Imagine that you are a shareholder in a company and you are attending a meeting where the CEO is making his yearly address to shareholders.

Two years ago, the company was the largest listed company on the continent but, during the present CEO’s tenure, it has slid into second place. Last year, the company’s share price shrunk by more than 27%, largely as a result of the CEO appointing three FDs in a matter of five days. Since the CEO assumed his position on May 9, 2009, the company’s share price has decreased by more than 72%. Last year also saw the company’s investment rating downgraded to a notch above ‘junk’.

The CEO’s address starts with the clichéd traditional all-inclusive greeting. Considering the dire state of the company, you are expecting the CEO to quickly get down to business, but, alas, instead of being a message of unification, the address is nothing more than a message of division. Could it be a case of divide and rule?

The address continues with a detour into the past – the glory years of the company, which were so bright that one had to wear shades. The CEO makes a fleeting, single- sentence remark about the fact that turnover growth of less than 1% is expected in 2016. The stagnation would leave the share price at the mercy of the markets, which already do not view the company kindly.

The address makes no reference to the three rating agencies’ investment downgrades, nor does it provide any insight into, or substantiation on, how the company expects to grow – to reverse its fortunes.

With some pride, the CEO reflects on the fact that more expenditure was incurred to correct a self-inflicted problem that is still curtailing the company’s growth and is expected to continue to do so for many a year to come. No indication is given as to exactly where the capital will come from to satisfy the company’s increasing expenditure requirements. You would have expected the CEO to share this information, since the rating agencies’ downgrades would have curtailed the company’s ability to obtain capital from traditional, more conservative sources.

There is also no mention in the address of any new products or services that will be introduced onto the market to improve the company’s fortunes. Further, the CEO does not offer any ideas on how the 25% of the company’s staff who are unutilised will be gainfully, and productively, employed.

How would such an address make you feel? Would you accept it and remain a shareholder, or call time on your investment?

So, how did you perceive the 4 938-word State of the Nation Address (Sona) delivered by President Jacob Zuma on February 11?

Since Zuma assumed office on May 9, 2009, South Africa is no longer the largest economy on the African continent, having lost that position to Nigeria on April 7, 2014. But the English language is so rich that South Africa is now referred to as the most developed economy on the African continent. And, when it relinquishes this position, it will surely become the most transformed economy on the African continent.

During the 2015 calendar year, the rand depreciated by 34.17% against the US dollar, by 20.51% against the euro and by 27.15% against the British pound. (Since May 9, 2009, it has depreciated by 85.38%, 50.30%, and 81.46% respectively.) The public- debt-to-gross-domestic-product ratio has increased by 73.08% over the last seven years.

Further, although it might be considered low, compared with that of many European countries, South Africa’s interest rate of 8.6% is four times higher than that of the UK (1.9%), for instance. Also, the South African government is running a Budget deficit of nearly 4%.

Then, on December 4, Fitch cut its assessment of South Africa’s creditworthiness to just a notch above ‘junk’ (stating that “weak economic growth, declining business confidence and ballooning government debt [had] contributed to the latest rating”), while Standard & Poor’s (S&P) changed its outlook, implying that it was likely to downgrade South Africa’s rating to ‘junk’ over the next two years (citing the fact that the country faces domestic constraints, including an inadequate electricity supply and overall weak business confidence inhibiting substantial private-sector investment). On December 15, Moody’s amended South Africa’s rating outlook from stable to negative. These agencies’ statements, of course, spooked bond and currency markets.

But nothing did this more effectively than the appointment of three Ministers of Finance in a matter of five days, which, according to www.fin24.com, cost South Africa north of R200-billion – significant value destruction.

As for economic performance, Africa’s second-largest economy barely managed to avoid a recession in the third quarter of 2015, growing a measly 0.7%, after having contracted in the previous two quarters. As a consequence, the economy has staggered to a near standstill.

Yet a ‘carrying on regardless’ approach seemingly continues to prevail as government continues to pump money into its economic albatrosses – Stated-owned enterprises (SoEs), such as South African Airways, which has accounted for more than R30-billion in bail-outs over the past two decades, and Eskom, no matter how poorly they perform. (According to the Presidency, there are more than 300 SoEs, and, according to this year’s Sona, government has invested R83-billion in them.)

Given the fact that unemployment was at a staggering 25.5% in the third quarter of 2015, as well as the continuing deterioration of the economy, analysts predict that political considerations will outweigh any efforts to cut down on spending. This is emphasised in government’s 8% increase in salaries for civil servants (though they prefer being called ‘officials’), after initially budgeting for a 6.6% increase in May 2015. According to a Bloomberg report published in November 2015, the increase will add R63.8-billion to government’s salary bill over the next three years. Civil servants’ salaries constitute 39% of government spending. According to Deloitte, the salary bill is expected to increase to R1.8 trillion over the next three years, this when government forecast economic growth of 1.4% in 2015, 2.5% in 2016 and 3% in 2017. Economic growth in 2016 is now forecast at less than 1% – more than 1.5% less than the 2015 estimate. Well, let us not even consider 2017. According to this year’s Sona, the International Monetary Fund and the World Bank predict that the South African economy will grow by less than 1% in 2016.

Though this year’s Sona makes mention of financial services being in the top ten, out of 140, in the World Economic Forum (WEF) competitiveness report, it neglects to mention the following items and their ranking: the quality of primary education (127), pay and productivity (127), business costs of crime and violence (131), flexibility of wage determination (137), quality of the education system (138), hiring and firing practices (138), quality of mathematics and science education (140), and cooperation in labour-employer relations (140). The WEF also lists the top ten problematic factors for doing business in South Africa, namely restrictive labour regulations, inefficient government bureaucracy, inadequate supply of infrastructure, policy instability, an inadequately educated workforce, crime and theft, corruption, a poor work ethic among the labour force, access to finance and insufficient capacity to innovate.

The single greatest challenge facing South Africa is that the more its economy continues to struggle to grow, largely owing to self- infliction, the more racial strive is expected to result, as the lack and pace of progress of racial transformation would be called into question. It is quite evident that South Africa has lost its way – well, some time ago already – but, it seems, it is a prerequisite for the retention of political power and for selective economic favour.

As a consequence, divided South Africa stands, united South Africa falls.

Geographical Indications
On February 12, the Department of Agriculture, Forestry and Fisheries, in terms of the Agricultural Product Standards Act, invited comments on the ‘Proposed Publication of Regulations Relating to the Protection of Geographical Indications and Designations of Origin on Agricultural Products Intended for Sale in the Republic of South Africa: Invitation for Comments to the Executive Officer: Agricultural Product Standards intends to request the Minister of Agriculture, Forestry and Fisheries to publish new regulations relating to the protection of geographical indications and designations of origin (GI’s) used on agricultural products intended for sale in the Republic of South Africa’, which is due by March 14.

Steel Duty Increases
On February 12, the South African Revenue Service informed of an increase in the ‘general’ rate of customs duty on semifinished steel, steel plates, cold-rolled steel and steel sections from free to 10% ad valorem.