This afternoon, the debate on the Gupta family is to be held in the National Assembly.

This afternoon, the debate on the Gupta family is to be held in the National Assembly. The focus of the debate is likely to fall on what role members of the family played in persuading vast state resources to be deployed in the interests of their recent wedding – and who in the state administration was persuaded to open doors to the family.

However, a sideshow is likely to be a focus on the vast Gupta business interests with the government. It is understood that in the 2012 financial year, some R75 million in state advertising – from state-owned enterprises through to departments and the Government Communication and Information System (GCIS) – was spent on the family-owned newspaper, The New Age.

Business Report asked Phumla Williams, the chief executive of the GCIS, how much advertising spend was directed towards the newspaper in the past two financial years. She emphasised that GCIS’s spending did not include spending by departments or by state-owned enterprises.

The GCIS in 2011/12 “spent a total of R14 912 189 on both electronic and print advertising. Of this amount R2 861 314, about 19 percent of expenditure, was spent on the New Age.”

In 2012/13, the GCIS spent a total of R16.2 million on print and electronic advertising. Of this, R1 436 311 was spent on the New Age. That works out to almost 9 percent. Not bad for a newspaper for which there seems to be little evidence of circulation figures or readership. Most of its copies are delivered free of charge.

Communications ministry

Communications Minister Dina Pule has promised to task the Independent Communications Authority of SA (Icasa) to demand greater transparency on voice, SMS and data pricing and to issue a regulation on the market definition for wholesale access to premium television content to increase competition in broadcasting.

Pule also told Parliament, while delivering her department’s budget vote, that she would review the policy of a set-top box control system to make its inclusion in set-top boxes non-mandatory.

This is expected to fast-track digital migration, which has been delayed by haggling between Pule and free-to-air broadcasters e.tv and SABC over who would provide the set-top box encryption system.

The digital terrestrial television network now reaches 80 percent of the population, and the SABC and state signal distributor Sentech are ready to effect the switchover from analogue to digital broadcasting. Sentech will launch a direct-to-home satellite broadcasting service later this year.

Pule, who is finalising a project action plan for connectivity in schools, hospitals and other state-owned facilities, will later in the year present four legislative amendments: the Icasa Amendment Bill, Electronic Communications Act Amendment Bill, SA Post Office Amendment Bill and the Postbank Bill.

The new broadband policy will be tabled before the cabinet next month, which will enable the finalisation of the radio frequency spectrum allocation process.

Pule said the department would transfer R1.5 billion, or just over 70 percent of its budget, to state-owned companies under its jurisdiction.

In four months the SABC would receive R222m, the balance of its R1 billion government guarantee loan.

For someone whose future as minister is uncertain, and according to public sentiment actually should be over, Pule sure has a voluminous to-do list.

Medical innovation

The mandate of the newly established Innovative Pharmaceutical Association SA (Ipasa) to empower research and development (R&D) promises to go a long way towards building South Africa’s capacity for medical innovation.

For a company to become a member of Ipasa, it must conduct its own R&D. The association, which was officially launched yesterday, has committed itself to represent only those pharmaceutical companies dedicated to exploring, developing and bringing innovative medicines to the South African market.

Ipasa was born out of a collaboration between two local industry associations: the Pharmaceutical Industry Association of SA (Piasa) and Innovative Medicines SA (Imsa).

This does not come as a surprise, because Imsa has always been about innovative medicines.

With 24 member companies, including Pfizer, Novartis and Bayer Healthcare, the association could be very influential and capacitated to make the boldest moves.

There is already evidence that the African population does not always respond as well as other populations to medicines developed elsewhere. A Health Equity Symposium in Boston earlier this year showed how Africans responded much more positively to medicines made out of indigenous African plants.

If R&D funding in the continent were to get a boost, it is clear that innovative medicines would be taken to the next level.

The national Department of Health took a step forward in this regard this year when it announced an allocation specifically for medical research in its budget vote.

The department set aside R90 million in the 2013/14 financial year, R100m in 2014/15 and R250m in 2015/16 for the Medical Research Council to strengthen its capabilities and infrastructure as well as to support partnerships on high-priority diseases with development partners such as the Gates Foundation.

Ipasa member companies share a view that innovation-based medicine is advancing and this is what prompted the establishment of this unified representative industry body. Ipasa will replace Piasa and Imsa as South Africa’s representative at the International Federation of Pharmaceutical Manufacturers & Associations.

Edited by Banele Ginindza. With contributions from Donwald Pressly, Asha Speckman and Londiwe Buthelezi.

It emerged during a briefing with Energy Minister Dipuo Peters last week that she had recently raced off to Pennsylvania, the scene of a measure of controversy over the extraction of tight gas.

It emerged during a briefing with Energy Minister Dipuo Peters last week that she had recently raced off to Pennsylvania, the scene of a measure of controversy over the extraction of tight gas. The only problem was that the minister couldn’t remember which small town she had visited “on the coast”, but she did remember that the whole operation was run by a woman.

Shale and tight gas is extracted at great depths below the earth by tunneling down vertically a few kilometres before blasting – with a mixture of water and chemicals – a number of legs laterally through the rock to extract the trapped gas.

After the minister was asked which town she had visited and whether anything she had seen had changed her positive attitude about the form of gas extraction, a sidekick said the town had been Marcellus.

The minister, however, didn’t appear to witness anything that turned her off the extraction process, which critics say has been responsible for contamination of water sources underground.

Peters was the guest of the state government but had also met industry representatives, including Shell. She hoped to meet representatives of community groups soon. Peters participated in the Group of Friends on Sustainable Energy for All discussion at the UN.

She also attended the Bloomberg New Energy Finance 2013 Summit in New York City. It was previously reported that she would visit “shale gas infrastructure and sites” in the Pennsylvania area.

Her department reported that following the lifting of the moratorium by cabinet, more research was required to inform South Africa on the potential and proposed development path “of this new energy source” in the Karoo.

Marcellus is the name of the geological layer of shale spanning Pennsylvania and West Virginia which is blasted in fracking. It is not a town in Pennsylvania, but there is a town of that name in Onondaga County, New York state.

Abil

The idea that the situation around African Bank (Abil) represents the beginnings of South Africa’s very own sub-prime crisis and that it will similarly end in a crisis for our financial sector makes for exciting deadlines, but is far from being an accurate reflection of the situation.

The important facts to remember are that Abil is making profits – and lots of them. In the six months to end-March it made R1 billion of profits. It is only five to six times leveraged, which is negligible compared with the sub-prime operators.

The 35th and last slide in an otherwise grim results presentation highlights just why Abil is a “strong business”.

Apart from the R1bn, which is equivalent to a 14 percent return on equity and compares with funding rates that have declined to 8.6 percent from a peak of 11.4 percent in 2009, it is also compliant with the rather tough requirements of Basel III.

So the Reserve Bank is absolutely right to say that the local banking sector “remains sound, well capitalised and profitable”.

But despite all of that, the government must be a little bit anxious; so too must Abil’s shareholders and funders be anxious as well as the shareholders, funders and management of all entities that rely on consumer demand, whether it’s for goods or money.

The issue is whether what is playing out in the unsecured lending market represents something of a hangover from a period – the last 18 months or so – when too many players piled into the market. If it is just a hangover then a period of calm consolidation should sort out the matter.

However, if it is something of a more structural nature then we could face a rather grim downward spiral of economic activity as lenders rein in their funds, putting more pressure on consumers, which in turn means pressure on retailers… and down and down the circle goes.

Mining

The ANC plans to unify and strengthen the National Union of Mineworkers (NUM) after the wildcat strike that shut down Lonmin, the world’s third-largest platinum producer, in Rustenburg last week.

Following a meeting of the National Executive Committee held over the weekend, the ANC spoke against the attacks on NUM. It would hold talks with officials from NUM and the South African Transport and Allied Workers Union (Satawu) to hear their challenges with the aim of strengthening both unions, it said.

“The meeting further noted the recent attacks on NUM and Satawu is in fact an attack on Cosatu as a federation on the congress movement as a whole.

“The ANC resolved to develop a comprehensive programme of engagement with individual unions,” Gwede Mantashe, the ANC secretary-general said yesterday. Mantashe also said unions outside Cosatu had a right to exist. The ANC can forget about finding an overnight solution to the complex labour challenges.

Calls by ANC deputy president elect Cyril Ramaphosa, for Rustenburg to be reclaimed by NUM during a May Day rally, were also irresponsible, seeing that there is tension between the Association of Mineworkers and Construction Union (Amcu) and the NUM.

The emergence of Amcu is no doubt a dilemma for NUM which was a majority union across the mining industry, through a 50 plus 1 percent recognition agreement with firms.

The rapid growth of Amcu in the platinum belt has been a nail in the coffin of NUM, the oldest union in the platinum sector. NUM shop stewards have joined the militant Amcu plant by plant. Last week Lonmin finally recognised Amcu after months of hesitation.

Amcu had 70 percent representation at Lonmin, it was recently announced. It represents 54 percent of the lowest-level employees at Impala Platinum, the world’s second-biggest platinum producer, while NUM had 8 percent.

Edited by Banele Ginindza. With contributions by Donwald Pressly, Ann Crotty and Dineo Faku.

Without knowing much about the other contenders for the global Responsible Investor award, it is difficult to imagine a more worthy winner than the Government Employees Pension Fund (GEPF), which along with its fund manager, the Public Investment Corporation (PIC), has been largely responsible for a revolution in corporate governance in this country.

Without knowing much about the other contenders for the global Responsible Investor award, it is difficult to imagine a more worthy winner than the Government Employees Pension Fund (GEPF), which along with its fund manager, the Public Investment Corporation (PIC), has been largely responsible for a revolution in corporate governance in this country.

The GEPF’s John Oliphant has helped to ensure that the boards of listed companies are held to some level of accountability in terms of their commitments to tougher corporate governance standards.

A key aspect of this accountability involves disclosure of the engagement between companies and their shareholders at annual general meetings (AGMs). As the largest single investor on the JSE, the PIC’s public disclosure of its voting record is critical.

The PIC’s website provides an excellent, and now up-to-date, detailed analysis of how it has voted at AGMs for the past number of years, with one exception.

This is last year’s controversial Telkom AGM, at which the reappointment of four directors was dramatically blocked. In addition, Telkom shareholders vetoed the company’s incentive scheme for its managers. The PIC, which played a significant role at the AGM, has not included Telkom voting details on its website.

It is well known that the government used its 40 percent stake to vote against the resolutions. What has been a matter of conjecture is the precise role the PIC played with its 10.9 percent stake, particularly in regard to the four directors. All that the PIC will say on the matter is that “it does not want to publicly discuss individual board members” but it did have concerns about the oversight role of the board and “voted against non-executives whom we deemed could create space on the board for the requisite skills”

It leaves a gaping hole in an otherwise excellent process.

Breakfast

The New Age breakfasts are again embroiled in controversy. Yesterday Water and Environmental Affairs Minister Edna Molewa was wheeled out to take the flak for government’s parlous response to the renewed crisis on the platinum belt.

Out of town was Minister of Mineral Resources Susan Shabangu, and it appears Labour Minister Mildred Oliphant had to rush to Rustenburg to provide political direction to trade unionists.

Questions during a post cabinet media briefing turned to her appearance at the breakfast table of the Gupta family’s The New Age. These televised breakfasts have exploded into controversy because state agencies – including the SABC, Transnet, Eskom and Telkom – have sponsored them, apart from pouring R75 million into advertising in The New Age newspaper last year, of which vast numbers of copies are dumped at public buildings.

Molewa, who had earlier assured journalists that the Gupta family’s role in the Waterkloof air force base scandal would be investigated, could not see any conflict of interest over the breakfast, which, according to the newspaper’s website, will cost R695 a head excluding VAT. It takes place on Monday in Cape Town.

Meanwhile, the cabinet statement referred to the Gupta saga as follows: “Cabinet fully supports the preliminary findings from the investigation into the unauthorised landing of a civilian aircraft at Waterkloof air force base.”

So what about attending the Gupta family newspaper breakfast? “Nobody is doing us any favour just as [at] any other press conference,” said Molewa. “We were not invited… we invited ourselves.”

The breakfast would be hosted by the SABC “in partnership” with The New Age, she remarked. The breakfast takes place ahead of her budget vote. She has 27 minutes to speak and her deputy minister just 14 minutes.

Once again, there is no such thing as a free breakfast.

MTN

As fears spread about tropical cyclone Mahasen which is battering the west coast of Myanmar, MTN said it was reaching out to the population through a media communication campaign.

“MTN says ‘Hello Myanmar, we’re here to connect you to the world’,” Africa’s largest telecommunications firm titled its statement on Wednesday.

The campaign was an “awareness drive to demonstrate the company’s credentials as a transformational, global mobile communications operator worthy of a licence to offer world-class telecoms services to the people of Myanmar”.

It aimed to inform the nation about MTN’s achievements, capabilities and benefits for Myanmar when, not if, it was awarded the licence.

A message from MTN in newspapers and on radio stations said: “Today, MTN connects nearly 200 million people in 22 countries. Whenever we launch in a new country, we bring with us sustainable, real transformation to that nation, its people, and the local economy. We would like to do the same in Myanmar, and are confident of the benefits we would bring.”

MTN has prequalified, with 11 others, to compete for a telecoms licence in the south-east Asian country and has to submit its formal bid before June 3. With three weeks to the closing date, it is understandable that MTN is pressed for time, but to launch the campaign at a point when saving lives is more important than commercial opportunities may be seen as insensitive.

Simphiwe Cele, MTN’s country representative in Myanmar, said MTN’s “transformative power had brought tangible benefits to all markets” where it operated. MTN empowered citizens and helped raise living standards for millions in the developing world through several avenues, which included job creation and social investment via MTN Foundation.

As Myanmar deals with the crisis, a generous humanitarian spirit may win more votes than a marketing spin.

Edited by Peter DeIonno. With contributions from Ann Crotty, Donwald Pressly and Asha Speckman.

The language of doctors, priests, financial analysts and hypnotists is meant to give you a “good feeling”, no matter that the message may be stark and scary.

The language of doctors, priests, financial analysts and hypnotists is meant to give you a “good feeling”, no matter that the message may be stark and scary.

It could perhaps be of some comfort then to local mining houses and other corporates that Moody’s Investors Service soothingly warned yesterday that “structural shifts and deterioration in the general operating environment in South Africa could lead to negative rating pressure”. There.

What would sound scarier, if truer, is that the corporate operating environment – particularly the ability of companies to raise funding through bonds and such like – will become harder and more expensive as Moody’s downgrades them even further.

At Moody’s eighth annual sub-Saharan Africa Credit Risk Conference yesterday, mining analysts pronouncing on the fate of Anglo American, AngloGold Ashanti and Gold Fields said, in effect, that these companies were vulnerable to negative rating pressure in varying degrees because of risks including higher-than-inflation wage increases, productivity losses linked to industrial action and safety stoppages as well as longer-term risks such as the government maybe whimsically raising mining taxes or interfering in some way with the sector. Worse still is the possible exposure – still unaccounted for – to litigation relating to ongoing silicosis suits.

Anglo American is rated Baa1 with a negative outlook, AngloGold Ashanti is Baa2 with a stable outlook and Gold Fields is Ba1 with a negative outlook.

Anglo American’s status is more vulnerable and was given “lower headroom in its current rating”, while the other two companies, to their credit, have low leverage and good cashflow generation, which cushions them somewhat from downside risks.

But here is the clincher for all three. “Ratings accommodate a moderately lower commodity price environment and assume issuers take actions to operate in lower-price environments.”

So until they shrivel and fall like dried fruit, let the corporates keep on hearing the massage parlour whispers.

Rwanda

One of the more fascinating aspects of the competitiveness report from the World Economic Forum (WEF) is how Rwanda is surging up the charts. It is ranked 63rd out of the 144 countries included in the report; two years ago it was 80th and moved up to 70th position in 2011/12.

Given that the country is just two decades from the appalling genocide in which hundreds of thousands of Tutsis were killed by Hutus, Rwanda is not without considerable challenges. Despite these, under Paul Kagame’s presidency, it has managed to build a reasonably thriving economy.

Kagame, who has been implicated in ongoing insurgencies in the neighbouring Democratic Republic of Congo (DRC), is evidently doing a lot right in terms of creating a “competitive economy”.

The WEF’s very long list of indicators of competitiveness includes “burden of government regulation”, for which Rwanda was the second least burdensome of the 144 countries. Its government spending was regarded as the fourth least wasteful.

What is likely to spark most envy among South African business people is that it takes only three days to start a business in Rwanda – and only two procedures are required.

However, there are considerable areas of concern. Rwanda ranks 166th out of 187 economies on the UN’s human development index. Underlying social and political tensions in the country and the insurgencies in the DRC, which are all a legacy of the 1994 atrocities, have prompted a US intelligence report to state that Rwanda is at high risk of becoming a failed state by 2030.

Utilities

It was recognised at the African Utility Week conference in Cape Town this week that utilities often do not see eye to eye with their regulators on what the appropriate tariff is when they apply for increases.

Many African utilities represented at the conference know what it is like to receive approval for tariff increases that are lower than requested.

But when it comes to energy regulators, what differs in the case of South Africa is that the National Energy Regulator of SA has recently approved much lower increases than its counterparts in Kenya and Nigeria are wont to do. When Kenya’s state-owned power utility applies for a 28 percent tariff increase, it will not get anything below 20 percent.

Also different is that South Africa’s tariff methodology allows for depreciation, while in some other African countries the government, as the owner of the assets, deals with depreciation costs in such a way that they do not affect tariffs.

A common practice in other countries allows provision for depreciation, which shields utilities from market variations such as rises in fuel costs, inflation and the exchange rate.

Joseph Kapika, a researcher at the Management Programme in Infrastructure Reform and Regulation at UCT, said even when tariff determination methodology was simple, the producers and regulators did not agree when determinations were made. He said this raised questions about whether there were disparities in the understanding of the methodology or whether other factors were at play.

“It raises question on whether regulators are under some form of pressure to keep tariffs much lower than what they ought to be or if utilities are taking advantage,” he said.

Kapika said utilities could be asking for higher tariffs than they needed, knowing that even if regulators did not approve them, they were likely to award them the percentage they actually needed.

Edited by Peter DeIonno. With contributions from Banele Ginindza, Ann Crotty and Londiwe Buthelezi

Long-suffering investors in Telkom may have been driven to despair if there had not been some glimmer of light at the end of the proverbial tunnel.

Long-suffering investors in Telkom may have been driven to despair if there had not been some glimmer of light at the end of the proverbial tunnel.

Buoyed by news of the appointment of Miriam Altman as head of strategy, Telkom shares gained the most in nine months on Monday, only to decline yesterday when trade unions declared a dispute with the telecoms firm over wage increase differences.

The stock slid 4.05 percent to close at R12.80 on the JSE, where five years ago it once traded at a high of R151.25.

The unions, Solidarity, the Communication Workers Union (CWU) and the SA Communication Union (Sacu) have rejected Telkom’s offer of a 1. 5 percent hike, which is a marginal improvement on its initial 1 percent increment offer under the tough circumstances it finds itself in.

Solidarity wants an 8.8 percent increase and CWU is demanding 11.5 percent. Sacu is asking for 9 percent, according to Telkom.

But despite the company pleading poverty, it continued to lack prudence over expenses, Solidarity spokesman Marius Croucamp said.

A bone of contention is Telkom’s sponsorships, particularly funding of The New Age breakfasts hosted by the Gupta family’s newspaper business. Catering and stationery are other areas that could be chopped, according to Croucamp.

He went as far as to assert that Telkom was rehiring employees who had opted for severance packages. This time they would enter the company as contractors. This has been rumoured over several wage negotiation periods. The company did not respond to a question on the rehiring of employees.

“For us something is not being done correctly. If you are going to cut jobs turn the entire company upside down. Do not just opt for a quick solution. You’ve got to look at a medium- and long-term strategy. We don’t know what that strategy is and we are not sure Telkom knows what the strategy is,” Croucamp said. page 17

Aviation

Governments should join the aviation industry in backing the production of biofuels in sufficient quantities to replace the more polluting fossil fuels, says Tony Tyler, the president and chief executive of the International Air Transport Association (Iata).

Many international airlines and both leading aircraft manufacturers, Airbus and Boeing, have co-operated in successful experiments with biofuels, which have been used to power long-haul flights. In addition to aiming at reducing pollution caused by flying – which has been estimated at 2 percent of that caused by human activity – airlines are also struggling as a result of soaring fuel prices which, as Tyler has pointed out, mean that in spite of a growing demand for air transport Iata’s forecast for the industry this year is “a modest 1.6 percent of profit”.

He pointed out at an aviation fuel forum in Berlin last week that the industry paid about $33 billion (R304bn) more for fuel last year than in 2011 and “the current outlook is for another bump in 2013”.

Cost pressures have already forced some established airlines out of business and others, including SAA – which has just announced an extensive code-sharing agreement with Middle Eastern airline Etihad – to stop flying some routes formerly considered essential.

Tyler has pointed out frequently since taking over his present position a year ago that flying is not simply a luxury indulged in by leisure travellers (although tourism is also a major creator of jobs and earner of foreign exchange), but also essential for the growth of international business and employment in many industries.

Iata will hold its annual general meeting and conference in Cape Town this year, for the first time, and the need to increase the production of biofuels in addition to other cost-reducing measures is certain to account for much of the discussion.

Retail

The deaths of more than 1 100 garment workers in the collapse of the nine-storey Rana Plaza building in Bangladesh should not only prick the consciences of retailers, but also those of consumers.

About 60 percent of Bangladesh’s garments, made with the help of cheap labour and relaxed labour laws, are exported to European retailers. Despite a global outcry over the country’s worst industrial disaster on April 24, by yesterday only a few major clothing retailers had signed an accord on fire and building safety. Among them were Spain’s Zara and H&M Hennes & Mauritz of Sweden. It was reported that US retailers such as Walmart, Gap and Sears would not sign unless changes were made to rules on how disputes are resolved.

The tragic situation in Bangladesh reminds one of our domestic clothing manufacturing industry. Although the scale of local manufacturing operations cannot be compared with those in Bangladesh and China, we should be grateful for our labour laws and unions.

Cosatu said the disaster in Bangladesh was a grim warning of the end result of a free-for-all among employers who ruthlessly cut wages and working conditions in order to increase their profits.

IndustriALL Global Union general secretary Jyrki Raina said global clothing brands and retailers had a responsibility for their full production chains. Cosatu even called for every garment to carry a union label, to indicate it was manufactured under fair labour conditions.

In South Africa, we might have lost the manufacturing industry to China and other cheap labour countries but it is important to protect the little we have.

The international shock at disasters in Bangladesh does not exempt our local retailers, especially because the bulk of them still buy their garments from China. As consumers we do not know the conditions that workers in China face. Our buying decisions should take into account what a brand and its owners stand for. page 21

Edited by Peter DeIonno. With contributions from Asha Speckman, Audrey D’Angelo and Nompumelelo Magwaza.

The continuing investor exodus from South African mining stocks shows what the market thinks of Anglo American Platinum’s (Amplats’s) admission of a delicate egg-dance so as not to further offend the government and unions as it restructures to ensure its survival.

The continuing investor exodus from South African mining stocks shows what the market thinks of Anglo American Platinum’s (Amplats’s) admission of a delicate egg-dance so as not to further offend the government and unions as it restructures to ensure its survival.

The company finds itself in an impossible space. Even after scaling back the number of jobs it needed to cut from 14 000 to just 6 000, after being threatened in January by Susan Shabangu, the capricious Minister of Mineral Resources, Cosatu describes the company’s decision as a “spit in the face”.

Continuing with his anti-business and anti-sense gibberish, Cosatu spokesman Patrick Craven rants: “These multinational companies who pay lip service to the aim of making economic development and job creation our top national priorities, immediately forget all about this when their profits are threatened and add thousands more to the ranks of the jobless”.

Of course they do Patrick, no profits equals no company, equals no jobs at all. Oh, and no jobs equals no unions.

Meanwhile, perhaps it is better, or should that be safer, to say nothing?

Vusi Mabena, an executive for transformation and stakeholder relations at the Chamber of Mines, whose members are the very companies investors are fleeing, told Business Report’s Dineo Faku that he would not discuss Amplats’s job cuts. “We have made a conscious decision as a chamber not to get involved with the Amplats platinum story,” he said.

“I was accused for commenting on Amplats in January when they first came out with the restructuring. I was trying to put the platinum story on the table.

“I got into trouble from the Department of Mineral Resources, the ANC and my principals.”

So there it is. If the Department of Mineral Resources and the ANC don’t like what’s being said, then they simply bully the speakers into silence.

Tourism

International tourism to South Africa has performed better than the world average in the past two years.

The outlook appears to be good despite the fact that our main source markets in the UK and continental Europe are still suffering from recessionary conditions.

Our hotel industry is optimistic, with large hotel groups expanding and upgrading their existing premises.

But Minister of Tourism Marthinus van Schalkwyk warns that we must be prepared for rapid change, including the faster-than-expected growth of new markets and changing needs as a high proportion of international tourists will be older.

He said last week that although South Africa’s traditional source markets were expected to remain the mainstay of the inbound tourism market for many years to come, some of the emerging markets, previously regarded as places where South African tourism was investing ahead of return, would become core markets “delivering a larger share of our bread and butter” as early as 2015.

He noted that although it took Britain about 150 years to double its gross domestic product (GDP) per capita when it had a population of less than 10 million, India and China today had l00 times that number of people and were on course to double their GDP per capita in a tenth of the time it took the British.

Another change was that the world population was ageing rapidly, and this would accelerate over the next two decades.

The tourism industry would increasingly have to cater for older, more mature and probably more value-conscious travellers in addition to a generation of younger tourists “connected 24/7 to everything, everywhere”.

By the middle of this decade, there would be more than 50 African cities with populations exceeding 3 million, and by 2030 about half the people on our continent would be living in urban areas.

SAA

SAA declined to shine its torch at the biggest tourism trade show in Africa yesterday when its chief executive failed to show up at his own breakfast. No apology was conveyed to the 300 or so guests who filled an auditorium at the Durban International Convention Centre.

This, according to staunch Tourism Indaba attendees, is one of the highlights of Monday morning at the show and as a result, the national carrier’s chief executives never miss it. Maybe one should start with the messy registration process, where even the names of important guests could not be found on the system.

“If your name is not on the system please wait until everyone is seated and then we will let you in,” one woman said to impatient guests.

The only time the name chief executive was mentioned, was when SAA’s acting general manager of the commercial division, Manoj Papa, stood up to go over the chief executive’s presentation.

It amounted to a list of SAA’s destinations, challenges, and so forth.

No urgency was shown on how the airline was going to sort out its financial and office woes. “Manoj did what exactly the chief executive was going to do if he was here,” an SAA official told reporters.

When asked who, between the acting chief executive Nico Bezuidenhout and the newly appointed chief executive Monwabisi Kalawe, was going to attend the event, the confused official quickly said “Mr Bezuidenhout of course”. He later explained that both the acting chief executive and the acting chairwoman, Dudu Myeni, were not present because they were preparing for a parliamentary presentation tomorrow.

Later, another SAA official was heard saying “this was an executive breakfast and not the chief executive’s breakfast”. So who cares if it was a waste of time.

And did I mention that the press briefing was cancelled without notification?

Edited by Peter DeIonno. With contributions from Peter DeIonno, Audrey D’Angelo and Nompumelelo Magwaza.

News that the Association of Mineworkers and Construction Union (Amcu) has surpassed the membership of the National Union of Mineworkers (NUM) at Lonmin, the third-biggest platinum firm, may not be that surprising after all.

News that the Association of Mineworkers and Construction Union (Amcu) has surpassed the membership of the National Union of Mineworkers (NUM) at Lonmin, the third-biggest platinum firm, may not be that surprising after all.

At least not since the beginning of last year’s ill-fated wage bargaining season.

Amcu’s attainment of 70 percent representation for the unskilled workforce comprising categories four to nine – which is the bulk of workers –

is another nail in the coffin for NUM, whose decline has widely been blamed on its involvement in politics.

Amcu has also scalped NUM at Impala Platinum (Implats), the second-biggest platinum producer.

Implats has confirmed that Amcu membership was in excess of 50 percent at its Rustenburg operation. NUM now has less than 10 percent representation among unionised members at Implats.

NUM represented 70 percent of unionised workers at Implats before the six-week strike at the Rustenburg operations in January last year. The violent strike resulted in some deaths and 17 000 people being fired and rehired.

At Aquarius Platinum’s Kroondal mine, the NUM and trade union Solidarity are the majority unions. But Amcu has also started making inroads there.

The growth of Amcu is an indication that the labour relations space has taken on a new shape.

The union is more militant, and prides itself on being independent of political affiliation, unlike the NUM which is a member of the ruling tripartite alliance.

Whether Amcu will organise in other sectors of the economy is yet to be seen. As is the kind of fight NUM puts up. If any.

Hospitality

Group chief executive of Protea Hotels Arthur Gillis received a lukewarm response from hotel industry players at the Hospitality Investment Conference Africa yesterday when he said: “The fact that there are not enough black people in the industry” kept him awake at night.

He said the industry remained predominately white. His statement did not sit well with the managing director of Tsogo Sun, Graham Wood, who was quick to say that his company had black ownership and shared details of how the company was actually helping small unbranded guest houses and bed and breakfasts to grow.

Later on Gillis explained that his statement was based on the fact that financiers were reluctant to give black business people funding to buy hotels.

“The problem is that there was no finance available for a black, skilled hotelier who is prepared to run his or her hotel.”

Gillis further explained that banks or investors were looking into financing only newly built hotels. “The reality is that we have a number of already existing 80- to 90-room hotels which could be sold to skilled black families or young hoteliers.”

He said he was not talking about wealthy black businesses, but ordinary people who were looking for opportunities.

Other panellists, including Helder Pereira, the chief executive of Redefine International Hotels, told delegates that youth unemployment in South Africa kept him awake at night.

He said the unemployment problem affected all sectors and created instability in the tourism industry.

Jones Lang LaSalle managing director Gabriel Matar added that having a young unemployed population triggered wars.

Aviation

The complacency apple cart in the aviation industry is likely to be upset by upstart airline Fastjet, which has proved unable to take either a hint or no for an answer.

When its initial approach with politically connected individuals, including Edward Zuma, President Jacob Zuma’s son, did not seem to open all the doors, Fastjet did not pause to take a breath.

It came charging in again.

This time it worked the loopholes until it could announce the final stage of negotiations with aircraft leasing company Star Air Cargo to launch a service between Johannesburg and Cape Town, with the aim of starting by the end of this month.

Its headlong rush will see it trade blows with kulula.com, the low-cost division of British Airways/Comair, and Mango, the low-cost division of SAA.

Peter Annear, the chief executive of Star Air Cargo, confirmed yesterday that it was in the process of signing an agreement to fly the route, providing a 144-seat Boeing 737-300 with crew and insurance, on behalf of Federal Air, whose licence will be used and which will be responsible for operating the flight on behalf of Fastjet Holdings.

London-registered Fastjet will own 25 percent of the operation and Fastjet Holdings, formerly Blockbuster, the other 75 percent. This arrangement is aimed at overcoming the regulation that a South African airline must be 75 percent South African-owned.

Deidre Davids, the chief communications officer for Airports Company South Africa at Cape Town International Airport, confirmed that Fastjet Holdings and Federal Air had applied for slots, a check-in desk and other arrangements to start the new service.

Kyle Hayward, a former British Airways executive who is now the chief executive of Fastjet Holdings, said the leasing arrangements were another definitive step towards commencing services “and we remain on track for an end-of-May launch”.

But Brad Dickson, the commercial manager of Federal Air, and Annear commented that it would be difficult to complete all the arrangements, including the first ticket sales, by the end of this month.

Dickson said a website and call centre had still to be set up. In view of this, he thought that, initially at least, most sales would be at the airports.

Prices still had to be announced but they would be “value for money”.

Somebody else has the unenviable task of telling Fastjet to slow down, question is who? Not the consumer, certainly!

Edited by Banele Ginindza. With contributions from Dineo Faku, Nompumelelo Magwaza and Audrey D’Angelo.

The past week has seen almost everyone who has anything to do with the unsecured lending market jump up and energetically explain why they are different to African Bank, the share price of which slumped 22 percent in just a few days.

The past week has seen almost everyone who has anything to do with the unsecured lending market jump up and energetically explain why they are different to African Bank, the share price of which slumped 22 percent in just a few days.

Capitec rushed to explain to the less discerning among us that it had moved from a microlending business many years ago and had become a fully fledged bank and in fact it was now the fourth-largest bank in the country. Almost half of Capitec’s 4.7 million active clients use its banking services and not just its credit offering, which is why more than 45 percent of Capitec’s operating costs are now covered by transactional fee income. In addition, Capitec is not in the furniture business and does not carry the same insurance risk as African Bank.

Then Transaction Capital, which released interim results during the week, stressed that its Bayport business, which offers unsecured personal loans to middle-market consumers, was just a minor player in the unsecured lending space with a market share of only 3.3 percent, compared with African Bank’s 20 percent to 25 percent. And so, we’re told, it’ll be okay.

Finally we had African Bank jumping up yesterday to explain why it is so different to… well, itself or at least different to the version of African Bank that has been dealt a massive smack by investors. Group chief executive Leon Kirkinis provided a reasonably impressive explanation for why investors should remain calm and relaxed. Without trying to gloss over the difficulties facing the group, he reminded the unusually large teleconference audience of 220 that the group had a sound base that would see it through the current difficulties.

Financial 2013 is going to be grim as African Bank adjusts to a trading environment that became significantly tougher in about June last year. But financial 2014 is expected to show some improvement.

Franchising

It is good to see two African powerhouses like Nigeria and South Africa forging trade partnerships. With all the resources and the expected potential economic growth from the continent, trade between any of the 53 countries is good.

While big deals are being signed by government leaders and big corporations, small businesses such as franchises are also forging ahead with deals.

Today, the Pan African Franchise Federation will be born. The inaugural meeting of this new baby would take place alongside the International Franchise & Entrepreneurs Expo taking place in Sandton.

It would be spearheaded by the Franchise Association of SA (Fasa) with delegates from Egypt, Ethiopia, Mauritius, Tanzania and Nigeria.

Fasa executive director Vera Valasis believes the time is right to bring African countries together and explore opportunities that franchising can bring to growing African economies.

“While we in South Africa have had a thriving first-world franchise sector since the 1960s, with over 80 percent of franchise concepts home-grown and have also ventured into Africa with many of our food and retail brands, Africa as a whole has lagged behind in franchise development.”

Valasis said it was time Fasa played a bigger role in promoting franchising and expanding this unique business format through the continent.

The inaugural meeting will put a spotlight on South Africa and its franchise sector, which contributes about 12 percent to the country’s gross domestic product.

While the fast-food sector could be a good start for the new federation, according to the International Franchise Association, sectors such as business and professional services had the highest growth in the US. The association’s HIS Global Insight report showed that these two sectors increased by 2.2 percent followed by the quick-service restaurants at 2 percent and personal services at 1.9 percent.

Social classes

There are different ways of defining class and they vary from country to country. The topic was raised at a presentation yesterday by the UCT Unilever Institute of Strategic Marketing.

The focus of the research was the black middle class, which the institute defined as black households earning between R16 000 and R50 000 a month. Alternatively, it classified people according to certain other criteria such as education, occupation, assets and accommodation. Institute director John Simpson said that in the UK there were seven social classes rather than the more conventional upper, middle and working classes.

The segmentation is based on what The Times of London called “one of the largest surveys of British class undertaken – involving 160 000 people”.

The survey was initially conducted online by the BBC in 2011 and was later backed up by research conducted by a survey company to broaden the sample.

The results, released last month, classified people according to money, social connections and cultural experience.

Topping the list are the elite – which include chief executives, judges, bankers, dentists and advertising executives. Next comes the established middle class – town planners, police, engineers and midwives. The technical middle class includes pilots, radiographers and pharmacists.

The new affluent workers are electrical fitters, heating engineers and sales people.

In the traditional working class are secretaries, lorry drivers and electricians, while the emergent service workers are chefs, musicians and care workers. At the bottom are cleaners, cashiers, drivers and the unemployed, described as the precariat – a contraction for precarious proletariat.

Researchers said the new affluent workers and emergent service workers seemed to be the children of the traditional working class, which was fragmented by mass unemployment, de-industrialisation, immigration and restructuring of urban space.

Edited by Banele Ginindza. With contributions from Ann Crotty, Nompumelelo Magwaza and Ethel Hazelhurst.

The Constitutional court was yesterday due to hear an appeal by Imraahn Ismail Mukaddan against the Supreme Court of Appeal’s decision to dismiss a request by Mukaddan that he be certified as a class representative in a proposed class action suit by the bread distributors against the bread producers.

The Constitutional Court was due to hear an appeal yesterday by Imraahn Ismail Mukaddan against the Supreme Court of Appeal’s decision to dismiss a request by Mukaddan that he be certified as a class representative in a proposed class action suit by the bread distributors against the bread producers.

Mukaddan was involved in the initial case that was brought against the bread producers all those years ago.

The case, which centred on charges of collusion, became a public relations nightmare for the major bread producers such Tiger Brands and Pioneer Foods.

In 2007 Tiger Brands was fined R98.8 million and its then chief executive, Nick Dennis, who was slammed by the Competition Tribunal, decided to resign from the company he had dominated for most of the previous 10 years.

Pioneer did not do much better.

It persistently denied involvement in any collusive or anti-competitive actions until finally at the end of 2010 the Department of Economic Development announced a rather complex mix of fines and subsidies that Pioneer would have to pay to settle increasing allegations of anti-competitive behaviour.

Premier Foods got off comparatively lightly as it was the first to “fess up” to the charges and so benefited from the commission’s corporate leniency policy.

But, and here is a major challenge for the competition authorities, what about compensation for the victims of this collusive activity?

So far no victim of collusive activity has succeeded in taking a class action against the perpetrators. Through his bid before the Constitutional Court Mukaddan appears to be trying to change that.

If he is successful it would set an extremely interesting precedent.

And no doubt the 18 construction companies that are currently trying to reach an agreement with the commission are watching events closely.

It would of course be much easier to identify victims and the extent of damage incurred as a result of collusive behaviour in the construction industry than it would in the bread industry.

Durban ICC

Durban’s International Convention Centre (ICC) has launched an internship programme for young people aiming at a career in the hospitality industry, giving them on-the-job training at the five-star level and helping them to evaluate career options by taking part in various operations, from the kitchens to the reception desk.

Before deciding to aim at becoming celebrity chefs, or catering managers, the interns spend six weeks in each of the ICC’s hot, cold and pastry kitchens and receive intensive training in food safety regulations and standards before being trained in areas such as store keeping and setting up buffets.

ICC chief executive Julie-May Ellingson said the centre believed strongly in investing in South Africa’s tourism industry and had supported it for years through a partnership with the Durban University of Technology. The time spent at the ICC would enhance the interns’ career prospects on graduating.

The interns are selected by the university, based on their academic performance and in line with the criteria specified by the various departments of the ICC.

Ellingson said such programmes, giving the opportunity to acquire and develop real-world skills at a world class standard, contributed to the sustainability of South Africa’s tourism industry.

In view of the interest shown, the ICC would increase the number of interns and was considering extending the programme to include students from the university’s production and technical disciplines.

The ICC will host the 18th world conference on co-operative and work-integrated education next month.

Ellingson said it would listen closely to ensure that its own intern programme was of the highest standard and relevant to the needs of the industry.

At below management level, Cape Town ICC has, for years, taken on young people every year to train as waiters and kitchen staff and many of them have subsequently found jobs in city restaurants and hotels.

SAA

SAA’s new code share partner, Etihad, the national airline of the United Arab Emirates (UAE), has won the title of leading airline in the Middle East for the seventh consecutive year. It also announced yesterday that it was expanding its code share arrangements with Air France following a strategic agreement between the two carriers to build an expanded global network.

SAA acting chief executive Nico Bezuidenhout said on Monday that the code share with Etihad, under which both airlines would carry each other’s passengers enabling them to sell tickets to destinations to which they did not fly, retaining a portion of the fare, and other joint activities would save SAA 20 percent in costs.

Etihad was started several years later than the Dubai-based Emirates, which has been profitable for years and remains the largest by adding several new destinations every year. But Etihad has the title of national airline of the UAE because it belongs to Abu Dhabi, the dominant and wealthiest of the emirates. It achieved profitability two years ago.

Etihad has also achieved rapid growth in the past few years by adopting a practice of entering code share agreements with other airlines and, in some cases, investing in them, in addition to starting new routes of its own. Its new code share with SAA will provide it with increased access to Africa, now regarded as a growth market attracting more of the world’s airlines.

Etihad flies daily to Johannesburg, but travellers from Cape Town are unlikely to fly to the UAE with it. Etihad withdrew its service to Cape Town last year when faced with competition from two flights a day by Emirates, which also has code share arrangements with SAA to the UAE.

Edited by Banele Ginindza. With contributions by Ann Crotty and Audrey D’Angelo

“We have seen this particular tearjerker of a movie play itself out often enough in the past. The cast might be different but the script is the same.”

‘We havE seen this particular tearjerker of a movie play itself out often enough in the past. The cast might be different but the script is the same.

“A particular asset class sees exponential growth (corporate credit in 1996/97, microloans/second-tier banks in 2001/02, home loans in 2006/07, unsecured lending in 2011/12), only for one or more banks to end up with egg on their face further down the line.”

This was the chillingly apt description of the unsecured lending bubble from one of the leading JSE analysts.

At the moment, African Bank is the one with the most egg on its face, but there may be more to follow.

The quote above is rather reminiscent of the infamous comment by former Citigroup chief executive Charles Prince. In July 2007, Prince told The Financial Times, “As long as the music is playing, you’ve got to get up and dance.”

He added: “We’re still dancing.”

That was just months before everyone realised we were in the middle of a horrendous global financial crisis.

The problem with all these repetitive tearjerker movies and dancing is that the key players are inevitably people who really should know better. We’re not talking about the recidivistic tendencies of some desperate members of society. We’re talking about the extremely well-paid captains of industry, repeating the same mistakes over and over again.

And how is it possible that analysts were expecting African Bank to report a hike in earnings of about 17 percent until they were told a completely different story by African Bank? Interim earnings will be down by around 25 percent. That’s a margin of error of more than 40 percent.

And who is going to save the real victims in this tragedy, namely the hapless individuals who rely on unsecured loans to make ends meet? When the banks pull out of this market there will be more room for the loan sharks.

Wage negotiations

The upcoming wage negotiations in the mining industry will prove to be a testing time, especially after the sector was shaken last year by its worst labour unrest since the dawn of democracy.

Labour unions Solidarity and the National Union of Mineworkers are expecting to demand a double-digit increase when wage negotiations begin next month.

A double-digit increase is not attainable, according to Elize Strydom, the chief negotiator for the Chamber of Mines of SA. But the unions argue their members are suffering from high inflation and need steep wage hikes.

However, almost all mining companies are in the same boat when it comes to their finances.

If the results in the March quarter are anything to go by, the sector will be in the red until there is a drastic boost in commodities prices.

Mining companies have been bleeding profits over the past year as a result of increasing financial pressure due to weak commodity prices and rising costs.

As a result, many firms are in the process of shutting unsustainable shafts, and so shedding jobs.

The mining industry is recovering from a two-month strike over wages last year, which started at Lonmin’s Marikana mine. It claimed the lives of more than 40 people.

The industry and unions simply cannot allow a repetition of the Marikana unrest, and all parties will have to find innovative ways to avoid anarchy by workers.

Wage negotiations are held centrally through the Chamber of Mines of SA in the gold and coal sector, while platinum companies negotiate individually with their employees.

The mining industry remains an important sector, employing more than a million people. Its important role in the economy means all those in the sector have a responsibility to ensure its sustainability.

Burger King

South African burger fast-food restaurants are about to experience a bit of a shake-up with the arrival of Burger King.

But ever since the announcement about this much-loved American brand, people have maintained that Burger King would have a hard time cracking the fast-food market here, especially with the likes of strong brands such as Steers, Wimpy, KFC and McDonald’s.

Retail analysts had previously said Steers had an entrenched local taste and had a far bigger number of outlets than Burger King.

This is true, but KFC, which is probably one of must established US fast-food businesses in South Africa, has created a local offering with fare such as pap and gravy – so much so that South Africans are starting to believe that it is a local brand. Besides other fast food chains, Burger King has already got head-on competition with offerings such as the King Steer burger.

Absa Investments equity analyst Chris Gilmour has previously said it took McDonald’s a long time to reach critical mass, which is understandable as Famous Brands, the owner of Steers and Wimpy, has managed to penetrate the market so well and for a long time.

It might be tough for Burger King to crack the market, but it will surely shake things up by forcing Steers to run more specials and to widen its offering.

It might be good for South African consumers, who are facing very depressing financial times.

Besides the local taste, South Africans are increasingly becoming interested in international tastes, trends and brands and will definitely give the famous flame-grilled Whopper sandwich a try.

A primary concern for such a business would be finding prime locations for its stores. However, this might not be a problem for Burger King. It has partnered with Grand Parade Investment, which has interests in tourism, gambling and leisure.

Edited by Samantha Enslin-Payne. With contributions from Ann Crotty, Dineo Faku and Nompumelelo Magwaza