Eskom split in 3-5yrs; Trade contracts further; Pensioners fight prescribed assets; Naspers targets machine learning

By Alec Hogg

  • Eskom says it will take three to five years to fully effect a proposed split into three units after which its sole monopoly will be managing the national transmission infrastructure. The proposed split is a critical part of the South African government’s commitment to a R120bn bailout over three years. Bloomberg reports that in an internal presentation to the utility’s 500 top managers, chairman Jabu Mabuza said last week “Eskom ran out of cash and came close to complete collapse on multiple occasions in 2019. Eskom’s importance to South Africa is the only reason why the company still exists.” Eskom accounts for 17% of South Africa’s total sovereign debt. Mabuza told managers a collapse of Eskom would lead to the country’s credit rating being slashed to junk, cause a sharp a depreciation of the rand, a sell off of government bonds and force the country to seek an international bailout. He expects that the three way split into generation, transmission and distribution units will be operational within 18 months, but that the legal separation would take longer, hence the three to five year timeline.
  • The CPB World Trade Monitor compiled by the Netherlands Bureau for Economic Policy Analysis reports that world trade volumes contracted by 1.4% in June. This led to the third successive quarterly drop with volumes falling 0.7% in the three months to end June after a 0.3% decline during the first quarter of 2019 and down 0.5% in the December 2018 quarter. Stanlib economist Kevin Lings sent a note to clients last night saying this means world trade is now in recession, with a significant impact globally given exports represent around 30% of the world’s total GDP. Lings says global trade started weakening in November 2018, with the time-frame correlating to US President Donald Trump’s escalation of the trade dispute between the United States and China. Meanwhile after Trump’s confusing response at the G7 Summit in France when asked whether he regretted escalating the trade war, the White House issued a statement saying Trump regretted not having raised tariffs more. Other G7 leaders have called for an end to Trump’s regime of tariffs saying they are weakening the global economy and alliances. As Trump left Washington for Biarritz on Friday, he threatened to tax French wine if France’s leader Emmanuel Macron implemented a tax on US tech companies. An escalation in tariffs from both the US and China last week sent stocks tumbling and pushed government bond yields higher.
  • Resistance is growing against the South African’s government’s proposal to re-introduce prescribed asset requirements, where pension funds are forced by law to invest a portion of their assets into government and SOE-issued bonds. In the Sunday Times over the weekend, spokesman for the Association of Monitoring and Advocacy of Government Pensions, Adamus Stemmet, said state pensioners would vigorously resist any effort by government to re-introduce laws to tap pension funds. During Apartheid, pension funds were forced to invest 53% of their assets into these assets. Stemmet said “It we could have trusted the government this might have been an option. But we cannot trust this government; there would be a negative return on any money invested in Eskom or any other state-owned enterprise.”
  • Naspers disclosed at its annual general meeting on Friday that it has identified machine learning and online education as areas of focus for the future. CEO Bob van Dijk told shareholders attending the meeting in Cape Town: “We are interested in investing in machine learning. The amount of data is exploding – last year we collected more data in the world than ever before.” The highlight of the meeting was 95% approval by shareholders for the listing in Amsterdam of its global internet assets into a new 73% subsidiary Prosus. These assets include the 31% stake in Tencent which is alone worth around 140% of the current Naspers market value. Bloomberg reports that Naspers spent $3bn on its various ventures around the world last year, including Indian food-delivery service Swiggy and Russian classifieds site Avito BB.
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