News in South Africa 26th October:

1. Mid-term budget on Wednesday:

Mboweni will present the government’s revised spending framework for the next three years on Wednesday, four months after a supplementary budget that was unveiled to reallocate funds to help pay for a R500 billion stimulus package announced by President Cyril Ramaphosa.

Mid-term budget on Wednesday
“Minister Tito Mboweni delivers 2020 Budget speech in Parliament” by GovernmentZA is licensed under CC BY-ND 2.0

Finance Minister Tito Mboweni will have to find money to help the nation’s economy recover from its longest recession in three decades and bail out state companies in a budget that’s projected to record the biggest shortfall since 1914.

A lockdown that was imposed to curb the spread of the coronavirus sent tax collections plummeting and even forced the ruling African National Congress to end its long-held resistance to borrowing from the International Monetary Fund. With a budget gap that’s forecast to reach 16% of gross domestic product this year, according to the median estimate of 23 economists in a Bloomberg survey, the minister may now be forced to lay the groundwork for tax increases next year.

Deteriorating Outlook

The Treasury discussed the possibility of a wealth tax earlier this year and 30% of respondents in a Bloomberg survey see Mboweni signalling his intention to institute such a levy in February, even as South Africa’s ratio of tax revenue to gross domestic product is 26% compared to a global average of 15%. An advisory panel appointed by Ramaphosa said hikes to the fuel levy and estate taxes should be considered, as should a three-year “solidarity tax” that would boost income tax for higher earners.

2. Clicks, Massmart and Foschini sales data released:

Clicks jumped 13% on Friday after reporting strong sales and a 14% rise in headline profit. It also declared a solid dividend of 340c.

Clicks said its retail health and beauty sales increased by 8.4% while UPD reported 11.2% growth and continued to gain market share. In the retail space, it was Clicks’ bias towards smaller shopping centres that helped keep sales volumes resilient.

The group said 74% of its stores are located in convenience and neighbourhood shopping centres. Meanwhile stores in the “super regional” and regional malls saw significant slowdown in footfall after the lockdown began.

Massmart – owner of Makro, Game and Builders Warehouse – has reported that its total sales (R60.5 billion) for the 9 months to end-September was down 9% compared to the same period last year. Prices at its stores rose by 4.5% in that period.

The Foschini Group has warned that it will report a loss for the six months to end-September. While trading in South Africa has “steadily improved” since the first phase of lockdown, it remains “volatile”. In the UK, it saw “significantly lower than usual” visits to its stores.

3. State owned partnership model:

Government is increasingly looking to follow the ‘partnership model’ with state owned companies – similar to that of Telkom. This appears to be the route it is following with SAA, where public enterprises minister Pravin Gordhan is looking for private partners to help fund the failed airline in part.

Ideological, because while jobs clearly must be a concern, SAA received R15.7-billion from June 2017 to December 2019 when, as part of putting SAA into business rescue, it received a R5.5-billion bailout. In the 2020 February Budget, government allocated another R9.2-billion so SAA could meet its maturing debts.

In comparison, with just R13.8-billion President Cyril Ramaphosa’s Economic Reconstruction and Recovery Plan of 15 October has promised 800,000 job opportunities by 31 March 2021.

But it’s not just SAA. It’s also Eskom that with its R488-billion debt remains the biggest risk to South Africa’s economy.

As the power utility’s unbundling into transmission, generation and distribution entities unfolds – with at least a year’s delay to the October 2019 roadmap deadlines – talk last week again turned to a green joint venture to try to offset some of the debt. It was a recommendation from some in the presidential task team on Eskom’s sustainability, but ultimately did not make it into the 2019 Eskom roadmap policy.

Instead, the 2019 Budget provided Eskom R23-billion a year over the next decade, and an additional special appropriation of R59-billion over two years ending March 2021.

It’s understood Wednesday’s MTBPS would talk to Eskom debt.

But state-owned enterprises (SOEs) continue to haemorrhage South Africa’s political economy. Much talk of reforming SOEs to be efficient and effective has not translated into much action.

4. Famous Brands sales halve:

Famous Brands – owner of Steers, Wimpy and Debonairs Pizza – saw its sales halve in the six months to end-August, with the company reporting an operating loss of R110 million.

The company stated: “Across our Leading and Signature brands, combined system-wide sales for the review period declined 51.2% and like-for-like sales decreased by 51.7%. Independently, Leading brands’ system-wide sales declined by 48.0%, while like-for-like sales decreased 48.7%. Signature brands’ system-wide sales deteriorated 70.1% and like-for-like sales reduced by 70.4%.”

“While disappointing relative to historical performance, these results were a commendable achievement in light of the prevailing adverse environment. This solid effort is validated when compared to the industry’s results as quoted in the Stats SA report published in September: SA restaurant sales were down 100% year on year in April, 97.7% in May, 87.7% in June and 75.0% in July.”

“Black Friday in November and the holiday season which follows in December are historically the industry’s peak trading period, however, it is difficult to accurately predict consumer behaviour or spend in the months ahead.

The school holidays will be both later and shorter than previously, international tourism is likely to be muted, and domestic travel and leisure activities will be constrained by reduced disposable income,” the company said. It is now focused on right-sizing the business and reducing costs.

5. Mega-bridge in EC to be constructed:

Work on an R1.6billion mega-bridge under construction in the Eastern Cape, is charging ahead.

Transport minister Fikile Mbalula says no one will stop this development.

Mbalula and his team have inspected the development, which forms part of the South African National Roads Agency’s N2 Wild Coast toll road project.

It’s an engineering marvel. The Msikaba bridge is expected to reduce travel time on this coastal route by about 3 hours, and link four provinces.

But not everyone has been happy about the upgrade.

Mbalula says his department ready to talk, but nobody will halt development.

All information sourced from articles posted by: BusinessTech, Business Insider, Moneyweb, Daily Maverick, Fin24, and ENCA.

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