The realities of South Africa’s platinum strike place the appeal of the country as an investment haven for foreign direct investment in stark light. The union and the miners have settled, but one can’t help but feel that the juice was not worth the squeeze for the striking miners. The truth of the matter at the moment, is that South Africa’s top companies, are slowly but surely moving the focus of their main businesses away from the country. This week offers two examples, namely Mediclinic, who will recognise 65% of its revenues outside of the country’s borders. The other example is Steinhoff, looking to list in Frankfurt. More and more business is choosing to move its money, as well its risk elsewhere. This would not be the case if South Africa was an easier place to do business, but it isn’t. It seems that there are better alternatives that Africa has to offer, in terms of labour stability, and governments that open the avenues to economic growth. With NUMSA being the latest union taken up with strike fever it will be interesting to see how the cards fall, what the impact of platinum strike has been, and most importantly how South Africa will fare in light of its glaringly hostile operating environment. Have lessons been learnt, something has to give eventually, what will it be? – LF
ALEC HOGG: Well, let’s get a more in-depth view of how the market is trading today. My friend David Shapiro from Sasfin is with us in the studio. I see the platinum index is down, Dave…two-and-a-half percent, now that the strike’s over.
DAVID SHAPIRO: Well, there are a lot of worries about what this is going to cost the miners. The platinum price responded yesterday. It’s been very volatile, but we haven’t seen the kind of move in the platinum price that we thought would have happened with the shortage of supply – withholding supply. I think there’s a lot of supply around. It’s a concern and yet, Europe is starting to pick up. Motor vehicle sales have picked up there, but not to the extent where they’re going to tip the balance. Even though there’s still theoretically a shortage in the market somehow, the supply is being found and I think of course, they had a lot of stockpiles. The miners had a lot of stockpiles, which they’ve been…
ALEC HOGG: And not all the mines closed. We mustn’t forget that. It was just the AMCU-affected mines. Dave, now you tell me this: AMCU claims victory. Their members have been off for five months. Their members are getting, on average, eight-point-four percent per year for the next three years. I can’t remember the details, but I don’t think that’s far away, from what the miners were offering in the initial stage. It’s a long way from 100 percent.
DAVID SHAPIRO: Well, if you look at the increase they’re going to get for the next few years versus what they gave up in salary, it will take them years to recover that. In other words, let’s say they get one thousand Rand extra per month, they’ve given up (I don’t know how many) five months’ salary, which must be forty or fifty thousand, so it will take them four or five years before they’re back to where they could have been.
ALEC HOGG: Surely, in a case like this the members are going to question what the leadership have done. I wonder if the leadership of the unions have actually taken a salary…
DAVID SHAPIRO: You know, you can claim victory and say ‘we beat them. We got to eight-and-a-half using politics’, but at the end, the cost is enormous and I think the country lost R10.5bn in wages. Now Alec, that’s money that would have been paid, which would have circulated through the economy. The companies themselves lost R24bn again, on which tax would have been administered. Our country lost an enormous amount of money, besides credibility, and I think the biggest issue is that we’ve lost credibility, which is going to hurt us down the line.
ALEC HOGG: But I guess you have to go through the pain to come out at the other end and realise that this is not a smart thing to do – a five-month strike. Do you think any lessons have been learned?
DAVID SHAPIRO: I hope so. I hope lessons have been learned, but we’re not sure. What also worries me about labour in this country is that you can stand on someone’s toe by mistake, drop a hammer, or do something silly, and they can go on strike for that. You have no control over labour and I think it’s a big worry, that this went on for five months, that there was no common sense in actually resolving this issue. Who knows where the next bubble is or where the next issue is going to arise? Government, business, and labour have to come around the table and sort this out because it’s not doing this country any good.
ALEC HOGG: This NUMSA strike: what’s the likelihood…?
DAVID SHAPIRO: Well, I hope they’ve learned. I hope they look at this and say ‘hold on a sec. This is not the brightest thing to do’. As we saw, the platinum miners held their ground. They did not buckle. Maybe that’s the lesson we’ve learned.
ALEC HOGG: Maybe it’s a move in the right direction – a little bit of rationality and sanity coming in. Of course, everybody would like to earn more and of course, there are bad things that happened in the past, but you can’t correct it 20 years on by punishing other shareholders.
DAVID SHAPIRO: My biggest concern is that I don’t think we have a grasp of what’s happening in the global economy. The Chinese story is over. They’re still demanding, but the boom is over. Australia’s learning the lesson. I think Canada’s learned the lesson. We’re learning the lesson. Those booming prices that we had five or ten years ago, are not coming back. Therefore, the winners are going to be those people who mined efficiently/more productively, and I think that’s what worries me. Why did they do it at a time where the industry was already under severe pressure?
ALEC HOGG: Hopefully, there’s light at the end of that particular tunnel. MediClinic, one of the South African companies that are investing abroad… It’s a bit of a trend, isn’t it?
DAVID SHAPIRO: It’s a trend. I was looking at their numbers. On a revenue point of view, they’re probably 60 percent offshore. This deal they’re doing now will take them to maybe 65/70 percent offshore. Here’s a company, which a few years ago, was South African Hospital Services, is now going to earn 65 percent of their revenue – and I don’t know what the profit margins are – but a large amount of their energy is now offshore. This is a Remgro company – big shareholding in the Remgro Group.
ALEC HOGG: That’s interesting, isn’t it? Business acts rationally. Make it difficult in one geography and they will find somewhere else to put their money and yet, these types of realities don’t seem to come through.
DAVID SHAPIRO: Well, I’m doing a presentation tonight. I’m going back now to work on it. It’s called The Great Trek – exactly that – companies slowly moving their businesses out. You would have seen Steinhoff is now going to list in Frankfurt. In other words, it’s shifting its primary listing there, which means that this is going to be the centre of the business – head office there, raise capital there, and do expansion there. Here’s a company, which you know very well – you’re very close to Marcus – which, a few years ago was a South African company with a little bit of offshore, is now virtually moving out. That’s the trend we’re seeing. How do we keep them? We’ve got to have a policy that keeps them back here and keeps it generating business.
ALEC HOGG: You keep businesses by doing the kind of things that Nigeria’s trying to do, which is make it attractive. Be pro-business. If you’re anti-business then businesses will move.
DAVID SHAPIRO: Well, you’re going to talk to Matthew Lester on tax. There needs to be incentives that make people stay.
ALEC HOGG: Yes – interesting. Well, philosophically you and I could sit here all day David, but Brian Dames is coming into the studio in a little while. Isn’t that an interesting story? It’s taken Paul O’Flaherty a year to pick up another job – not that he wasn’t in demand – but he’s clearly taken that year off. You’ll remember that when Brian left, he was stressed.
DAVID SHAPIRO: They were both stressed. I think they lost a good team. I’ve always had great respect for Paul from the days when he was with Group Five and certainly, at Eskom and hopefully, he can do the trick at ArcelorMittal. It’s going to be interesting to hear what Brian says about Eskom.
ALEC HOGG: You have your ear to the ground. He’s not going to talk about these things. What actually happened there? There’s no succession planning. The two of them depart. The FD has been replaced, but no CEO. We’re still waiting. There’s a guy who knows a bit about politics who’s now running the company on a part-time basis.
DAVID SHAPIRO: It might be frustration and anger – certainly, on Paul’s part. When you run a business like that… I’ve been talking to the chaps, for example at Abil – some of the people who were involved there – and you get to a point where you can’t take it any longer. The pressure’s just too great, and you have to say ‘I need a break’. Paul… Medupi should have been on exactly a year ago and now, we’re only coming on at the end of the year. These are huge issues. What is around it? If you’re not getting the support… I don’t know. It might have been Paul himself. I don’t think so. I think his track record speaks for him, and the fact that they’re employing him at ArcelorMittal means that they must have great respect for him. I think there were things in the background, which just became too much for these people to handle.
ALEC HOGG: Who knows? Maybe Brian will be prepared to talk about those things in the background.
DAVID SHAPIRO: Well, you have a good way of extracting info.
ALEC HOGG: I’m not sure, Davey. The nation is watching. That was David Shapiro, who is from Sasfin.
