News in South Africa 12th December:
1. NHI means more tax and less benefits:
The National Health Insurance (NHI) Bill last week got the nod from the National Council of Provinces and has now been plonked in the lap of President Cyril Ramaphosa.
Other than expropriation without compensation, few statutory artefacts have elicited such exasperation from those most affected – medical schemes and their members, for the most part. Should the bill pass as is, it will almost certainly be challenged in the courts on the grounds of irrationality and constitutionality, primarily because the country cannot afford it.
At a media presentation in response to the NHI Bill’s relatively smooth passage through the National Council of Provinces, Discovery CEO Adrian Gore pointed to one of the offending clauses in the proposed legislation – Section 33, which would disallow medical schemes from covering the benefits provided for under the NHI once it is fully implemented.
“Once it is fully implemented” is the crucial wording in the proposed NHI Bill, and that’s likely a decade or possibly more away, says Gore.
Section 33 reads: “Once National Health Insurance has been fully implemented as determined by the Minister through regulations in the Gazette, medical schemes may only offer complementary cover to services not reimbursable by the Fund.”
In this respect, South Africa seems to be an outlier globally. No other country appears to have imposed a regulatory limit on the scope of private healthcare cover where, for example, private healthcare providers are prevented from covering hip replacements or kidney dialysis if these are covered by the NHI.
The financial impacts of the NHI are potentially horrifying. Discovery estimates the NHI will cost R859 billion for prescribed minimum benefits against the 2023 public healthcare budget of R233 billion.
Shortfall
Where will government get the R626 billion shortfall?
That’s where the NHI plan seems to run aground. Apart from roughly R100 billion in tax credits and government employer medical scheme subsidies, roughly R528 billion will have to come from raising personal income tax.
Expressed another way, that’s the equivalent of an 82% increase in personal income taxes.
And this from a small and shrinking taxpayer base.
This means medical scheme members will be required to pay 31% more tax and receive 69% less benefits in return.
Gore emphasises that Discovery acknowledges the inequalities in access to healthcare in SA and that something must be done to rectify this, but the current version of the NHI Bill is not the way to go about it.
It’s hard to imagine that the government has not thought this through.
Nicholas Crisp, deputy director-general for the NHI, has argued that the 8.5% of GDP spent on health in South Africa could be allocated far more wisely if placed in a single pool. He also refers to the superior healthcare outcomes in peer nations, which spend roughly 5.6% of GDP, while the private sector in SA has the highest incidence of tonsillectomies in the world, and 72% of all C-sections in the country are done in the private sector, suggesting unnecessary medical diagnosis and spending.
2. Township economy is booming:
South Africa’s township economy has weathered the economic storms battering the country better than its formal peer. It led to strong growth for listed companies with exposure to it, such as Vukile, Resilient, Fairvest, and Exemplar.
This is feedback from one of South Africa’s largest asset managers, Stanlib, who outlined this growing value of property in the informal economy in a note to clients.
Stanlib’s head of property, Nesi Chetty, and analyst Ahmed Motara said in the note that the informal economy has grown at a staggering rate over the past decade.
Informal economy expert GG Alcock estimates the value of the informal economy to be between R600 billion and R750 billion.
He explained that the informal economy mirrors the structure of a formal economy, with various formal sectors mimicked in townships and informal settlements.
Alcock said that the spaza and superette sectors – which he likened to the formal fast-moving consumer goods (FMCG) sector – dominate the informal economy.
He estimated its value to be around R180 billion, with over 100,000 spaza shops nationwide and nearly 500,000 mobile traders.
Blue chip JSE-listed companies, such as Shoprite and Tiger Brands, have begun trying to enter this market to capitalise on its rapid growth.
As participants’ incomes in the informal economy have grown, so have their aspirations and demand for higher-end products.
“There is a clear appetite among increasingly affluent consumers in township communities for formal retail within easy reach, creating a strategic growth opportunity for larger retail chains,” Chetty and Motara said.
This shift in strategy is coupled with a desire for retailers to look for growth outside of already saturated higher-income markets.
An influx of formal retail chains will create employment and offer consumers greater choices and lower prices.
Major listed players in the informal economy, like Vukile, Resilient, Fairvest, and Exemplar, are reporting impressive results from their property portfolios.
Vukile’s retail tenants in townships are experiencing a surge in activity, with a 10% rise in overall trading density and a 12% increase in grocery and food sales.
Rents in these malls remain affordable, attracting tenants and contributing to strong growth metrics across Vukile’s portfolio.
One striking indicator of rural demand for formal retail is their rural malls’ near-full occupancy (less than 1% vacancy).
These positive trends highlight the flourishing business environment in Vukile’s townships and rural areas, exemplified by successful malls like Phoenix Plaza, Gugulethu Square, Dobsonville Mall, Daveyton Shopping Centre, and Atlantis City Shopping Centre.
Resilient’s strategy of investing in major shopping centres with multiple anchors and national brands is paying off.
Key assets like Tzaneen Crossing, Circus Triangle, Mahikeng Mall, Galleria Mall, and Mams Mall are experiencing positive sales growth, with the Northern Cape leading the way at 7%.
Notably, Resilient’s largest assets, by value, are located in Limpopo. Vacancies across the portfolio remain impressively low at 1.9%, while “renewals and new leases” boast a significant 10% increase in rent, highlighting the high demand for their spaces. Compared to pre-Covid trading, this portfolio has grown by a remarkable 24%.
Fairvest owns assets such as Sebokeng Plaza, Orange Farm, Bara Precinct, Mpitshane Shopping Complex, Masingita Shopping Centre and Sibilo Shopping Centre.
The largest tenant by revenue is Shoprite Checkers, followed by Pick ‘n Pay, Boxer and Pep. The story is one of national retailers seeking more space, with vacancies at 4.3% and rising rents being achieved on lease renewals.
Exemplar, specializing in township and rural retail assets like Diepkloof Mall, Alex Mall, Maake Mall, Katale Square, and Bizana Mall, is thriving in this niche market.
As the purest listed player in this space, Exemplar’s portfolio’s performance paints a promising picture: 5% rental growth on renewals and portfolio vacancy rates remaining below 3% highlight the strong fundamentals driving future growth in township retail.
While the national chains contemplate a strategic move into lower-LSM areas, there is a universe of successful township retailers who see the opportunity to expand but are constrained by a lack of financing.
This presents a significant opportunity for South Africa’s financial services sector. Chetty and Mortara said that the banks’ hesitation to back these entrepreneurs is a major stumbling block for potential township success stories.
3. Government’s plan to fix Transnet:
The Freight Logistics Roadmap – aimed at addressing the serious challenges in that industry – has been approved for publication by Cabinet.
The roadmap also sets out to reform the logistics system in the long run.
Over the past few weeks, Transnet – South Africa’s government-owned freight rail, ports and logistics company – has been hard at work to resolve severe truck congestion challenges at its Richard’s Bay port, including ramping up the number of locomotives available on its lines servicing the port.
Speaking during a post-Cabinet media briefing on Monday, Minister in the Presidency Khumbudzo Ntshavheni said the current challenges in the industry “pose a significant constraint” on the South African economy, its growth prospects and job creation.
“The immediate priority is to stabilise and improve the operational performance of the freight rail network, which presents a severe constraint on exports.
“The main implementation mechanism for the short-term interventions will oversee operational improvement through five corridors, with full alignment with the Transnet board approved turnaround plan which identifies short and medium term actions to improve operations and stabilise the company’s finances,” she said.
The three areas of intervention proposed in the roadmap include:
- Operations and rolling stock improvements: This includes returning long-standing locomotives to service through agreements with Original Equipment Manufacturers (OEMs) to ensure a supply of spares, or through the appointment of a step-in OEM.
- Security and safety of the rail network: This includes collaboration with law enforcement agencies to ensure the safety of the network.
- A capital investment programme both for the expansion plans and also to sustain operations.
“In addition, the roadmap outlines a path to implement the commitments made in the National Rail Policy and the National Commercial Ports Policy and plans for the reform of the freight logistics system,” she said.
Meanwhile, the Draft Rail Private Sector Participation (PSP) Framework has been considered and approved by Cabinet.
According to Ntshavheni, the framework aims to “provide an interim approach to and a model for future decision-making to enable private sector participation in the railway infrastructure system”.
“Given the current challenges within the railway infrastructure, the Rail PSP Framework proposes the commencement of private sector participation through opportunities that are aimed at fixing the railway infrastructure first.
“The Rail PSP Framework recommended the adoption of the cooperative governance and integrated approach to rail private sector participation for implementation.
“Accordingly, this approach is fully compliant to the PFMA and Company’s Act and will require the PSP unit within the Department of Transport and the Rail SOC to publish a network statement for endorsement by the Rail Economic Regulatory Capacity (interim),” Ntshavheni said.
The Department of Transport is expected to establish a PSP unit to identify and prioritise projects and develop an implementation plan to facilitate PSP initiatives.
4. Three Power-Distribution Permits Approved:
South Africa’s energy regulator approved three licenses to operate electricity-distribution facilities as the nation endures almost-daily power cuts.
The National Energy Regulator of South Africa granted distribution licenses to the Klipfontein, Leliehoek and Sonoblomo solar facilities, all of which are in Dealesville in the Free State province, it said in an emailed statement Monday.
All three received generation licenses in March 2022 and submitted their distribution permit applications in November last year.
Years of blackouts have throttled the South African economy as state-owned utility Eskom — which has held a near-monopoly over electricity provision since it started a century ago — has struggled under industrial sabotage, graft and coal mafias, raising the cost of doing business in the country.
The government announced plans in 2019 to break up Eskom into generation, transmission and distribution units, a move it says will make the various components easier to manage.
The transmission unit will be the first to be spun off, but consent from lenders is still needed, and a separate board has to be appointed.
The establishment of the business is seen as key to opening up the electricity market more widely to private producers and trading.
5. Costs to drive to SA’s popular holiday destinations:
South Africans planning to travel domestically over the December festive season can expect to pay more for transport costs compared to the beginning of the year as they grapple with high petrol prices and increased toll costs.
Motorists still pay more than R20 per litre for petrol in South Africa, despite the reprieve in November and December after prices rocketed by over a rand – and almost R2 for diesel – in October 2023.
As of 6 December, while a decrease in petrol prices is a welcomed relief for motorists, fuel prices have still increased significantly since the start of the year, with petrol prices increasing by 8.6%. Diesel, meanwhile, has increased by 2.6%, although this was recorded at closer to 20% just two months ago.
Kicking motorists while they’re down is increasing toll fees, which the Department of Transport updated in March 2023 – hiking tolls by 6%.
How much it costs
Taking these growing costs into account, BusinessTech calculated how much it would cost to travel to South Africa’s most popular holiday destinations in the country’s best-selling cars in five categories – bakkie, SUV, hatchback, sedan, and crossover – factoring in the cost of petrol and the current toll fees.
South Africa’s best-selling cars in the selected categories were selected from the latest new vehicle sales report provided by Naamsa.
We then calculated how much fuel each of these cars consumes based on the manufacturer’s provided average fuel consumption per/100km.
In each case, the manufacturer’s least expensive model – and for bakkies, the cheapest double cab – was considered. 95 octane (R23.25) and 0.005% diesel prices (R21.99) as of December 2023 were used for comparison purposes.
We then calculated the fuel costs when travelling to some of South Africa’s most popular holiday destinations, using the City of Johannesburg/Tshwane as a benchmark. These costs were then added to the latest toll costs as of 1 March 2023.
Estimated fuel cost
| Car | Johannesburg to Cape Town | Johannesburg to Durban | Johannesburg to Gqeberha | Johannesburg to Kruger National Park |
|---|---|---|---|---|
| Toyota Hilux | R2 170 | R884 | R1 628 | R636 |
| Toyota Fortuner | R2 072 | R844 | R1 554 | R607 |
| VW Polo Vivo | R1 862 | R758 | R1 397 | R545 |
| Toyota Corolla Quest | R2 282 | R929 | R1 712 | R668 |
| Toyota Corolla Cross | R2 212 | R901 | R1 659 | R648 |
Estimated toll cost
| Car | Johannesburg to Cape Town | Johannesburg to Durban | Johannesburg to Gqeberha | Johannesburg to Kruger National Park |
|---|---|---|---|---|
| Toyota Hilux | R219.50 | R307.50 | R172.00 | R187.00 |
| Toyota Fortuner | R219.50 | R307.50 | R172.00 | R187.00 |
| VW Polo Vivo | R219.50 | R307.50 | R172.00 | R187.00 |
| Toyota Corolla Quest | R219.50 | R307.50 | R172.00 | R187.00 |
| Toyota Corolla Cross | R219.50 | R307.50 | R172.00 | R187.00 |
Estimated total cost
| Car | Johannesburg to Cape Town | Johannesburg to Durban | Johannesburg to Gqeberha | Johannesburg to Kruger National Park |
|---|---|---|---|---|
| Toyota Hilux | R2 390 | R1 192 | R1 800 | R823 |
| Toyota Fortuner | R2 292 | R1 152 | R1 726 | R794 |
| VW Polo Vivo | R2 082 | R1 066 | R1 569 | R732 |
| Toyota Corolla Quest | R2 502 | R1 237 | R1 884 | R855 |
| Toyota Corolla Cross | R2 432 | R1 208 | R1 831 | R835 |
All information sourced from articles posted by: Moneyweb, DailyInvestor, BusinessTech, and Bloomberg.
