News in South Africa 9th October:

1. Egg rationing in full swing:

The Competition Commission supports the rationing of eggs and chicken, but experts warn it can lead to serious problems.

Eggs rationing in full swing
Photo by Julian Schwarzenbach

Over the last few weeks, an avian flu outbreak in South Africa caused egg and chicken shortages nationwide.

In response to these shortages, retailers like Woolworths and Pick n Pay are rationing the amount of eggs consumers can buy.

Woolworths said it was experiencing significant supply challenges and has, therefore, implemented a limit on whole egg purchases.

Pick n Pay said it was limiting purchases to one or two egg packs per customer, depending on the region.

James Hodge, chief economist and acting deputy commissioner at the Competition Commissioner, welcomed the decision to ration eggs and chicken purchases.

He told eNCA that during supply shocks, as is the case with chickens and eggs, rationing is preferred over increasing prices to decrease demand.

He added that South African courts also support rationing as it is more socially equitable. “If you increase prices to decrease demand, only wealthy people benefit and have access,” he said.

“Rationing is a proper response. We need to ensure good distribution to retailers serving lower-income communities,” Hodge said.

“Eggs and chickens have become sources of protein for lower-income households. It is a crisis for the poor more than anyone else.”

Hodge’s argument may seem intuitive, but disrupting free-market principles can have dire consequences, hurting the poor more than anyone else.

Merchant West Investments fund manager Piet Viljoen said rationing is always the place to which price controls will take you.

However, when prices stay too low to incentivise new production, shortages will become permanent and black markets start developing.

“When this happens, only the well-off will have access to the product, and the poor will get nothing,” Viljoen said.

“Communists, like the people at the Competition Commission, always think they can substitute regulations for market signals, like prices, and they always fail.”

2. Poor growth puts off investors:

South Africa’s private equity market may be attracting the attention of the nation’s biggest fund managers, but international investors are giving it a wide berth put off by lethargic output in Africa’s most advanced economy.

Private equity funds are struggling to raise foreign investment because of assumptions that South Africa doesn’t need development aid and because offshore investors are wary of locking their money in a country experiencing low growth, according to Samantha Pokroy, chief executive officer of Sanari Capital.

“South Africa is middle income only by virtue of averaging,” Pokroy said in an interview. “We have a tremendously unequal society, and there’s an enormous developmental need to tackle structural inequalities. Private equity is very well placed to focus on structural inequalities because of the level of influence that we have in the economy, in the businesses that we invest in.”

The International Monetary Fund expects economic expansion of only 0.3% this year and for growth to remain below 2% until at least 2028, with output held back by record electricity outages and logistical constraints. The focus on the topline number blinds investors to pockets of growth, Pokroy said.

“Because of the fact that our market is not considered a hot market, there’s actually an enormous amount of untapped opportunities, which are extremely well priced,” she said.

Private equity funds raised R19.6 billion ($1 billion) last year, a 22% jump from the previous year, according to the South Africa Venture Capital and Private Equity Association. Only 15% of that was from foreign corporations and other PE funds, the industry body said.

3. Businesses turn to Taxi bosses:

As the extortion economy pioneered in KwaZulu-Natal spreads, companies have to cope with a complicit state, mushrooming ‘business forums’ and limited economic space for assimilation. To counter the threat, some have turned to taxi bosses, a group known for their capacity for violent enforcement. What could possibly go wrong?

Birth of a protection racket

First some background on the construction mafia. It helps to understand where they come from, why they emerged and how the governing ANC has nurtured them in the name of empowerment.

The construction mafia story is characterised by entrepreneurial violence, links to the criminal underworld and to the ANC’s Radical Economic Transformation (RET) faction.

Construction mafias emerged in Durban around 2014 and have since invaded building sites around the country. They became business forums, sprouting up across the land, and are constantly morphing and expanding into other economic sectors.

Turf wars

After some scrapping over turf, various construction mafia representatives, including Mnyandu and Zondi, got together and established the Federation for Radical Economic Transformation, later renamed the Black Business Federation. Delangokubona still exists and operates independently but apparently in a loose but cooperative alliance with the BBF and other business forums.

The damage they have wrought is incalculable, but business and the government both trot out a figure contained in an incisive 2022 report penned by Jenni Irish-Qhobosheane from the Global Initiative Against Transnational Organised Crime. 

A success story?

Attempts by the business forums to regulate themselves – and, as a consequence, some say, formalise the unholy mess referred to earlier – may be important markers of whether the extortion economy reforms or remains unstable and violent.

Zondi and the BFF want to present a new, sanitised version of the forums.  

Whereas Zondi once led a 2018 march on a government building that effectively held officials hostage, he now holds court in swish Umhlanga offices. He rides around with armed guards and has interests in 15 companies, including a security firm. Zondi has integrated into the mainstream and is mobilising to get more government work, which he describes as a “priority market” for business.

The organisation boasts 8,000 members, but is still in the process of “professionalising” its structure so that members can pay rates and databases can be set up. 

Successful mafia businesses are able to sanitise their image, reinvest in legitimate businesses and attract genuine support. 

Taxi bosses

Irish-Qhobosheane’s report noted clear links between forums and political players and “and elements within the mass taxi industry” that were being used as enforcers.

Most big taxi companies run their own security firms and are heavily armed. 

A source said: “Look at how the big construction companies have handled this in KZN. They have removed construction forums by bringing in the taxi industry. The big taxi businesses control demarcated areas … These are the guys with the firepower. The big companies are paying them so they can operate without fear or disruption.”

A construction company boss explained how a taxi boss foisted himself on his business: “We were threatened by guys brandishing big guns. Police don’t want to confront them so we had to talk to them. Now we have this big taxi guy in control of our security.”

A construction industry insider said: “The mafias know the construction companies are sweating. The economy is bad and it’s easy to rack up millions in penalties if your project is late. Your priority is the safety of your employees and getting the job done on time. My employees’ lives are being threatened. Will it kill me to accommodate these guys who arrive with guns?”

The choice is either to accommodate mafias or hire someone heavier than them.

The taxi industry and the security companies linked to key taxi bosses provide a useful platform for mafia businesses to grow geographically and to move beyond construction into other economic sectors.

For the most part, the involvement of big players with a monopoly on violence offers stability, though this is not always guaranteed. 

In a violence economy, there will always be challengers.  

End game

So, what’s the end game?

Given how endemic business forums and construction mafia are and how weak the state’s response to them is, a key question is how this is likely to play out. 

Two scenarios present themselves:

  1. The big guys want to go legitimate and keep the golden goose alive, so they limit the violence and keep things tidy. They are not too greedy and understand how business works. The first generation are mobsters prepared to shoot and kill, and the next generation become lawyers and accountants.
  2. The other trajectory is way more unstable. Operators outbid one another in the violence stakes. This leads to fragmentation and chaos. Imagine Russia without a strongman like Putin to keep a lid on things.

4. Armoured vehicle industry booming:

South Africa’s armoured vehicle providers have noted that demand for protection is rising, with one maker reporting sales growth of up to 25% annually in recent years.

“Unfortunately, crime is on the increase in SA and has been increasing for years.

People who can afford armoured vehicles have been looking into adding those into their armoury of security,” said Grant Anderson from Armormax.

Crime has gotten to a point where it is no longer just the politicians and government who are buying armoured cars, he added.

5. Nissan SA jobs at risk:

Nissan South Africa plans to retrench 25% of its employees – about 400 of its total 1 600 workforce – as part of an employee reduction plan because of its inability to secure a replacement model for its NP200 bakkie for production at its Rosslyn plant in Pretoria.

Production of the Nissan NP200 bakkie is scheduled to end in March 2024 at the end of the model’s extended lifecycle.

Nissan SA announced on Friday that its Rosslyn plant continues to build its flagship Navara pickup, with model upgrades to come and export destinations set to increase, but is preparing to end production of the iconic NP200.

It said the immediate replacement model for the NP200 was planned to be built on an alliance-shared platform in Russia, but the geopolitical situation in Russia meant this model was no longer viable due to significantly reduced volumes.

The alliance is a reference to the Renault-Nissan-Mitsubishi Alliance, while the geopolitical situation in Russia appears to be a reference to Russia’s 2022 invasion of Ukraine and the subsequent war between the two countries, which has resulted in a large number of countries imposing sanctions on Russia.

Nissan SA added on Friday: “In line with our African strategy, securing a second model for production in South Africa is a priority, and a study into an alternative vehicle is already progressing.

“Until our future plans are confirmed, the business will be operating at reduced production volumes and needs to act responsibly to maintain its long-term competitiveness and be ready to secure future opportunities.”

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

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