IS COLONEL SANDERS A COLONIAL?

There is no reason yet to worry that RSA is going to default on its debt payments and therefore it remains investment grade (see below) but it would be foolish to ignore the fact that state revenue collections have slowed down dramatically. This may form some of the background to the acrimony between Minister Gordhan and SARS boss Moyane. The collection rate is running at only R1.1 trillion a year which is R130bn below budget! This a very big number and a hard gap to close, so is doubtless the reason we are seeing depurate measures like charges of collusion which might yield some fines money.

The Competition Commission is now hunting Unilever and threatening them with a fine of 10% of their turnover. There may or may not be a case for their suspicion but frankly most instances of real collusion would soon be laid low by competitors if the state did its job and made it simple and cheap to start and operate new businesses. Juicy profits always attract emulators. If whistle blowers could rely on state protection and support, someone with inside information is way more effective at exposing lawbreakers than any building full of envious socialists. These attacks are not really about protecting the consumer but about raising revenue.

The revenue shortfall is probably also why the rumbling about forming a BRICS ratings agency has started up again. Presumably the assumption is that a home referee is more likely to maintain us at investment grade even if we are clearly drifting offside. The traditional ratings agencies are analysts who tend to believe in their own myth that they are better at forecasting the future than anyone else and so deserve respect. Their record is not at all perfect. There are many cases when the traditional agencies have got it totally wrong, just like mere ordinary analysts.  It’s not widely remembered that most borrowers pay the agency a fee for the rating and that no matter where in the lingerie department spectrum from AAA to DD a rating falls, the lender is the sole risk taker. The arbitrary distinction between investment grade and junk status lies between BBB and BB but this, together with plus and minus signs and “outlooks statements” just disguises what is fundamentally a yes or no decision. While a tame hometown agency might dispense “A” all round, it will matter nothing if the interest payment is not made or the capital is not repaid.

No matter what the economic environment might be, businesses that provide catering and clothing to political parties must be doing well. Event organisers understand clearly that  policies and rhetoric are rarely enough to ensure a decent turnout and that handouts and feeding are expected.  Everyday there are pictures of folk wearing garments that reflect their allegiances and the purpose and date of their current exciting gathering. Later in the day either pieces of a brightly decorated cake the size of a house or buckets of deep fried battered chicken from Kentucky signal the end of proceedings. It is puzzling to outsiders that government didn’t play a more prominent role in the job-destroying squabble about the chicken industry.

Now it’s the lorry drivers who deliver coal to power stations who are objecting to Eskom buying power from the renewable energy businesses. Probably correctly, they reason that less demand for coal threatens their jobs. They claim that 1 million workers could be affected.  Leaving aside the matter that we really ought not to be using roads for doing too much steam coal delivery, this number seems a bit fanciful but they nevertheless made a great nuisance of themselves by severely disrupting the traffic in Pretoria to draw attention to their views. So far, the objectors to the forthcoming sugar tax who also claimed massive job losses have not taken to the streets but wait until they feel the effect of the tax on their lunchtime staple energy source.

Sadly cricket has a tarnished history when it comes to insider trading and the astonishing sequence of massive defeats and wins for the Proteas in New Zealand dusts off memories. Is it really such a funny game? I expect to hear a lot of muttering down at the bar this evening about the Sharks, but I’ll try and cheer them up by reminding them about the Lions win. And then hopefully we’ll all have good news  coming from the Las Vegas 7s. Now that’s a funny place for rugby.

James Greener

Caitlin’s birthday 2017

THE MONEY IS GETTING VERY SHORT

Finance minister Pravin Gordhan is widely considered to be a sound fellow who understands the budgetary process and fights theft and corruption, but nevertheless he is a member of a socialist government infested with communists and unshaken in the belief that politicians know best how to spend everyone’s money. The budget he presented this week seems to have passed a watershed in the expression of this belief. It has substantially ramped up the confiscation and punishment aspects of state revenue collection with savage attacks on capital, whether the so-called white monopoly kind or not.

The headline grabbing increase of the income tax marginal rate to 45% is expected to collect an extra R4.4bn from the just 103 353 taxpayers who have an annual income more than R1.5m. Provided a few of them are prepared to stand on the grass, this tiny group could fit into a football stadium, which dramatically illustrates the flimsy nature of our tax structure. The total income tax contribution of these amazingly few successful souls is around R127bn, which is more than a quarter of the budgeted amount from that source! It’s worth remembering that almost half of the 14m registered individual income tax payers contribute zero because their income is below the tax threshold. They do not of course escape the many other levies and duties and taxes.

Getting rather less coverage is the 33% increase in the withholding tax rate on dividends. This is just the latest tightening of the screws on those who have savings to invest. A decade ago the 10% Secondary Tax on Companies (STC) was commuted into a Withholding Tax on Dividends and increased to 15%. Since Wednesday that rate is now 20%. Most companies conveniently “forgot” to pass on the benefit of this change to their shareholders who were now responsible for paying the impost and post-tax dividend flows were severely impacted. It has now got even worse.

The Budget also confirmed that taxes on carbon and sugar are on the way and that the VAT rate of 14% may not be as sacrosanct as imagined. Make no mistake our government are desperately looking for sources of income and if anyone could find a way to tax oxygen they would be all over that idea in a flash. But the real threat to our nation is the totally out of control corruption, theft and maladministration that results in inappropriate and fruitless expenditure.

Events around the campaign to replace Gordhan because he is “insensitive to the needs of the people”, are hotting up. A compliant and corrupt buddy of JZ has been fast-tracked onto the reserves bench. But it reveals that the campaigners have no idea how state finance works nor what a parlous condition ours is in. National Treasury is not a serene haven of cash-filled vaults ripe for looting. Almost every cent that it handles has a destination agreed to by Cabinet. It’s called the Budget. This defines exactly where Treasury must next year allocate an average of R6bn every working day. It also forecasts that SARS will collect on average of less than R5bn a working day. So, another Treasury task is to find out from the Reserve Bank regularly if the shortfall has been borrowed and at what cost. Meanwhile the switchboard is alight with calls from the likes of SAA and Eskom asking for a bit to tide them over.  And now, arbitrary mendicants claiming to represent the people and clutching a chitty signed by Number One plan to knock on the front door and be handed a bag of dosh. The first (and only) question any Finance Minister should ask before turning them away is: From which account do they propose diverting their own pay-out?  Perhaps National Treasury should keep at reception copies of a map marked with the location of the various Ministries so that prospective budget looters could more easily locate the civil servants to explain to them why they won’t be paid this month.

Just roll over and get a few more minutes doze and you’ve missed the cricket from NZ. These time zone thingies are unfriendly. But it does mean that the lengthy 2017 Super Rugby season is now underway before our own weekend begins. Nevertheless, the format does create a ridiculous calendar with many Saturdays offering 7 matches back to back. Good for sports bars. Poor for marital relations.

James Greener

Friday 24^th February 2017

BE GREEDY. BUY CHEAP SELL EXPENSIVE

The great sport in investing is to mock and deride confident predictions that go wrong. How, for example does one explain the rand on a 12-month high when there are so many (apparently) bad news stories to scare off buyers of rands – and equally -- sellers of dollars. The share and bond market indices (as opposed to the suspect foreign purchases and sales numbers) suggest that it is the latter the foreigners are going for.  Seeking yield perhaps?

Anyone looking for our army must come to Durban. Judging by the number of blue light motorcades whizzing along the freeway, all VIPs including Number One are doing just that. Our city is hosting a military jamboree culminating in Armed Forces Day next Tuesday. There’s great excitement in the town although the troopies billeted in a vast tent city down at the beach front will be hoping that Tropical Storm Dineo doesn’t come too far south and flood them all out. Preparations have included the nation’s submarine cruising past the beaches its fighter jet whizzing past and a flight of seven helicopters circling for hours over Virginia airport. Even the Silver Falcons aerobatic team have turned up after reportedly being grounded last year because of lack of funds for fuel.

Fortunately for the generals, funds for the shindig are coming out of this year’s Budget. The very next day Minister Gorhan will present the 2017/18 budget and this kind of showing off could well be axed. Acres of newsprint and screen space have been devoted to pointing out that there is scant wriggle room on the Revenue side and taxes targeting the “rich” are inevitable. It’s not of course popular to suggest that reducing spending is also a strategy. But the non-job civil servants won’t leave unless there are higher paying private sector jobs. So here’s an idea. Place the lowest paid one third of all civil servants on the much-hailed new minimum wage and reduce the top paid wage bracket to just five times that level -- a ratio much touted for the private sector by the theorists. Use the money saved to train the many who quit to begin filling the 180 000 empty skilled posts.  Let’s see how these liberal notions work in practice hey?

But the alarming development in the real world is the move to raise revenue through punishments and fines for impossibly vague “crimes” by private sector enterprises. Recently there was the attack on the construction industry for supposedly ripping us off while building the many stadia required for the 2010 Soccer World Cup. No one responded to the patient explanation that without at least some co-operation between the companies the huge project was never going to be completed on time. The state was far more interested in  netting the R1.5bn “non-admission of guilt” payments from the players. Shareholders did not do too badly either. Prices at the time rose agreeably.

And now the Competition Commission is shocked to learn that banks have traders dealing in the most transparent and liquid market in the country who are driven by “unbridled greed”. Well yes. That’s how private enterprise works. Admittedly a market trading room is an extreme example and in the absence of honest, experienced and informed supervisors, competitors and clients, dealers will often push their luck. Even if counterparties and competitors are at first complicit in the dodgy deals someone will in the end become even more greedy and blow the show apart. Bank management and shareholders also benefit from ridiculously profitable trades and are reluctant to ask questions in case they get an answer they can’t understand. Banks do have a poor record in detecting rogue traders timeously but they catch up eventually. Interestingly, the SA Reserve Bank and the Financial Services Board have said that they found no evidence of serious and widespread misconduct in the South African foreign exchange market. Is the Commission more interested in a possible multi-billion rand penalty than in facts?

Since it has worked spectacularly in today’s T20 victorym one must not be too scathing about the new pyjama outfit for the Proteas.  But what happened to the green? Why try to make our lads look Australian? Other good sporting news is that it seems certain that the Commonwealth games will not come to Durban in 2020 and the Umgeni is infested with paddlers taking part in the Dusi canoe marathon. It must be hot in the valley though.

James Greener

Friday 17/2/17