Category Archives: South Africa

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Manyi and Gasa almost made history

I got really excited yesterday. I was taking my tea break in the morning and decided to have a look at Twitter. Two of the people that I follow were at loggerheads. The one is Nomboniso Gasa, a researcher, writer and political analyst and the other is ex-Cabinet spokesman, Mzwanele (previously known as Jimmy) Manyi who also recently launched the Decolonization Foundation. These two, who are clearly not very happy with each other, were discussing a lifestyle audit. I immediately took a keen interest.

The previous day they had a heated discussion that involved many issues and accusations. Ms Gasa floated the idea of a lifestyle audit and Mr. Manyi accepted, albeit tacitly.

cvrxefjwgaajp141

Of course, a one-sided audit was never going to fly and Ms. Gasa posted the following Twitter chain, trying to thrash out the terms of a parallel audit.

gasacomment1_v4gasacomment2

Initially, Mr. Manyi took the bait, but with the proviso that other parties, less favourable (in his opinion) to Ms. Gasa be involved. He specifically mentioned Mr. Piet Rampedi.

At this point, I was jumping up and down in my seat. Imagine this, South Africans with differing viewpoints agreeing on the need for transparency and openness and offering themselves as sacrificial lambs to lead the way. Wow, I was envisioning this as the start of improving political discourse in SA, the start of talking to each other and not at each other, the placing of openness and honesty ahead of political difference.

I proceeded to fan the flames by posting the picture below, taking the by-line “Let the #GasaManyAudit begin!” from one of Ms. Gasa’s tweets.strydomcomment

Many people liked this idea (well 61 by today) and some people started tweeting under the #GasaManyiAudit hashtag. My excitement was growing.

Unfortunately, by yesterday afternoon, the audit was off. Mr. Manyi seems to have folded after calling Ms. Gasa’s bluff. The disappointment! These two people for whom I have much respect were about to create history and then … it was to be no more.

However, I retain hope and hence this blog. Maybe with enough pressure from social media, commentators and colleagues, this process can be resurrected. What is key though is that the right parties are found to produce this audit, parties that are seen as independent and are acceptable to both candidates. The parties should also really be willing to do this pro-bono. This lifestyle audit should be seen as more that settling a personal score between two people, but rather as a public service, moving our political discourse in a positive direction.

I therefore request the following, if you are interested in a parallel lifestyle audit between Mr. Manyi and Ms. Gasa:

  1. Tweet under the #GasaManyiAudit hastag to build awareness and pressure;
  2. Contact Mr. Manyi (@KrilaGP) and Ms. Gasa (@nombonisogasa) on Twitter or directly and ask them to proceed; and
  3. If you are a reputable and independent auditing firm, please offer your services on a pro bono basis to Mr. Manyi and Ms. Gasa directly.

Do you think that lifestyle audits of politicians, political commentators, business people and others would improve our political discourse and reduce the risk of corruption? If so, please throw your voices behind #GasaManyiAudit and let’s make history.

In the mean time, keep your talking straight!

#GasaManyiAudit #LifestyleAudit @KrilaGP @nombonisogasa

 

Marius Strydom is the CEO of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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When will we cross the Rubicon?

On the evening of 15 August 1985, PW Botha took the stage in Durban to open the National Party Natal Congress. Countrywide this was a much anticipated speech and for weeks there had been speculation that it could change the direction of SA. There was cautious optimism that the ANC could be unbanned, that Nelson Mandela could be released and that SA would cross its own Rubicon. In the end, Botha completely deviated from his original speech and delivered what became known as the Rubicon Speech, which was more of the same fear-mongering that South Africans had gotten used to.

In response to the speech, the rand collapsed by 35%, foreign exchange markets and the stockmarket was closed for a week to try and reschedule international debt and SA entered its darkest hour, which lasted until 1990. From shortly before the Rubicon Speech until 1990, SA existed under an almost constant State of Emergency and the country was engulfed in violence. It was only after the Rubicon Speech that international sanctions and disinvestment programmes started reaching critical mass, leading to huge outflows of foreign capital, a depreciating currency and weak economic growth.

By 1990 the Rubicon was finally crossed, but not by PW Botha. He missed his opportunity and it took almost 5 years of violence, death, disruption to education, economic strife and national polarisation before the Nationalists took the inevitable step.

On 31 March 2016, Jacob Zuma had a Rubicon moment of his own. Pressure against President Zuma had been building for years, starting even before his appointment when he was embroiled in legal battles. However, he managed to consolidate his position of power despite concerns surrounding the Guptas, Nkandla and strategic deployments. Everything changed, in my opinion, on 14 December 2015 when he backtracked on his appointment on David van Rooyen as Minister of Finance. From that moment on, the forces against the President gained momentum with Guptagate and the Constitutional Court judgement last week adding fuel to the fire. By the end of last week it had become clear to all but a few (including maybe himself) that the tide had turned convincingly against his presidency and that his sustained tenure had become untenable.

During his speech in reaction to the Constitutional Court judgement, the president had the opportunity to act in the interest of the ANC and the country and to fall on his sword. Instead of crossing the Rubicon, the President opted to leave the country in limbo and to delay the ultimate outcome. He has now forced the ANC to embark on a long and painful process that is likely to result in his ultimate removal, whether at the 2017 Elective Conference or at an earlier convened conference (the latter being more likely, in my opinion). We can only hope that unlike the decision by PW Botha in 1985 not to cross the Rubicon, that Zuma’s decision will result in less extreme and less prolonged damage to the ANC politically and to the country’s economy and societal fabric.

It is clear to me from the ANC Secretary General’s speech on 31 March 2016 that the rallying behind the President is a temporary measure to promote unity in the ANC in the run-up to the municipal elections. At the same time, the ANC is likely to continue with its own internal processes, including the Gupta investigation and consultation with its branches, which may result in penal steps against the President. These processes are likely to be concluded only after the municipal elections, the results of which may add even further to pressure to remove him.

Opposition parties in SA are gaining substantial political capital from the scandals surrounding the President and this is likely to result in meaningful gains at the polls. The ANC is at risk of losing the major metros of Johannesburg, Nelson Mandela Bay Metropole and Tshwane. It is my opinion that such losses will remove any doubt within the ruling party that a realignment is required to avoid substantial losses in the 2019 general election. An early elective conference, resulting in the replacement of the President will provide the ANC with a two-year period to arrest the decline in its support and successfully defend its majority in the general election.

It is my opinion that the ANC’s room for manoeuvre will be severely restricted over coming months through opposition gains at the polls and opposition actions in Parliament, the courts and in the streets. I believe that we will cross the Rubicon later in 2016 or early-2017 at the latest. It is simply a matter of time.

What happens after the President is replaced will be key to the long-term success of the country. In my opinion, it is imperative that the new president leads the charge in SA for a New Deal, with buy-in from all the major political parties. We should make a definitive decision to refocus our budget to deal with the challenges of unemployment and education, even if this leads to economic pain in the short-term. In response to such a New Deal and the announcement of concrete steps to deliver it, opposition parties and ordinary South Africans should give government the support and the time to deliver by calling for a cessation to extra-Parliamentary actions. We need more South Africans in the workplace and fewer protesting on the streets and campuses. We absolutely have to create an inclusive economy and improved education outcomes so that we can look back a decade from now at today being the turning point in the SA story.

 

Do you think that President Zuma should resign or be removed from office? Do you believe that the ANC will lose meaningful support in the municipal elections? Do you expect that ANC internal processes will result in the President’s removal? Do you think President Zuma will survive in his position until the 2017 ANC Elective Conference? When do you think we will cross the Rubicon? I would love to hear your opinions.

In the mean time, keep your talking straight!

 

#Rubicon #ZumaRubicon #NewDeal

 

Marius Strydom is the CEO of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man

Photo by GovernmentZA


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Speak out South Africa!

I am indelibly tied to South Africa. It is the country of my birth, the home that I love, the place where I will grow old with my family and where I will lay my head one day. I am 100% committed to the transition we have seen in our society, the roll-out of freedom, the march towards non-racialism and the attempts to create at least equality of opportunity. I remain hopeful that together, with the meaningful assets at our disposal, we can become a very successful country. However, right now I believe we are at a crossroads. Right now, South Africans need to speak out at the issues that are pulling our country in the wrong direction. Please join me and speak out South Africa.

There are many commentators in our country who are speaking out. They are speaking out against lack of delivery, whether it is the loadshedding caused by Eskom, the poor outcomes in education, health and crime. They are speaking out against corruption, citing issues such as tenders, cadre deployment, Nkhandla, Guptagate and more. They are speaking out against our lack of economic growth and our rising unemployment. However, I have two main problems with the way that people are speaking out in SA. Firstly, there are too many people who are unbalanced in their criticism and include distinct racial undertones in their discussions. Secondly, there are too few people in the tripartite alliance and in the business world who are speaking out and often those that do are marginalised and victimised.

Why is an unbalanced view problematic in SA? It is a problem because it fails to give credit where credit is due and because it is grossly unsympathetic to our history and the way that most people feel about it. We come from a very tortured past in this country where there was an institutionalised division between the haves and the have not’s. Despite what so many people may think, 20 years of democracy is by far not long enough to erase the damage that our past has created. This is made so much worse by the fact that we remain such an unequal society, that our unemployment is so high and that our economic growth is so low. The electorate is often called ignorant for continuing to vote for the ANC, despite its failings. In my opinion, that statement is totally ignorant and totally misses the point that most ANC supporters have seen meaningful improvements in their lives over the past 20 years. People are voting for the party that they believe acts in their interest.

By simply criticising the performance of government without putting forward a balanced case, commentators are alienating the electorate before they even have the opportunity to listen to arguments. Similarly, criticisms with racial undertones can so easily be shot down by government and supporters of government. It gives them an easy way out! A balanced argument is so much more difficult to dismiss out of hand. To take a valuable weapon from an underperforming government, we need to remain balanced and force them to address the issues. Play the ball and not the man is a motto we should adopt in this regard. Even if this does not sway the powers that be (who have a vested interest in not being shown to be fallible), it has the potential to sway the electorate that has voted them into power. I have faith in our people and our voters.

Why is a lack of criticism from insiders a problem? This one is obvious. They either do not want to show weakness or fallibility or they are afraid that speaking out may damage their position within the alliance, which is a justified concern. The problem for the alliance is however that their long-term tenure is ultimately dependent on receiving support from the electorate and that they cannot expect such support not to wane in the wake of underperformance. If they do not improve, they will be voted out, unless they resort to nefarious means to remain in power.

There are many people within the ruling alliance who are unhappy with the current state of affairs, but are scared to speak out because of the consequences it could have for them, and rightly so. Many outspoken leaders have been rewarded by being pushed out into the cold, like Zwelenzima Vavi, Pallo Jordan, Trevor Manuel, Ronnie Kasrils and Tokyo Sexwale. I would urge politicians within the ruling party to set aside their concerns and speak out for the greater good of our country. Please do more Kgalema Motlante, please speak out Cyril Ramaphosa. Be on the right side of history.

The business world, especially large business, also finds itself in a very delicate position. The New South Africa has given them a very comfortable environment to operate in, with good infrastructure (Eskom permitting), rule-of-law, low interest rates, a growing public sector, limited competition, low tax rates and increasing social grants to fund purchases of their products. Yes, there are issues surrounding BEE and the labour market, but growing profits and rising share prices highlight how good they have had it. They have much to lose by speaking out and alienating government and its electorate. So they wait. I just hope they do not act like FIFA’s sponsors and only speak out once the wheel has turned. Instead, now is the time to speak out South African business and help to affect changes.

Independent commentators, especially those of you with strong credentials, please do not give up the fight. We need you now more than ever Thuli Madonsela, Max du Preez, Zapiro, Ferial Haffajee, Eusebius Mackaizer and so many others. Refuse to be bullied, ignore accusations of racism, do not simply be painted as opposition apologists. Remain balanced and continue chipping away. We will get there.

South Africa is a free country, with freedom of speech, freedom of association and a free democratic process. Our civil society is vibrant and do not simply believe what they are told. Together, we can build the land swell that will move our country in the right direction. It does not matter who you are, speak out. Without bringing race into it, speak out against what you see wrong with our country. Use balanced arguments and offer solutions when you speak out. If you are an insider, let go of your fears and speak out. If you are a business leader, be on the right side of history and speak out. If you are an independent commentator, do not be bullied and speak out. Speak out South Africa.

Speak out to your friends, comment on facebook and twitter, fight against corruption in your local communities, schools and work places, support the National Anti-Corruption Forum and Corruption Watch, call your councillor, write an email to your premier, call the Union Buildings on 012 300 5200 and ask for Cyril Ramaphosa, email Ronnie Mamoepa on ronnie@presidency.gov.za, call the presidential hotline on 17737 or email President Zuma on Presidentrsa@presidency.gov.za. Comment on my blog!

 

What are you going to do to speak out? I would love to see your views. In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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Why is your medical aid expensive?

In response to my blog last week about medical schemes in SA carrying too much cash on their balance sheets, many people indicated that they are unhappy with how much they pay for medical aid. Most responders felt that they got too little back from their medical aid and that it was poor value for money. In this blog, I would like to explore this contention. Do we pay too much for medical aid? If so, why is our medical aid expensive? What can be done to reduce the cost of medical aid?

Do we pay too much for medical aid in SA?

Before I address this question, it is important to dispel a number of misconceptions about medical aids (and medical schemes):

  • Medical schemes are not-for-profit entities, which are run on principles of mutuality and solidarity. It is important to differentiate between an administration company (e.g. MetHealth), which receives administration fees from schemes it administers (e.g. GEMS). The schemes do not make profit for a shareholder. Any surplus that is produced during the year, remains in the scheme and helps to boost its solvency. If you are paying too much for your medical aid, it is not because the scheme is making profits from you;
  • Medical schemes pay out 87% (in 2013) of your contribution in claims, with the rest of your contribution being used to:
    • Pay for administration (GEMS pays MetHealth, DHMS pays Discovery, etc.) – it costs money to collect contributions and to pay claims. The amount paid for administration as a proportion of contributions is well below what would be charged by a life insurer or a short-term insurer, so you are getting a good deal;
    • Pay for managed care – it costs money for managed care companies to negotiate fees with hospitals, doctors/specialists and pharmaceutical companies. Without managed care, costs would be even higher; and
    • Ensure the solvency of the scheme – medical schemes in SA have to maintain surpluses in excess of 25% of annual premiums to satisfy the Council for Medical Schemes. Sometimes as a result of high growth rates, a change in the mix of business or weak investment returns, some of your contribution will be used to increase the buffer in the scheme;
  • The claims ratio of medical schemes (87% of contributions in 2013) is meaningfully higher than that of short-term insurers and life assurers which typically pay out less than 70% of premiums in claims – the remainder being used to cover administration costs, commission and to produce a profit. If you are paying too much for your medical aid, it is not because the scheme’s claims ratio is too low;
  • The majority of your medical aid contribution goes to cover eventualities that require hospitalisation. Typically less than 25% of your contribution (sometimes much less if you are on a cheaper plan) will go towards doctors (and specialist) visits and medicine. When comparing what you get out every year relative to what you put in, you need to compare the small contribution to doctors’ visits and medicine to the number of times you actually visit a doctor (or buy medicine in that year);
  • Medical schemes are a form of insurance and not an investment. This means that it is only those that are unlucky enough to become sick that are likely to get more out of medical aid than they put in. If you don’t have a triple bypass, if you don’t develop breast cancer, if your daughter does not get leukaemia and if your son is not in a serious car accident, you are likely to get out less than you put in. If you are in that situation, well done, you have been very lucky; and
  • Medical expenses increase as you get older, but your medical aid contributions do not. This means that if you are a young member of a medical scheme, your contributions are helping to pay the medical claims of old people in the scheme. On the flipside, when you get old, other young members will help to pay your claims

So, once we have taken account of these misconceptions, is it true that your medical aid is expensive? And how should we measure this? In 2014, the average monthly gross contribution for a family to medical schemes in SA was R3056. If there was not a large proportion of families that only had hospital plans, this average contribution would have been even higher (estimated at R3700p.m. in 2014).

This is a great deal of money, considering that the average compensation per employee in SA was only R14700p.m. in 2014. As a result, households on average paid out c.25% of their monthly income in medical aid (assuming one bread-winner per family). In the USA, which is one of the countries with the highest spend on medical insurance, the average family contributed 16% to medical insurance in 2012 (based on average medical insurance spend of $8200 p.a. and average household income of $51700 p.a.). Based on this comparison, your medical aid is expensive.

Now let’s look at this in a different way. What has medical aid inflation done over recent years compared to CPI (consumer price index)? To do this, I have compared the average monthly medical aid contribution in 2013 to that in 2004 and calculated the average increase p.a. over the period and compared it to the average CPI over the same period. The average increase over this period of 8.8% p.a., exceeded the average CPI over this period of 5.8% p.a. by 3% p.a. This means that medical aid has certainly become more expensive on a relative basis.

Therefore, based on a comparison with the USA (one of the most expensive markets) and relative to history, your medical aid is expensive. The question to be answered now is why?

Why is medical aid in SA expensive?

In my opinion, there are a number of reasons why your medical aid is expensive in SA, some of which are general issues worldwide and some of which are specific to the SA environment. Globally, medical inflation has been exceeding inflation over the recent history. Over the 5 years from 2009 to 2013, global medical inflation exceeded normal inflation by 5.5% on average (well above the experience in SA). The most important drivers of medical inflation globally are technological advances, an ageing population and poor lifestyle. In SA, new medical technologies as well as increased radiology and pathology investigations has driven costs upwards. This is expected to continue.

However, over and above the global trend for medical inflation to be above normal inflation, there are other country-specific reasons why your medical aid in SA is expensive:

  • Prescribed Minimum Benefits;
  • Adverse selection by age and gender;
  • Shortage of healthcare professionals; and
  • High required solvency.

The Medical Schemes Act requires that all medical schemes in SA provide a set of Prescribed Minimum Benefits (PMB) to their members. This includes an extensive list of 270 conditions (some of which are very expensive to treat) as well list of 25 chronic diseases. What the PMBs mean is that if you want to be covered under a medical scheme, it is all or nothing – you are either covered for all the PMBs or you are not allowed to buy medical aid. Because the PMBs are so extensive, this makes even the most basic hospital plan in SA very expensive. If the Act had allowed for a less extensive list of conditions to be covered, the cost of medical aid could be reduced and more people would be able to afford it. Currently people do not have a choice in this regard and many have to go without private healthcare altogether rather than being able to afford a reduced list of benefits.

Adverse selection in the context of a medical scheme means that people that are sick or know they will need treatment are more likely to buy medical aid than people that are healthy and are less likely to use the medical aid. This is just human nature. However, for medical aid to work properly, you need healthy people to contribute so that there is enough money to pay for the needs of sick people. You need certain people to get less out of their medical aid so that other people (the sick people) can get more out. There are two types of adverse selection in SA that are a problem and contribute to why your medical aid is expensive, namely age and gender selection.

If you look at the age profile of medical schemes in SA, there is a big gap in membership between the ages of 19 and 35. People often stay on their parents’ medical aid until they start working and then very often go without cover until they are older. This is because they are less likely to be sickly at this age. Similarly, it is interesting to note that between the ages of 20 and 35, the proportion of female members in medical schemes rises and then falls off again from age 40. This is because women during child-bearing ages are more likely to need medical aid for maternity benefits.

The problem with not enough young people being on medical aid and too many women dropping their medical aid after their child-bearing ages is that this increases the cost of medical aid for everyone else. If people were more inclined to join medical schemes early and stay on them for their whole lifetime, the cost would reduce for everybody. This is why there is a drive to make medical scheme membership compulsory and many companies enforce this with their own employees. If you are forced to join, you cannot make adverse selection decisions that will increase cost for your fellow members.

Medical schemes, with the help of managed care firms, negotiate with hospitals, pharmaceutical companies and doctors for the best possible rates for their members. Although they are reasonably successful in achieving this when it comes to hospitals, pharmaceutical companies and general practitioners, the rates for specialists are often very high. This is because we have a shortage of specialists in SA and they have pricing power. This is exacerbated by the fact that many of the PMBs have to be treated by specialists. As a result, this makes your medical aid too expensive.

Finally, because medical schemes in SA are not-for-profit, you as the member are responsible for the scheme to have sufficient capital. During the early years of the new Medical Schemes Act (post 1999), members had to pay more into medical schemes than needed for their cover so that solvency levels could be built up to the regulated 25% of annual contributions or even higher. Even today, if medical schemes grow fast or their built-up capital fails to increase in line with medical inflation, members have to fork out to maintain the solvency (a portion of annual contribution will be used to boost solvency). This situation is made worse by the fact that a 25% solvency level is very high and that most schemes invest this money too conservatively. If the Council for Medical Schemes (CMS) were more accommodating (requiring solvency in line with underlying risk, which should be lower) and encouraged schemes to invest in higher-yielding assets, there would be a reduced need for contributions to fund solvency increases. In fact, contribution increases could be lower as the performance of the capital can help to boost the performance of the scheme.

How can we reduce the cost of medical aid in SA?

There are a number of things that can be done in SA to reduce the cost of medical aid, some of which will require the regulator to step and others will require medical schemes to make changes. There are, however things that you can do to reduce the cost:

  • We need more young people to join medical schemes and more women to stay on medical aid after their child-bearing age. Remember, medical aid is a form of insurance, not an investment – join when you are young and receive the benefits when you are older;
  • Compulsory membership to medical aids should be mandated, especially for low cost benefits options, so that costs can be kept low;
  • The CMS should consider allowing an alternative medical scheme product with reduced PMBs. This will not cover as much, but more people will be able to afford private medical treatment – the public sector would still be available to those people for conditions not covered under reduced PMBs;
  • The CMS should consider a different solvency regime for medical schemes that reduces the level of capital to what is actually needed to protect the well-being of schemes;
  • Medical schemes should invest their capital more aggressively so that returns can beat medical inflation, reducing the need for a part of contributions to be used for this purpose;
  • We need more skills in the SA medical industry, especially more specialists. We should try and reverse the trend for medical professionals to get their training in SA and then to go and work in other countries. This is related to the general trend in SA for us to lose skills;
  • Medical schemes should continue negotiating lower fees from hospitals, pharmaceutical companies, doctors and administration companies – the larger schemes are, the more their bargaining power would be, so increased membership of young people could help here as well; and
  • Most importantly, we should do more to prevent people getting sick in the first place. There should be more done to encourage people to stop smoking, eat better, get more exercise, prevent TB getting out of hand, receiving antiretrovirals if they are HIV positive, etc.

Conclusion

Your medical aid is expensive, but not as expensive as you may think. You are currently covered for a wide range of conditions and if you are one of the unlucky, those that need a heart transplant, those that develop cancers that are very expensive to treat, those that are involved in bad car accidents, those that have children with childhood illnesses, etc., you will be well looked after. If you are one of the lucky, it may seem as if you are wasting your money and paying much more out than you get. However, like spending your whole life paying insurance for fire protection on your house, you would probably prefer not to claim, because if you do, it means your house has burnt down. Accept that medical aid is insurance and what you are ultimately buying is peace of mind – when things go badly wrong, you will not be ruined financially or have your life shortened.

At the same time, let’s do what we can to reduce the cost of medical aid under the constraints above. Join, even if you are young and healthy; lobby the CMS for an alternative set of PMBs and for a different solvency regime; lobby your medical scheme to invest your assets more aggressively and continually negotiate better rates on your behalf; lobby government to create a more attractive environment in SA to retain skills; and try and live a healthier life – give up smoking, eat more healthily, get more exercise, get tested for HIV, get your persistent cough checked out, get your cholesterol tested, get a pap smear, etc.

Together, we can tackle this problem and make the future a healthier and less expensive destination.

 

What do you think of my assessment? Were you aware that most of your medical aid contribution is to cover you against hospital treatment? Did you know that the range of conditions you are covered for is so wide? Were you aware of the impact of adverse age and sex selection? Are you doing something to improve your health or would you consider it? I would love to read your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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What has driven our GDP growth?

The main measure of a country’s economic performance is the growth in its gross domestic product (GDP) from year to year in real terms (after allowing for inflation). This is often held up as the primary measure of success of a country, although it is important to look at issues such as poverty, GDP per capita, gini coefficient, education levels, crime, corruption and general happiness as well. In this blog, I have a look at SA’s GDP growth performance over the past 35 years from 1980 to 2014. This period spans the 14 years prior to the end of apartheid and the 21 years thereafter. During this period we had five presidents and it was extremely eventful, especially during the period prior to and after the transition to majority rule. I include a very busy chart at the bottom of the blog – you may have to click on it to see all the useful detail.

During the entire 35 year period, SA had an average GDP growth of 2.4%, which puts us in line with developed economy growth rates and lagging behind developing economy growth rates, in some case meaningfully so (e.g. China). The average growth during the final 14 years of apartheid was 1.6% and the average since majority rule has been 3.1%. The president that was at the helm when our economic growth was the highest was Thabo Mbeki who presided over an average growth rate of 4.1%. The lowest growth rate was an average of 0.6% during the tenure of FW de Klerk. Nelson Mandela at 2.7% outperformed PW Botha at 2.2% and under Jacob Zuma, we have seen average GDP growth of 1.7%, which has been particularly weak when compared with the much stronger growth under Thabo Mbeki.

The blame for weak economic growth is often placed at the feet of the government of the day and in many cases this is rightly so. It is the job of government to create an environment that is conducive to economic growth. First and foremost, it is important that a country is peaceful and that economic activity is not disrupted due to violence. The NP government prior to majority rule often failed to deliver this and it is no wonder that 3 out of the 4 recessions (periods of negative GDP growth) experienced by SA over the past 35 years fell during the pre-majority rule period. The country has certainly become more peaceful over the past decade, but there are risks to the status quo, including xenophobic violence, service delivery protests and industrial action.

In addition to ensuring a peaceful environment, it is also important that government delivers an environment where industrial action by unions does not put undue pressure on the economy. This has been a recurring problem in SA, both prior to and after majority rule. However, this seems to have become a greater problem in SA during the presidencies of Thabo Mbeki and Jacob Zuma. The fact that the major union federation, Cosatu forms part of the governing alliance limits the ability of government to effectively crack down on industrial action, although it has facilitated long-standing agreements in the past. It is time for such agreements to again be concluded to avoid continued disruptions in an environment of weaker economic growth.

One of the main reasons why economic growth recovered so strongly in the mid-1990s compared with the last decade of apartheid was that foreign direct investment (FDI) returned to the country after being forced out as a result of sanctions. Investment in SA continued well into the 2000s, but there are now clear risks to such investments continuing at the same pace. The main hurdles to FDI are industrial action, electricity supply and weak commodity prices. Other contributing factors that have been put forward as risks to FDI are uncertainty surrounding ownership requirements (especially in the mining sector) and corruption, although I consider these as secondary factors. In addition to forming a new compact with labour unions to limit industrial action, it is imperative that government and Eskom successfully deals with the electricity crisis that we are experiencing. I have addressed issues surrounding this topic in my blogs on private electricity producers, electricity-hungry aluminium smelters and suggestions surrounding forming joint ventures in the sector.

By far the most important factor determining relative rises and declines in GDP growth over the past 35 years appears to have been commodity prices and whether those rose or fell in the preceding years. The recessions we saw over the past 35 years all seem to have been influenced by this. The 1982 to 1983 recession was preceded by a 30% fall in gold and platinum prices in 1981; prior to the 1985 recession, gold and platinum prices fell by around 20%; platinum prices fell by more than 30% over the 2 years prior to the 1992 recession; and our last recession in 2009 followed a collapse in the platinum price in 2008. It is also interesting to note that the average increase in gold and platinum prices during Mbeki’s presidency was over 12% while for de Klerk they declined on average, explaining to a large extent why Mbeki presided over the highest and de Klerk over the lowest average economic growth. Under Jacob Zuma, we have seen 2 years of declines in gold and platinum prices during 2013 and 2014 and this has not abated during 2015. It is therefore important to see the weaker growth under president Zuma in this context.

However, one thing that the ANC government has not been able to sustainably achieve since majority rule in 1994 is to lift trend economic growth to new levels. GDP growth rate exhibited a brief period of strong growth during the mid-2000 (averaging 5.5% from 2005 to 2007), but this was more a result of high commodity prices than due to the necessary structural changes needed to sustain the trend. The main structural issues facing SA are a low savings rate, poor education outcomes, a lack of skills, cost and availability of labour (made worse by unions and industrial action), a strong and volatile currency and increasing pressure on infrastructure (especially electricity supply). I have addressed many of these issues in previous blogs, including the SA education system and the need to attract more skills in conjunction to protecting certain industries.

In addition, in an environment where commodity prices are under pressure (and could remain under pressure), it highlights the need for SA to reduce its dependency on raw commodity exports. It is imperative that more is done to add value to raw commodities before exporting them while at the same time investing in parts of the economy that are less dependent on commodity prices.

Now is a time for action, but the problem seems to be that government is either 1) satisfied with the status quo in certain areas (most problematic is education outcomes); 2) is having to operate in crisis mode (electricity supply); 3) is experiencing bottle necks with programmes that could make a difference (the National Development Plan); 4) or is taking steps that decrease (cadre deployment) or not taking steps (fighting corruption) that could increase efficiency. As I have highlighted in a previous blog, the SA government is akin to an undervalued share. To revalue, we either need performance to improve from current management (think of your legacy President Zuma), we need new management to come in (start speaking out and doing more vice President Ramaphosa), or we need a hostile take-over (more power to the opposition). I believe that the odds are in favour of moves in the right direction on all three of these fronts, but I am concerned at the time it may take to lead to positive outcomes.

What do you think? Do you accept that weak commodity prices have been a serious drag on our economic growth? Do you have other ideas for lifting trend-growth in SA? Do you think the ruling party will feel the necessary pressure to improve the situation? Do you believe they are capable? I would love to see your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man

 

The slide below is busy. Click to enlarge. Source: Indexmundi; Tradingeconomics; Kitco; CountryStudies; BBCResources Chart 5

 


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The Rhodes statue is down – what now?

On the 9th of April, the Statue of Cecil John Rhodes was removed from UCT’s upper campus as a cheering crowd looked on. This was seen as a victory by many, but the question is now, whereto from here? Will this symbolic removal lead to the addressing of real underlying issues at UCT? Other symbols are being attacked – should they and will they be removed? Will this act as a rally point for the previously advantaged in this country, bringing racist feelings to the boil? Could this possibly lead to reconciliation in our country or will it further polarise us? Should we not be focusing on building, rather than tearing down?

Cecil John Rhodes

Cecil John Rhodes has been a divisive figure in Southern Africa, since his De Beers Consolidated Mines rose to prominence in the late 1800s. His actions as chairman of De Beers and as a politician alienated many, including the Basothos who were put down in the Gun War, black people in the Cape Colony who lost their land and enfranchisement, the Boers through his encouragement of the Jameson Raid and his involvement in the Boer War, the Portuguese and Germans who were prevented from furthering their colonial agendas and the people of Zimbabwe and Zambia (the former of which were defeated in the Matabele Wars). On the other side, he was influential in developing mining enterprises in the region, which was instrumental in growing the economies of these countries to where they are today.

As with so many successful individuals who became wealthy partly through the suffering of others, including John D Rockefeller and Alfred Nobel, Rhodes looked towards preserving a positive legacy in the latter part of his life. He bequeathed his lands on the slopes of Table Mountain to the SA nation (this led to the establishment of the Kirstenbosch Gardens and parts of it is now the UCT upper campus) and he established the Rhodes Scholarship. The positive influences of Rhodes were a small comfort to those that were disenfranchised and alienated by his actions and his legacy started to be dismantled in the latter 1900s when North and South Rhodesia were renamed Zambia and Zimbabwe. Its therefore no surprise that students from UCT felt aggrieved and disgusted by the prominent position that Rhodes’ statue occupied on their campus and demanded (and ultimately succeeded in obtaining) its removal.

Issues at UCT

However, the removal of the Rhodes statue can only be seen as a symbolic victory in my opinion. It does not address the real and serious issues that UCT students (especially those from previously disadvantaged communities face) and have been highlighted by the Rhodes Must Fall movement. It will not lead to the improved plight of UCT workers (including the reduced use of outsourcing). It will not deal with the financial and academic exclusion of black students. It will not deal with the underrepresentation of black academics. And it will not lead to a decolonialised curriculum. These are important issues that need to be addressed, but many of them should be laid at the feet of other parties than the UCT administration.

The plight of UCT workers can readily be addressed by the administration where it relates to making sure that they are treated in a respectful way as well as their working conditions, although this would have a financial impact. The issue of outsourcing is a double edged sword. If fewer tasks are outsourced, the increased financial burden would interfere with moves to increase the financial inclusion of black students and increasing the representation of black academics. The only solution would be to increase fees at the institution (which could lead to more exclusion) or obtain more funding from Government (who may prefer to channel this to previously disadvantaged institutions) or donors (many of whom may be disenchanted by the developments at UCT over the past months).

The academic exclusion of black students largely cannot be laid at the feet of the UCT administration. The problem here is more one of lowering standards in SA education as a whole. It is the responsibility of UCT to maintain its standards in the light of falling standards in general. This causes a growing gap that must be addressed by UCT if it wants to increase inclusivity. The increasing need for providing bridging programmes to students has a meaningful financial cost, which adds to the financial exclusion of many black students. To address this problem, it is vital that student activists like Rhodes Must Fall and others turn their attention to Government and teacher unions to tackle the root cause of the problem.

The financial exclusion of black students is ultimately the product of inequality in SA, the limited ability of our economy to create jobs and the financial implications of creating and increasing academic inclusivity at the institution. Although many of the economic pressures that SA face are external in nature, there is a great deal that Government can and should be doing, including driving the NDP aggressively, dealing with electricity supply, liberalising the labour market, encouraging growth industries, etc. Once again, student activists should use the energy of their process to approach institutions that are able to address these issues, including the Government and labour unions.

The issue of an underrepresentation of black academics is a tricky one. I do not dispute that to some extent this problem may be one inertia and prejudices within the UCT administration. To the extent that this is the case, the administration should take serious steps to address it. They should also be willing to spend more money to achieve this goal, although this is likely to be at the expense of UCT workers and the inclusivity of students. In my opinion, there are other issues that may contribute to this problem. There are arguably not enough academics in SA to start with, driven by the fact that there is not a strong enough academic culture in society, a lack of standards in SA education (affecting the academic pipeline) and the fact that academics simply is not as alluring financially as is the private sector. This problem is especially exacerbated in the case of black academics who feel the lure of the private sector even stronger due to the meaningful successes achieved with black economic empowerment and affirmative action. Academic institutions simply cannot compete for this limited pool of talent with their chequebooks. Instead of just pointing fingers at the UCT administration, student activists should also look towards improving education standards, encouraging bright lights within their communities to take up the challenge of academics and also looking inward – become tutors, lab assistants, part time lecturers, etc. The key is to increase the pool.

As far as decolonialising the curriculum, there is a serious risk of throwing out the baby with the bath water. By all means, address serious issues of concern, but do not sacrifice the standards within the institution that is UCT (currently ranked the 141st in the QS World University Rankings, up 4 positions from the previous year).

Other symbols

The removal of the Rhodes statue has created the ideal platform for parties on both sides of the political spectrum to find a rally point and I am very concerned about the polarising impact this is having and could have. On the one side, the Economic Freedom Fighters (EFF) is demanding the removal of numerous statues, including of Paul Kruger, Louis Botha and Queen Victoria. Many statues have been defaced. At the other end, Afrikaner groups are vowing to protect statues and monuments they hold dear. There are unfortunate racial overtones at both extremes and a clear sense of opportunistic behaviour, in my opinion.

We still suffer from meaningful polarisation in this country and the actions at both sides of the spectrum are likely to exacerbate the situation. In my opinion, it is vital that the government, political parties and other influential figures step in to calm tensions and de-escalate the situation. We need more voices of reason and we need our political leaders to resist the temptation of fuelling polarisation. For over 20 years since the democratic dispensation, we have managed to live in relative peace, allowing each other the freedom of expressing ideas and holding on to symbols that are dear. It is clear to me that more important than the symbols themselves, it is the state of our nation that is fuelling polarisation. If we had fewer problems facing us, if our economy was growing strongly, if more people had jobs, if more people looked forward to a bright future, the issue of symbols would fade in importance.

It is my hope that instead of destroying symbols of the past that we instead focus on building new symbols. Our past shows us the journey we have been on to get to where we are now and should not be swept under the rug. From here, we need to continue to develop our shared South African identity. However, to help in achieving this, we need to become more positive about this country. It is imperative that the problems facing us are addressed head-on by government and others, including our weak economic growth, our lack of job creation, our electricity supply, low education standards etc.

Conclusion

SA is an exceptional country with a colourful past. SA’s past represents a journey of good and bad, none of which should be forgotten. SA is a miracle that has only been made possible because we chose a path of reconciliation instead of retribution. Much has been done to improve the lives of everyone in SA and the results are tangible. However, we are facing tough times, driven by both external and internal issues. It is important that especially during these tough times, we should stand together and look for solutions rather than become more polarised. Our future remains bright and our problems can be addressed with the right political will and the support of us all. Let us rather look to the future than the past. As George Bernard Shaw said “We are made wise not by the recollection of our past, but by the responsibility for our future”.

What do you think of the Rhodes statue removal? Is this the beginning of a movement to remove historical monuments? Will this encourage us to address the deeper issue plaguing our country and people? Will this lead to more polarisation? Will we see influential people stepping up to help de-escalate the situation? Will it fizzle away? I would love to read your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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Africa, the Promised Land

Category : Africa , South Africa

Over recent weeks, so many South African companies have again affirmed their commitment to African expansion and growth. It is no surprise considering that sub-Saharan Africa has been one of the highest economic growth areas over recent years, the consumption market is growing at leaps and bounds and product penetration is low. Africa has become the Promised Land for companies that are looking for the next growth area and South African companies are leading the charge.

I became involved in the investment world in 1999 when I joined Investec Securities and have been fascinated at how perceptions have changed over the subsequent years (which I spent at Investec, BJM, Bank of America Merrill Lynch and now at MLAX Consulting). In the earlier years, South African companies were scrambling to get out of SA or at least diversify their exposure. There were dual listings on the London Stock Exchange and SA companies bought international businesses including retailers in Australia, asset managers in the US, Banks in Argentina, Property companies in the UK, breweries in North America, etc. So many of these expansion plans were failures and led to subsequent disinvestment.

Today, the focus is much different for most companies. Instead of looking abroad, increasingly eyes are affixed on countries north of our border in sub-Saharan Africa. This type of investment in sub-Saharan Africa is not new, but in the past, it was largely focused on mining and industries that could support mining operations (e.g. corporate banking). This has changed meaningfully and today, the focus is increasingly on the retail consumer. SA property developers are building shopping malls, SA retailers are opening stores, logistics companies are ensuring product pipelines, mobile providers are providing unprecedented cover, pay TV is being distributed to homes, banks are targeting retail clients, insurers are offering short-term and life assurance cover, healthcare providers are selling medical aid products, asset managers are investing in local businesses and investment banks are helping to develop capital markets.

Over recent weeks, a number of companies showed strong results from their African operations and affirmed their commitment to African expansion and growth. Shoprite highlighted 16% growth in their non-SA (mostly sub-Saharan Africa) earnings growth (vs. 12% in SA) with this source making up 12.5% of total profit. The company aims to grow its number of African stores by 25% over the next 2 years and has another 50% store growth in the pipeline after 2016.

Standard Bank announced that 28% of its headline earnings from its Rest of Africa businesses, with these businesses having achieved 37% average yearly growth in earnings over the past 5 years. The company aims to continue strong growth in these businesses, driven in part by the strong economic growth it expects from the region.

In Sanlam’s results, it showed 12% of its earnings coming from its Rest of Africa businesses and earmarked another R2bn for acquisitions here and in other emerging markets. The company aims to improve its share of new business volumes coming from its Rest of African businesses from the current 11% to 20% over time.

MTN has 4 times as many subscribers in the rest of Africa than it has in SA and earns 3 times more revenue from these businesses. The company makes less than 20% of its profits from its SA businesses with most of the rest coming from its operations north of the border.

The new “scramble for Africa” is driven by the strong economic growth in the region, the increasing pool of consumers and the low product penetration rates. These trends have been possible with the help of the relative stability that most countries in the region are experiencing. The large investments in infrastructure made by China have also been an important contributor to the development of the African retail market.

Over the past 7 years, the average GDP growth rate in sub-Saharan Africa (excluding SA) was 5.7%, which is well above the average for all developing countries (excluding China) at 4.1%. The World Bank forecasts an average GDP growth for the region of 5.8% over the next 3 years, which is well ahead of the 4.1% forecast for all developing countries (ex China), 2.6% forecast for SA and 2.3% forecast for developed countries. The forecast GDP growth in sub-Saharan Africa would have been even higher were it not for the decline in oil prices and the impact of Ebola. As these trends reverse, we may see even higher growth for the region.

In addition, private consumption and domestic demand are expected to continue growing in the region, supported by sustained infrastructure investment, increased agricultural production, expanding service sectors and relatively low interest rates. The main internal risks to GDP growth and growing private consumption are conflicts (South Sudan, Central African Republic, northern Nigeria) and the spread of Ebola. The main external risks are sustained low commodity prices, a slowdown in the world economy (especially China) and volatility in global financial markets.

The potential for further growth in private consumption and domestic demand in sub-Saharan Africa is great due to the low product penetration rates. According to KPMG, 75% of adults in the region (including SA) used no formal financial services in 2012 (compared with 10% in developed countries). According to the World Bank, in 2010 there were less than 90 bank loans per 1000 people in the region compared with over 700 in developed countries. Insurance penetration in Africa (excluding SA) is the lowest in the world with insurance premiums as a percentage of GDP of only 1% compared with 2.7% for other developing markets and 8.3% for developed markets. Media penetration has picked up in the region, with more than 85% average access to mobile phones in 2012 according to Nielsen. However, Internet penetration remains low at 25%.

According to Accenture, sub-Saharan Africa’s consumer spending will reach $1trillion by 2020, with poverty reducing to 20% (30% in 2008) and by 2050, 60% of people will live in cities. By 2010, the region already had more than 850million consumers and this is forecast to increase to 1.3trillion by 2030.

We live in a very exciting part of the world with a great deal of growth potential. Even if our growth in SA is relatively slow compared with the rest of the region, this does not mean that we cannot benefit from the positive trends of our neighbours. SA companies that have exposure to sub-Saharan Africa have the potential to achieve better earnings growth than companies that are simply exposed to the slower-growing SA economy. By investing in such companies, we can also benefit from these higher growth rates. On top of this, the SA economy benefits from increased exports to these countries and dividend flows back to SA (although we are currently in an investing phase and dividends are typically reinvested in the region).

Furthermore, the positive trends that are occurring in the neighbourhood are also positive from a stability point of view. If they continue, we as a country are less likely to have to become involved in conflicts in the region and are less likely to have to accommodate economic refugees.

What do you think of sub-Saharan Africa’s potential? Are you one of those people that still see the region as a basket case or do you give credit for the positive developments in recent decades? Is your company operating in sub-Saharan Africa or do you have plans to get involved there? I would love to see your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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More power to women, they deserve it

It has taken thousands of years, but finally women are starting to take their place in the sun. An increasing number of women are entering the work place and rising to become captains of industry. More women are getting involved in politics and are becoming world leaders. Not just are most women better off than they have ever been, we are all richer for it. However, more needs to be done to address remaining inequalities and fight discrimination and oppression of women where it still remains. With International Women’s Day just passed, now is a good time to reflect on what we can do to help.

As little as a century ago, there were only 8 countries in the world that allowed women to vote. These did not include the USA, the UK, Germany, France (only in 1944), India (1947), Botswana (1965) Switzerland (1971) and Iraq (1980) or Oman (2003). Today, most countries that allow their citizens to vote, also allow women to vote with Saudi Arabia being one of the last, promising suffrage for women in 2015.

One of the leading causes of death for young women a century ago was childbirth. Even in developed countries in 1900 around 500 women were dying for every 100 000 live child births (in the USA it was over 800). Today, maternal deaths in developed countries has plummeted to below 20 per 100 000 live births. Most developing countries have maternal mortality rates below 200 (e.g. China 32, Egypt 45, Brazil 69, South Africa 140, India 190) and the trend is downwards. The exceptions are war torn areas (Afghanistan 400, DRC 730, South Sudan 730) and under-developed sub-Saharan African countries (Burundi 740, Chad 980, Sierra Leone 1100).

Women have increasingly become active in the workforce. In 1900 fewer than 20% of American women were employed, increasing to almost 60% today. In the UK, the increase was even more pronounced to 67% today. Globally, the average adult female labour participation is still low at 54% with sub-Saharan Africa (72%) and East Asia (68%) scoring the highest.

Even though women have become more economically active, significant wage gaps remain when comparing them to men. The latest average OECD (developed countries) gender wage gap is 15%, with countries such as New Zealand (5.6%) and Belgium (6.4%) being the lowest and South Korea (37%) and Japan (27%) being the highest. In the USA, the gender gap has taken front stage and is likely to be a key theme for Hillary Clinton in her likely 2016 presidential bid.

Although this process has been slow, an increasing number of women are becoming captains of industry. South Korea leads the pack with 30% of company’s employing female CEOs, followed by China (19%). Much of the Western world lags with only 9% of EU CEOs being women and only 5% in the USA. Nordic countries lead the way when it comes to female board members with Norway tops at 36% . In the USA, the number is 17% and in the UK 14%.

Women have made a meaningful impact on the political front over recent decades, including Indira Ghandi (India), Golda Meir (Israel) and Margaret Thatcher (UK). During 2014, there was a record 22 female leaders of countries in the world, including in Germany, Liberia, Argentina, Poland, Switzerland and Croatia. Of them, 15 were democratically elected and none of them gained power as a result of a coup. Chances are that the USA will be added to that list in 2016.

There has been some interesting research that shows that female leaders (whether of countries of companies) perform better than their male counterparts when either the country or company is going through a transformation process or is exposed to internal conflict. It appears as if women’s typically more collaborative and inclusive management style is more successful during such periods. With so many countries in the world still struggling from internal strife, I think we need even more female world leaders.

Unfortunately, it is not all good news for women with many issues that still need to be addressed. Violence against women remains a serious problem globally and in SA in particular. According to the US State Department, 600 000 to 800 000 people are trafficked across international borders each year, of which around 80% are women. Many countries enforce institutionalised discrimination against women or does not actively combat discrimination that exists, including child marriages, arranged marriages, honour killings, genital mutilation, not allow property ownership, not allowing women to testify in court, not allowing women to drive, and many more.

In addition the rise of ISIS in Syria and Iraq; the influence of the Taliban in Pakistan and Afghanistan; as well as Boko Haram in Nigeria, threatens to roll-back any progress made on the front of women’s rights by decades.

So where does SA stand when it comes to women’s rights and gender gap? In the World Economic Forum Global Gender Gap Report of 2014, SA ranks 18 out of 142 countries where all factors are considered (Iceland ranks first and Yemen ranks last). As far as economic participation goes, our ranking is middle of the pack at 83 out of 142 with gap of 35% between women and men. In educational attainment, the gap is just under 2% and positions us 85th on the list – most other sub-Saharan countries have a wider gap (including Zambia at 15%, Nigeria at 22% and Angola at 28%). As far as health and survival goes, we rank jointly first with 35 other countries and the gap is 2%. In political empowerment we rank 11th, placing us ahead of countries such as New Zealand, India, France and Argentina. We can therefore be proud of what we have achieved in SA thus far, but much more needs to be done. We fare very poorly when it comes to violence against women and rape and these are serious issues that need to be addressed!

What can we do to help improve the situation for women in SA and the world over coming years? We can start at home by avoiding the promotion of gender stereotypes. Girls should be encouraged to work hard at school and to pursue the same opportunities as the boys in their class. In the workplace, we should fight against gender bias, offer women the same opportunities for promotion as men and the same level of pay for the same work done.

We should make a concerted effort to reduce violence against women. If this happens in your circle, make sure you speak out against the perpetrators and support the women involved – societal pressure can be a much stronger deterrent than the criminal justice system, but on the flip side, can also be a negative deterrent to women reporting abuse. At the same time, more needs to be done to empower the criminal justice system to encourage reporting, apprehend perpetrators and punishing criminals.

In our public discourse, it is also important that we stand up of women’s rights, avoid negative stereotyping and discrimination. Speak out against discrimination or at least avoid being a part of it. You can get involved with women’s rights movements such as POWA, Women’s Legal Centre, Progressive Women’s Movement, etc.

When it comes to fighting inequality and discrimination internationally, you can use your wallets to try and effect change. Many people take part in boycotts against retailers when it comes to issues close to their hearts (e.g. Palestine). Why not get involved in similar actions when it comes to women’s issues?

Did you give some thought to women’s rights during International Women’s Day yesterday? Did you treat the women in your life differently? Do you think more needs to be done to promote equality for women? What are you doing? I would love to see your feedback.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


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SA Government – Undervalued Share?

If you consider all the shares trading on a stock exchange (say the Johannesburg Stock Exchange), some will be highly valued. These are usually the shares of companies that are performing strongly and that investors are willing to pay a great deal for. Other shares though, will be undervalued because investors are unhappy with the company’s performance or its prospects. In this blog, I look at the SA Government as if it were a share. In my opinion, the SA Government is an undervalued share. Investors (voters, the press, the corporate sector, rating agencies and foreign investors) are giving the SA Government a lower rating than some other governments in the world and a lower rating than it achieved in the past. I explore the reasons for this and what the Government could do to improve its rating.

Is the SA Government poorly rated?

Firstly, I answer the question of whether the SA Government is in fact poorly rated. Voters gave the government a strong mandate in the 2014 elections with 62% of the vote. However, the trend has been negative (down almost 4% from 2009) and all indications are that it will continue with the rise of the EFF and sustained gains from the DA. The press has become increasingly critical of government over recent years with issues such as Nkandla, loadshedding, education, corruption and crime grabbing more and more headlines. The corporate sector is careful not to be too critical of government, but even here, there is more and more talk about the negative impact of strikes, education and loadshedding on the SA economy. Rating agencies have been downgrading SA’s sovereign credit rating consistently over the past 7 years, raising issues such as lower GDP growth, rising debt, current account deficits, strikes and delays in implementing the National Development Plan (NDP). Finally, the rand has depreciated by 50% over the past 10 years (37% over the past 5), which is a strong indication that foreign investors are rating the country and its government lower than it was in the past.

So, the SA Government is not highly rated at the moment compared to where it was in the past and also compared to governments of other countries (where credit ratings are higher and where currencies have not been as weak). Why is this? There are three main reasons why a share would be undervalued at a given point in time and the same reasons can be applied to the SA Government. Firstly, “investors” are dissatisfied with performance – they note problems with strategy, implementation and delivery. Secondly, “investors” are negative on prospects – they may be concerned about external pressures and the way that the “company” (Government) is positioning itself going forward. And thirdly, “investors” may either not understand the “company” well or may not believe “management” (Government leaders) and therefore may not give it credit for successes or potential going forward. I will address each issue in turn.

Performance of SA Government

There is no doubt that there are concerns amongst SA Government “investors” (voters, the press, the corporate sector, rating agencies and foreign investors) about the performance of the SA Government. The concerns are widespread and range from the high unemployment rate, education outcomes, electricity supply, strikes, crime and corruption. What often exacerbates this is that there is a perception that Government itself does not recognise the seriousness of issues and is not doing enough to address them.

As discussed in previous blogs, there are many areas of positive delivery, including on HIV & AIDS; access to housing, utilities, health services and education; reduction in absolute crime levels; poverty alleviation, etc. However, these successes tend to be overshadowed by the negatives.

A company that finds itself in a similar situation where poor performance overshadows successes would most certainly be underrated and would suffer from an undervalued share. Such a company would face mounting pressure from its investors to improve its performance. The company would be expected to address its strategy, improve efficiency, cut costs and/or strengthen its management. If such a company failed to deliver improved results, there would be pressure on it to change its management team and replace its CEO. If its fails to achieve this, it may be exposed to a take-over with investors supporting a rival company.

To a large extent, the SA Government faces similar pressure. It needs to address its strategy – there have been too many false starts and about turns with government programmes (RDP, OBE vs. CAPS in education, NSSS, NHI, NDP); it needs to improve efficiency – in so many areas, it should achieve much better outcomes with the money that it spends (including education, healthcare and the criminal justice system); it need to cut costs – there is too much leakage that currently occurs due to corruption, especially when it comes to tenders as well as a top-heavy executive (more ministerial portfolios than most other countries); and it needs to strengthen its management – there is too much cadre deployment in SA and we need more technocrats in government departments and parastatals that have the experience and skill to improve delivery.

If Government does not efficiently deal with these issues, there will be pressure to change management. We have seen reshuffles of the cabinet and changes of leadership at parastatals, but what concerns me is that often these changes appear to be more based on loyalty than on performance. This would have to change. Ultimately, there may be pressure on the President to resign, although this would have to come from within the ANC as opposed to from the SA Government’s other “investors”. Regardless, President Zuma has a term limit and will be replaced in 2019, unless something dramatic happens.

If the performance of the SA Government does not improve over the next number of years, it may be faced with a hostile take-over in the form of an electoral defeat. Although it is unlikely that the ANC will lose a general election anytime soon, it certainly risks losing outright control of the Johannesburg and Nelson Mandela Metropoles in the 2016 municipal elections and risks a reduced majority in the 2019 general elections. It is my opinion, that this risk of a “hostile take-over” is likely to galvanise the ruling party over coming years to improve its delivery.

Prospects for SA Government

The prospects for SA and the SA Government are a mixed bag at the moment. On the positive side, economic growth is forecast to be positive going forward, we have a growing population, we have food security, we have abundant natural resources and we have a thriving tourism industry.

The main negative from a prospects point of view is low commodity prices, which is an external factor outside the control of the SA Government. As a resource producer, we are very dependent on commodity prices for external revenues, which drive the currency, tax revenues and employment inside the country. Other negatives, which are within the control of Government are education, electricity supply, unemployment and crime. Arguably, the negative prospects for the country currently outweigh the positives, but there is much that can be done to change the situation.

A company that faces difficult prospects can do a number of things to improve the situation. When it comes to internal issues, it can address them in the same way as it would address its current performance (section above). When it comes to issues beyond its control, a company would have to reassess its business model and make the necessary changes. For example, if a company realises that it is making a product that is becoming obsolete (e.g. compact discs, print publications, film cameras) it may decide to abandon that product and/or move into a different product set – moving into music players or smart phones, building an online media presence, manufacturing digital instead of film cameras, etc.

A company that is seeing dwindling margins in a product, may decide to move downstream to capture more revenue – providing downloadable content to devices (e.g. Apple IStore), using existing technology to develop new products (e.g. Nokia moving over time from cables to cellphones), etc.

It is necessary for the SA Government to make similar difficult strategic decisions to reduce the country’s dependence on resources, whilst at the same time extracting more revenue from its resource value chain. The Government needs to identify certain global growth industries and encourage their growth and development within the country (e.g. renewable energy, biotech, software development, mobile telephony, etc.). Government should also do more to encourage the beneficiation of raw products that we produce in the country. Too much of our raw materials are simply being exported at low prices when more should be done to encourage industries that can turn these raw materials into more value-added products (e.g. steel, motor manufacturing, jewelry, electronics, etc.).

Perception of SA Government

There is no doubt in my mind that the SA Government suffers from a perception problem, a public relations (PR) problem. There is a much greater focus in the media on problems within the SA Government than there is on successes. Whilst I agree that we cannot hide from problems and failures and where these exist, they deserve to be publicised, I feel that in many cases the skewed nature of reporting in the SA press is due to a dysfunctional relationship between the SA Government and the press corps. Both sides are to blame for this relationship, but I believe the onus is on Government to repair this. In my opinion, there remain distinct racial overtones within the broader SA and this does shine through in some of the reporting that we see. However, this is made even worse by the fact that Governments appears to see the SA press as adversaries, as part of the opposition. I believe this is a mistake.

The media seeks to expose truth and even a biased media cannot publish blatant lies in the face of strong evidence to the contrary. At the same time, the media is more likely to react positively to honest and open interactions with Government (or with a company for that matter) than to spin. Even if the SA Government talks about problems or failures, the media is more likely to give it the benefit of the doubt and report on subsequent improvements if Government plays open cards at the outset. In addition, if Government starts to see the SA media as a partner going forward and encourages positive discourse, this could help to influence policy decisions and could help to improve delivery.

In my opinion, the SA Government should decide to reset its relationship with the press in SA. It should formulate a clear and concise message to the press. It should play open cards with the press on the problems and issues facing the country and should be honest about the mistakes that have been made and steps to be taken to remedy them. At the same time, it should also be open and honest on its successes and about positive prospects. I believe the SA Government would be surprised about how such an approach can benefit it.

When looking at listed shares, it is interesting to see how such an approach has worked for certain companies historically. A prime example is Sanlam, which was not a loved share in the early 2000s, but has become one of the most highly rated shares on the JSE today. During the early 2000s when Sanlam were struggling with a number of issues, it opted to play open cards with investors and to actively engage them. Over the course of a decade, Sanlam addressed many of the concerns that investors had with them, whilst continuing a very open relationship with its investors. As time passed, the company started to achieve more and more successes and were richly rewarded by a very loyal investor base. Many of the prejudices that existed towards them in the earlier days disappeared into thin air as delivery started to occur.

I believe, at least to some extent, the same is possible for the SA Government if it builds a more constructive relationship with its“investors” and improves delivery going forward.

Conclusion

The SA Government is an undervalued share and without positive steps, this is unlikely to change. The Government needs to improve delivery, enhance strategy and rethink its marketing approach. If this does not occur, it will remain undervalued to the detriment of us all and it may be faced with a hostile take-over at the ballot box (which could lead to uncertainty and turmoil for everyone).

However, there are so many low-hanging fruit that the Government can pick, which can improve all of our lives. With an improved strategy, including supporting world-leading industries and beneficiation, better planning, more efficiency (achieving better outcomes for the same money spent), less leakage (addressing corruption aggressively) and improved management (more technocrats), a meaningful improvement in delivery is not just possible, but very likely. At the same time resetting the relationship with the media and other “investors” can help us to walk this path together and allow us to give credit where credit is due. I remain optimistic.

 

What do you think of my view? Have you ever thought of the SA Government in terms of an undervalued share? Do you agree that there are low-hanging fruit that can be picked? Do you believe that the current government can achieve better delivery? Are you positive about the future?

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


  • 2

Buy smelters, mothball, save power Eskom

Eskom currently provides a large amount of electricity to aluminium smelters in SA and Mozambique at less than half what it costs to produce, putting pressure on its finances and the electricity supply in SA. Eskom should buy these smelters, which are now housed in BHP Billiton spin-off company South32 and mothball them, save money and stop our loadshedding.

It is estimated that South32’s aluminium smelters in Mozambique (Mozal) and SA (Hillside and Bayside) use 9% of the kilowatt hours of electricity generated in SA and contribute 5.6% to maximum electricity demand. This electricity is being supplied at rates much lower than what it costs Eskom to produce due to outdated contracts that were signed when Eskom was producing a surplus and when aluminium prices were high. The price is estimated to be less than half of what it costs to produce power in general and a fraction of what it costs to run the diesel power plants at Ankerlig and Gourikwa (up to 10 times the cost of normal power generation).

The older contracts (signed in 1992) are linked to aluminium prices in dollar terms, while the newer contracts (signed in 2001) are based on a low starting value, increased by the producer price index (PPI) each year.

The problem is that since the contracts were signed, it has become much more expensive for Eskom to generate power and consumers are paying much more for electricity, especially over the past 6 years. During loadshedding, power generation becomes much more expensive due to diesel power plants being run at excessive cost. Further, aluminium prices are almost 40% lower than their highs in 2008. Eskom estimates that the contracts will cost it R9.3bn over the next 13 years and carries this as a liability in its balance sheet. The amount that Eskom stands to lose from these contracts is in fact much higher than R9.3bn because without these contracts, it would be able to sell electricity at a profit and not just at cost price (which I assume the R9.3bn is based on).

Eskom has applied to the National Energy Regulator of SA (NERSA) to investigate the contracts with the hope that the regulator will allow them to be adjusted to more economic terms for the electricity producer. However, NERSA is yet to make a ruling, years after being asked to do so. At the same time, BHP Billiton is opposing the cancellation or review of these contracts and even disputes NERSA’s mandate to investigate the contracts.

There have been previous calls for these aluminium smelters to be closed because of the impact on the power network and the negative impact on Eskom’s finances.  However, BHP Billiton has resisted this, claiming that it would result in job losses, loss in exports and loss in tax revenue.

As it stands, it does not look like the situation will improve until 2028 when the contracts run out. BHP Billiton or the new owners of South32 are unlikely to budge on these very attractive contracts as it would make Mozal, Hillside and Bayside unviable and may force their closure. NERSA is also unlikely to have the teeth to force these contracts to be negotiated, although this remains a possibility. So what to do?

I believe that a possible solution, which requires thinking out of the box would be for Eskom to bid for the Southern African aluminium assets in South32. This may cost them a pretty penny, possibly R40bn – R50bn, but could make a great deal of financial sense, even in the short term. As the owners of these assets, Eskom could decide to mothball the smelters until it’s generation capacity has sufficiently picked up and until aluminium prices have risen sufficiently to make their operations economically viable (when paying market rates for electricity).

There would be positive and negative implications of such a decision. On the positive side, it would:

  • Free up between 5% and 9% electricity capacity in SA, effectively meaning the end of loadshedding;
  • Allow Eskom to stop running its Diesel power stations at Ankerlig and Gourikwa, which could save them up to R1.5bn per month (they have already requested an reported R20bn in funding from government to cover diesel cost in the near-term);
  • Allow Eskom to remove the R9.3bn liability on its balance sheet;
  • Boost Eskom’s income statement as it would be able to sell the excess capacity at market-related rates;
  • Reduce the pressure on the SA industrial sector; and
  • Reduce negative sentiment of potential new foreign investors in SA due to concerns over electricity supply.

On the negative side:

  • This could cost Eskom up to R50bn – however, the removal of the R9.3bn liability, the savings from not running the diesel power stations and the ability to sell electricity at market related rates, could pay for this in less than 2 years (and the mothballed plants would still have value); and this is still much cheaper than building a coal power station at between R100bn and R200bn;
  • There would be job-losses at the smelters, which could be up to 2400 people in SA – however, they could offer these employees lucrative packages and retraining opportunities at a fraction of the costs that they will save; and there would be a reduced risk of losing jobs in SA due to loadshedding discouraging investment;
  • SA will have to import more aluminium and there would be a negative impact on the balance of payments – however, this is likely to be temporary as the mothballed smelters could be brought back online when generation capacity improves (Medupi and Kusile are online) and aluminium prices rise; and
  • Government’s tax revenue could shrink – but this could be countered by less pressure on economic activity due to loadshedding and could be temporary (for the same reason as stated above).

It is my opinion that the positives far outweigh the negatives. What is even more important is that the positive impact could be felt immediately after the smelters are mothballed. There is no need to wait for generation capacity to be built. I think that this is a very interesting idea that Eskom should explore with immediate effect.

What do you think of this idea? Do you think we should in effect be exporting electricity at a huge loss? Would it concern you that Eskom has to receive additional funding to make such a purchase and would in effect be running aluminium smelters (even if they are mothballed)? Do you not think we should jump at this opportunity? Let me know what you think.

In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


  • 0

Unemployment is lower than you think

The latest official unemployment rate in SA is 25% on the narrow definition and 36% based on the expanded definition. Such unemployment levels are very high compared with other emerging markets. However, a large number of people that are officially unemployed are not so in practice. They do work in and earn an income from the informal economy in SA. Fully taking them into account could mean that SA unemployment is lower than you think with the expanded rate at 18% and the narrow rate at 14% or below.

The UCT Unilever institute has done a great deal of research on what they call the Survivors in SA, people who live in households earning less than R6000 per month. According to them, this equates to 10 million households or 70% of the population. On average, these households earn less than R3000 per month.

What makes these people interesting to the topic of real unemployment is that many of them do a great deal to supplement their income by becoming involved in the informal economy of SA. They do not just depend on social grants. They aspire to be employed as the UCT Unilever Institute found in their Majority Report of 2012. They also do not deliberately get pregnant to receive social grants as the Human Sciences Research Council found in a 2012 report.

As many of you will know, the average township or rural community is abuzz with informal economic activity. An interesting case study that the UCT Unilever Institute considered was Ivory Park in Gauteng, just West of Thembisa. In this 1.5km² area there were more than 2300 informal businesses in 2014, including taverns, hair salons, tailoring, building, personal services, appliance repair, agriculture, art & craft, entertainment, educare, recycling, health services, phone shops, takeaways and other businesses. In addition to this, a large proportion of home owners in the area also supplement their income by renting out part of their space on an informal basis.

Ivory Park is by no means unique and what happens there is the status quo in many other areas of SA. So what does it mean when there are so many informal businesses in SA? Well firstly, it means that our SA economy is larger than the formal measurement. The latest estimate of SA’s gross domestic product (GDP) or size of formal economy is R3500bn. Research from different sources (and please understand that it is difficult to measure the informal economy) puts its size between R280bn and R680bn. That would imply that when including the informal sector, the total SA economy would be between 8% and 19% larger.

Secondly, it means that unemployment in SA is lower (maybe much lower) than formal estimates if we include the informal economy of the country. According to StatsSA, the number of people employed in the formal economy as at June 2014 was 10.8 million, with 2.4 million employed in the informal economy and 8.3 million people being unemployed using the expanded definition. Using the narrow definition, the number of unemployed was 5.2 million with the main difference being that 2.4 million were classified as discouraged work seekers. The expanded unemployment rate at this point was 36% and the narrow unemployment rate, 25% (see the calculations in the table below).

However, according to Adcorp’s June 2014 Employment Index, the number of informal employees were estimated at 6.5 million (compared with the 2.4 million according to StatsSA). This amounts to 3.1 million more employed people than StatsSA allows for. In the table below, I recalculated the expanded and narrow employment rate using the Adcorp estimate of formal employment. As a result, the expanded unemployment rate drops to 18%, while the narrow unemployment rate drops to at least 14% (could be even lower if I use more aggressive assumptions).

Expanded and Narrow Unemployment Rate (Official and based on Adcorp data) – June 2014
StatsSA (‘000)Adcorp (‘000)Comment
APopulation 15-643533235332B + I
BLabour force2342623426C + H
CEmployed1509419215D + E + F + G
DFormal (non agriculture)1075510755Adcorp = StatsSA
EInformal (non agriculture)23796500Adcorp estimate
FAgriculture670670Adcorp = StatsSA
GPrivate households12901290Adcorp = StatsSA
HUnemployed83324211StatsSA H + StatsSA E – Adcorp E
INot economically active1190611906Adcorp = StatsSA
JExpanded unemployment rate36%18%H ÷ B
KDiscouraged work-seekers2419532*StatsSA K – Adcorp L
LAdcorp informal double count assumption*1887StatsSA K ÷ StatsSA H x Adcorp E
MNarrow not economically active1266512665Adcorp = StatsSA
NNarrow labour force2024820248B + I – K – M – Adcorp L (2nd column)
ONarrow unemployed51542920H + I – K – M
PNarrow unemployment rate25%14%O ÷ N

Source: StatsSA Quarterly Labour Force Survey, June 2014; Adcorp Employment Index, June 2014; *: Assuming that under the narrow unemployment calculation, a portion of the Adcorp informal sector has already been counted by StatsSA in the discouraged work-seekers section – the double count percentage set equal the discouraged work-seekers(2.4m) as a percentage of expanded unemployed (8.3m)

Although a 14% unemployment rate is by no means low, with many countries like Vietnam, Singapore, Switzerland, China, Cuba, Mexico, Russia, the UK and the US having lower rates, it would move SA from position 173 to position 133 out of 203 countries according to the CIA World Factbook. SA would look better than countries like Iran, Jamaica, Portugal, Nigeria, Spain and Greece.

Should we be satisfied with the position that our country finds itself with regards to unemployment? Certainly not! We need to generate more formal employment to attract the unemployed, informally employed individuals and discouraged work-seekers into the labour market. Despite some disadvantages of being formally employed, including increased travelling costs, the advantages outweigh the benefits. Income security and supplementary benefits (for many formally employed people) like pension, medical and annual leave are the main benefits to the formally employed. There are also likely to be more career growth opportunities for them.

There is much that can be done in SA to increase formal employment with higher economic growth and a less rigid labour market being the most important. In a previous blog I discussed the potential benefits of nurturing chosen industries in SA and encouraging the immigration of skilled professionals (scientists and engineers) to support these industries and create jobs. In another blog, I asked the SA Government to reduce the red tape and regulations for companies and allow them more freedom to dismiss underperforming workers. I asked them to consider bringing in a youth subsidy or a form of employment where young people can be employed more cheaply (like apprenticeships or internships) so that these people can earn an income, learn more skills and become more productive. Such changes may not sit well with the unions, but in the long-term, they will also benefit from higher employment as it will help to swell their numbers.

So where does this leave us? There are certainly reasons to be unhappy about the employment situation in SA and we need to be critical towards Government because of the slowness of delivery in this regard. However, we also need to come up with solutions and need to find ways that we as individuals can help to improve the situation. Further, we must also be wary not to overplay the position we find ourselves in as this tends to polarize the discussion. As I have shown above, the situation may not be a dire as many people think. Instead of just complaining, we should build on what we currently have.

How much experience do you have with the informal sector in SA? Can you see the jobs that it creates and the incomes that it provides? What do you think needs to happen to employ more people in the formal sector in SA? What can you do to help? In the mean time, keep your talking straight!

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man


  • 0

AIDS epidemic in South Africa is over

Many people in SA still believe that we have an AIDS epidemic in the country. My recent research proves otherwise. HIV/AIDS has become a chronic condition and life expectancy for patients receiving anti retroviral treatment (ART) is higher than for people with Type 2 Diabetes. Government provides treatment for free for patients with a CD4 count of below 500 cells per µl. It is imperative that we reduce the stigma surrounding this disease. People should get tested and treated. The AIDS epidemic in South Africa is over, but there is much more room to improve the lives of those suffering from the disease.

An epidemic is defined as “a disease affecting many persons at the same time, and spreading from person to person in a locality where the disease is not permanently prevalent”. AIDS in SA had all the characteristics of an epidemic in the first 20 years it was present (1985 – 2005). The proportion of the population affected rose dramatically from less than 1% in 1990 to more than 9% in 2001. Total deaths in SA doubled from less than 300 000 per year in the mid-90s to more than 600 000 in 2006 and the average South African’s life expectancy dropped to less than 54 years in 2005 from a high of 62 years in the early 1990s. As a country we were heading towards a cliff with all spheres of life being affected through reduced economic growth, reduced efficiency, a large number of AIDS orphans and a general despondency.  The situation was exacerbated by denialism from Government and the lack of readily available antiretroviral treatment (ART) for those that most needed it and could least afford it.

Then the sun came up in South Africa. Government made an about turn in its policy and from 2004 started rolling out ART. It started slowly, with fewer than 50 000 people covered in 2004, but accelerated rapidly over the next decade. The most recent estimates are that more than 2.7m people are receiving ART. Initially, ART was only available to those patients that had a CD4 count (number of white blood cells that can fight the disease) of below 200 cells per µl. Such people were already very sick with the disease, but got better if they stuck to a very regimental programme of ART drugs. However, many people started treatment too late or could not maintain the regimen and still died. In 2012, Government decided to increase the roll-out of ART to try and include AIDS-sick people earlier. The CD4 count threshold was increased to 350 cells per µl. People that only had mild AIDS symptoms were now also able to obtain drugs. The results were dramatic. The total number of deaths in SA fell to just over 450 000 in 2012 and average life expectancy increased dramatically to over 61 years in 2012, almost as high as pre-epidemic levels.

By 2012, Government had cut drug costs to below R90 per patient per month and started moving towards a single dose therapy. Instead of having to take drugs multiple times a day, the single drug therapy was much easier to adhere to. On top of this, from January 2015, the CD4 threshold again increased to 500 cells per µl. This means that people that show no symptoms, but are tested positive could receive ART. Why would this be necessary? Because being on ART makes you less infectious. Increasing the number of patients with higher CD4 counts could act as a prophylactic, helping to stem the spread of the disease. Further developments such as a monthly injection (already available, but not yet used in SA) and vaccines (positive signs on a number of fronts) could further drive improvements going forward.

In my recently published research (done with the help of co authors from the University of Stellenbosch and Deloitte) we project that the average life expectancy of a South African could increase to over 65 years over the next decade. This is very good news! For HIV positive individuals, for policyholders in the entry-level life assurance market, for SA life assurers and for the country as a whole.

To make sure that people in SA get the full benefit of the improved AIDS environment, it is imperative that the stigma surrounding this disease be addressed. AIDS does not have to be a killer. Being HIV positive is like having any other chronic condition – recent research has shown that HIV positive individuals who have been on ART for more than 6 months have a lower chance of dying than people with Type 2 Diabetes. Treatment is free – if you get tested and your CD4 count is below 500 cells per µl, you can get free ART. Treatment has been simplified – you now have to take one pill a day, which is much easier than having to take insulin injections multiple times a day. Go and get tested and treated!

Reducing the stigma surrounding HIV/AIDS is very important because it will save lives, it will increase productivity and it will allow individuals to get better value for money when it comes to life assurance. But that is a topic for another blog.

If you want a sneak preview and you have the time and inclination, you can download our full paper on AIDS mortality and the presentation that we gave at the 2014 Actuarial Convention.

What is your perception surrounding HIV/AIDS? Do you know people that are positive? Are they receiving treatment? Have you been tested? Until next time, keep your talk straight!

For my regular readers, please excuse the fact that this blog is in large part a duplication of my first blog. However, I felt the need to share it with a wider audience considering my participation in voices.news24.com. A follow-up blog exploring the potential impact of the trend above on funeral insurance products is in the pipeline.

 

Marius Strydom is the owner of MLAX Consulting

https://www.facebook.com/straighttalkingstrydom

https://twitter.com/Marius_Man