News in South Africa 8th November:
1. Joburg R2.2bn in debt:
Gauteng told a SA Local Government Association (Salga) that the Johannesburg metro alone had eroded an opening balance of R409.4 million at the beginning of September to a negative balance of R835.5 million.
The Ekurhuleni metro, which opened with R1.8 billion in its coffers, was in the red by R1.44 billion during the same period.
This equated to a combined negative balance of R2.276 billion, which could result in the metro struggling to pay salaries for its 32,000 staff in two months if no additional funding was received.
2. Stage 2 load shedding:
Power utility Eskom says that stage 2 load shedding will be implemented from 09h00 on Tuesday (8 November) and run until further notice.
This follows further breakdowns at its power stations, along with delays in returning other units back to service.
The group had initially planned to only implement load shedding during the evening peak and overnight to help boost reserves.
Eskom has consistently warned that load shedding stages and schedules can change at short notice, as its generation fleet is largely unpredictable.
As South Africa suffer through the worst year of load shedding on record, the embattled power utility has placed the blame on a host of issues at the company – but most of all, its ageing fleet of power stations.
A deep dive done by Daily Investor, however, has countered this claim, finding that Eskom’s oldest power stations are, in fact, more efficient and more available than the group’s newer stations.
Earlier this week, Eskom notified the public that one of its units at the ‘new’ Kusile power stations experienced a fault and would likely be out of commission for a few months – joining other problems at the station and others at Medupi – the other ‘new’ station in the fleet.
Schedules
For people living in the major metros, load shedding schedules are available here:
- City of Johannesburg
- City of Ekurhuleni
- City of Tshwane
- City of Cape Town (PDF)
- Nelson Mandela Bay
- eThekwini
- Manguang
- Buffalo City
For access to other load shedding schedules, Eskom has made them available on loadshedding.eskom.co.za.
3. Foreign firms win Sanral tenders:
Sanral has stunned SA’s embattled construction industry by awarding three of the five tenders it cancelled in June to Chinese firms.
Among these tenders, the R4 billion Mtentu Bridge on the Wild Coast went to China Communications Construction Company (CCCC), and the construction of the EB Cloete Interchange in Durban went to Chinese firms Base Major and CSCEC at R5 billion.
4. Structured investment products favoured:
The age-old advice of ‘Buy low, sell high’ makes investing in shares sound easy. Unfortunately, it is not so easy to determine when shares are low and that it is time to buy, nor what a market high is and when it is time to sell.
Currently, there is very little consensus on whether equity markets will generate good returns during 2023. Recent downgrades of global economic growth, geopolitical tensions, rising inflation and increasing interest rates add to the uncertainties when investors try to decide whether the potential return warrants the risk.
“The risk-reward ratio has always been critical when considering investment opportunities, but getting the balance right going into 2023 will be extremely difficult,” says Japie Lubbe of Investec Structured Products.
“The biggest risk to investment returns in 2023 remains inflation and its impact on global growth, with the possibility of a global recession. At the same time, shares seem to offer good value right now and markets are seemingly trading at around 25% below their historic average levels [measured by price-earnings ratio].”
Not where to invest, but how
“While most investors are grappling with the question of where to invest for the best risk-adjusted returns, they should rather ask how to invest for the best outcome,” says Lubbe, suggesting that the current circumstances favour structured investment products.
“History shows that equities have been, by far, the best asset class over the long term. Figures show that share markets show positive returns over any five-year period 80% of the time. The other 20% will yield negative returns,” he says.
“Investors want to be in equities when markets are doing well, but not so much when there are risks of poor performance. It therefore makes sense that protecting capital against the downside will improve returns.”
Structured products
Structured investment products aim to achieve the objectives of getting exposure to equity market returns while protecting capital.
Capital is protected by buying investment grade debt instruments, while a call option that references mainstream equity indices is used to give the market exposure.
Let’s consider how this would work for an investor who wants to invest R100 000.
A structured product will invest around 71% in a debt instrument for five years and use around 22% to acquire a call option over an equity market index. The rest goes towards costs to structure and administer the investment.
The R71 000 in the debt instrument investment will grow to R100 000 over the five-year investment period, safeguarding the original capital in nominal terms. Currently, investors will get the benefit of higher interest rates on this debt instrument for the five-year investment period.
Around R22 000 will be used to buy a call option over an index, offset by selling an option that gives away some of the upside if the market really grows strongly. Selling this option reduces the option cost and ensures higher exposure to the market up to a cap.
The structure is housed in a company, and the shares are listed on an offshore stock exchange.
“This ensures regulation and transparency in valuation,” says Lubbe.
“It gives investors a reference price and creates liquidity for instances when investors want to exit their investment before the end of the five years.
Outcome
If markets rise over the next five years, an investor will get their original investment back from the part that was invested in the debt instrument, as well as the additional returns generated by the exposure to the market.
If markets are lower at the end of the investment term – as happens in 20% of cases – the investor only gets back their original investment.
But, Lubbe explains, the investor is in a good position to “try again”.
“If the market is 20% lower than it was at the beginning of the period, the investor still has their original R100 000. They can use it to buy shares 20% cheaper than they were five years ago. It would be a good entry point.”
5. Four day work week drive extended:
The nonprofit 4 Day Week SA and its coalition of partner organisations have extended the deadline for companies to sign up to be part of a “pioneer pilot” study in South Africa, where employees will be paid 100% of their salaries to work 80% of the hours they did before.
And that makes for two more months to convince your boss to give it a try.
The study is due to start in early 2023, and initially the deadline to commit to participation had been set at a fairly tight end-October. Now, say those involved, companies can sign a collaboration agreement as late as 15 January.
The trial itself is due to run for six months between February and July, but there is some run-up work to be done, such as establishing baseline metrics against which the success or failure of the change can be measured.
The hope is that companies involved will achieve 100% or more of their previous productivity, just with happier employees and a range of other benefits that could include helping to solve unemployment, making life easier for single mothers, and contributing to reducing climate change.
The results of experiments in other countries suggest at least some of those hopes could be fulfilled.
The most prominent local company to sign up so far is consultancy IQbusiness. The impact of reducing working hours by one-fifth will be measured by the Stellenbosch Business School.
Here’s how to convince your boss to join the SA four-day work-week trial.
All information sourced from articles posted by: BusinessLive, BusinessTech, Fin24, Moneyweb, and Business Insider.
