents. SABMiller is worth about $40bn.
MTN has also done amazing things in the telecoms space and has grown rapidly since it was created. It is currently in the throes of a deal which will see it gain significant presence in India.
On this topic, however, is where we start to fall down.
In the telecommunication space, South Africa is falling behind (quickly) and much of that has to do with broadband access.
Our access to international bandwidth (until very recently) has been monopolised (through Telkom’s restrictive ownership of the SAT-3 undersea cable which links us to the world). Our mobile charges are also high when compared to the rest of the world, but thankfully certain positive strides are being taken in this space (like the launch of second fixed-line operator Neotel and new undersea cable Seacom).
Power is also a problem but, while it feels as though we have been battling load shedding for eons, until the recent short-sightedness and poor management – South Africa had more energy than it knew what to do with – so much so that it was actually closing power stations. In fact, the utility is still in the top 20 in terms of size and produces almost 40 000MW of power.
The load shedding has, however, made the lives of South Africans much poorer and, what is worse is that while many have recently felt the frustration of no power, even more people are yet to experience electricity in any form at all.
The lack of secure power has affected business a great deal and growth has slowed dramatically in the last quarter as a result of it but an R300bn improvement and build programme is underway at last.
All that said, the perception internationally at the moment is one of disbelief at the lack of thinking that went into creating this crisis and has done our international image no good.
Nor has our drop in the ratings about the ease with which companies can do business in our country.
Every year, the World Bank publishes the Doing Business Report, which looks at the regulations various countries impose on businesses that make doing business more difficult. In 2006, South Africa ranked 28th in the world, a respectable showing. We slipped to 29th in 2007, and in the latest rankings, for 2008, we are down to 35.
While South Africa has not necessarily been moving backwards in terms of the ease of doing business in our country, other countries have been reforming rapidly as globalisation becomes an ever-more present reality.
The World Economic Forum’s (WEF) Global Competitive Index shows a fall for South Africa from 36th position in 2006 to 44th position in 2007, while the International Institute for Management Development’s World Competitiveness Yearbook for 2007 highlights South Africa’s 12-place fall from grace. It has dropped 50th position in a ranking of 55 countries.
As Sunter writes, “So why, according to these surveys, has South Africa slipped almost to the bottom of the ‘Premier League’ – into the so-called ‘Relegation Zone’? Maybe, it has to do with the haemorrhaging ‘brain drain’ and the increasing shortage of skills. Maybe, it is our rising cost base. Maybe, we haven’t matched the productivity gains obtained by the countries in the ascendant. Maybe, the overseas perception of political risk in South Africa has changed for the worse. Whatever the causes, there’s no denying that we are in danger of losing our ‘Premier League’ status along with all the perks that go with it (like a seat on the UN Security Council, being seen as the leading voice in Africa and being considered a partner of choice by China).”
Crime too plays its role with the recent ‘xenophobia’ attacks not helping our cause -especially when we are so desperately in need of foreign skills to help us return to higher growth levels and reach our 6% growth target by 2010.
Ad van Wijk, the CEO of Dutch power company Econcern told Tycoon recently: “If you look, and I am an outsider, so all you see and hear is what is reported in the news, we see a country that is really not the poorest, but is underdeveloped. And, there is still a lot of violence and riots and you see a lot of Europeans who do not think of investing in the country for that reason.”
“I am sure there are very large areas where you will never have these riots or the violence but the perception is that it is everywhere and that means it will block foreign investment that would otherwise have come in.”
Of course foreign investment is crucially important at the moment because of another major poor element of South Africa – our current-account deficit. In simple terms we import many more goods than we export which means we owe, on a weekly basis upwards of R12bn a week to pay for this difference. And, we get that through people investing in our country, buying our stocks and land, and looking to start businesses here.
But, if we do not create an environment that international businesses want to come to, they will go elsewhere because, while we are rich in many ways, we are equally poor in others. – Geoff Candy and Hilton Tarrant
* Copyright Tycoon 2008. Licensed under a Creative Commons Attribution Non-commercial No-derivatives 2.5 ZA license.”
This post is a chapter of the SA Blook: A Piece of Significance, an online book written by a diverse group of writers with strong views of our country and the reality we find ourselves living in.
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