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The South African Chamber of Commerce and Industry (Sacci) has announced that it will launch South Africa’s first, and perhaps Africa’s first, Small Business Growth Index (SBGI), which is expected to serve as a leading indicator of small business’ performance, concerns and prospects for growth.

Sacci, in partnership with the Bureau for Market Research (BMR), which is a subsidiary of the University of South Africa, will start collating information through a questionnaire or survey in February and publish the first report in March.

The SBGI will be published on a bi-monthly basis.

Sacci and BMR believe the index can help provide key insights towards achieving greater economic growth and increased job creation in the country, and particularly serve as a guide for government on the necessary support it should provide.

In addition to providing key information on the state of small businesses in South Africa, Sacci services manager Danny Vengadasamy says the SBGI will create an exclusive community from where small businesses are able to access information and share best practice.

Sacci plans to also create a forum and more opportunities for small businesses to participate and contribute information.

BMR has made available R25 000 as an award for the Small Business Ambassador of the Year to help incentivise businesses to fill in the SBGI questionnaire six times a year and participate in the online forum. The winner of the award will be announced when Sacci hosts its next yearly conference towards the end of 2023.

BMR head Deon Tustin explains the organisation chose the Harrod-Domar Growth Model to apply to the theoretical research behind the SBGI and in developing the SBGIs questionnaire, which determines key drivers that need measuring when considering growth potential or growth opportunities.

He says the organisation and Sacci deemed it best to ask small businesses about the challenges they experience in doing business, about changes in the cost of doing business and the state of their finances, among other questions.

BMR and Sacci conducted a pilot study to test the effectiveness of the methodology behind the SBGI survey. The pilot involved a self-administered online survey sent to businesses, using a platform that BMR designed, for submission within a week or two of receiving.

Thirty-nine businesses, mainly operating in the manufacturing sector, participated in the pilot round of the SBGI survey. BMR garnered information about the businesses years of operation, the number of people employed, location, turnover, business structure and business classification.

The pilot survey found that 33% of the 39 businesses are trading with difficulty, while 10% are at risk of closure. Only 15% of the 39 participants cited they are “growing strongly”.

The survey also notes the highest costs impacting on small businesses relate to taxes, wages and transportation at the moment.

Most of the pilot participants foresee increasing their prices moderately, owing to rising input and operating costs, in the next two months.

When asked how long the business would survive given inflation cost pressures and assuming they implement/receive no intervention support, 30% of the pilot survey participants said they would survive between zero and six months, another 20% between 7 and 12 months, and, for 23%, cost inflation pressure is not an issue determining survival.

BMR and Sacci find the top five current small business challenges to be management of cash flow, inadequate capital, macroeconomic development, supply chain slowdowns and an unconducive regulatory environment.

In particular, most participants asked for government intervention in the country’s energy crisis, as electricity outages, or loadshedding, was the topmost cited future concern, alongside the increased cost of goods, increased energy costs and not getting paid by debtors.

About 61% of the pilot participants have weak or critical cash positions. About 25% have concerning or unmanageable de...

Engineering News editor Terence Creamer talks about power utility Eskom's decision to halt further diesel purchases for the remainder of its financial year to March 31, 2023; the impact of that decision on loadshedding and the South African economy; the need for a funding solution to ensure Eskom has the funds it needs to buy diesel and run its open-cycle gas turbines to limit the impact of loadshedding; and a suggestion by one analyst that Eskom should abandon its Koeberg life-extension project.

A new report into the progress government is making in implementing the current five-year Medium-Term Strategic Framework, from 2019 to 2024, has confirmed that energy unavailability represents the single biggest risk to doing business in South Africa, by undermining investor confidence and constraining industrialisation.

It also concludes that government should commit to “solid timeframes” for the review of the Integrated Resource Plan of 2019 (IRP2019) so that electricity demand projections and generating scenarios are more aligned to prevailing circumstances, which have changed materially since the publication of the IRP2019.

Department of Planning, Monitoring and Evaluation (DPME) director-general Robert Nkuna said that, in drafting the report, it became evident that “too many things had happened since 2019” which had affected the relevance of the IRP2019.

“So we can’t continue on the same trajectory, including the work that we're doing on the just energy transition, [without these being] factored into the IRP.

“So, we are going to be engaging with the department concerned to ensure that we attend to that issue,” Nkuna said, noting that such interactions required Cabinet to first approve the DPME report, a milestone that was achieved two weeks ago.

Mineral Resources and Energy Minister Gwede Mantashe has confirmed that the IRP2019 – which is widely considered to include outdated demand, coal fleet energy availability factor (EAF), decarbonisation and technology cost assumptions – would be reviewed.

However, no firm timeframe has yet been set for the finalisation of the update, nor for the initiation of public consultations on the plan, which makes specific technology allocations and also outlines by when those technologies should be introduced.

Such determinations are activated through the publication of a Ministerial determination and technologies not included can be built only if an exemption is secured from the department, with the concurrence of the National Energy Regulator of South Africa.

The DPME report also concludes that the method for procuring electricity from independent power producers should be updated too allow for a consolidation of bid windows and to reduce project lead times.

No specifics were provided on what the new procurement framework would involve, but the call for an update comes amid serious procurement delays that have afflicted both the fifth renewables bid window and the so-called risk-mitigation procurement round.

INDEPENDENT EAF ASSESSMENT

The report also says that an independent assessment of Eskom’s EAF should be undertaken to review the target, the recovery of which is a feature of the energy action plan announced by President Cyril Ramaphosa in July to address intensifying loadshedding.

The new Eskom board has set a 75% EAF target, which energy commentators have described as both unachievable and open to manipulation.

Eskom executives have dubbed the target as “daunting” and have outlined plans for an EAF recovery to about 60% over the coming year. For the year to date, Eskom’s EAF has slumped to about 58%, with the coal-fleet-only EAF having fallen to about 53%.

The slump is central to what has been South Africa’s worst-ever year for loadshedding, the risk of which had increased further in recent weeks as Eskom confirmed that it had exhausted its diesel budget and was nevertheless preparing to move ahead with the extended maintenance of the Koeberg nuclear plant, which would leave it a unit short for most of 2023.

Minister in the Presidency Mondli Gungubele said having greater certainty of the EAF was also crucial for the updating of the IRP2019, as the EAF assumption affected the supply/demand outlook.

He also argued that, while “Eskom is not a good story” the other components of the energy action plan, which was being overseen by the National Energy Crisis Committee (Necom), were making headway, including the lifting of the current 100 MW ceiling on embedded generation plant.

That ...

State-owned freight logistics group Transnet says that is has concluded the evaluation of applications received for sale of rail slots on the Container and Cape corridors, following the initiation of a process on April 1 whereby bids were invited from the private sector for an initial 16 slots.

Despite criticism of the design of the slot sales, especially the fact that they would be valid for only two years, Transnet confirmed that it did receive bids by the August 31. However, it did not disclose the number of submissions, nor the identities of the bidders.

In a statement issued on November 23, Transnet reported that governance activities were now under way following the completion of the bid-evaluation phase, including the recommendation and final approval of the evaluation outcome for both the Container Corridor (Gauteng to Durban) and the Cape Corridor (Gauteng to East London).

“Once the final approval of the outcome has been granted, it will be communicated accordingly,” Transnet said, again without disclosing the number of bids that were evaluated.

No specific date was provided for the announcement of preferred bidders, nor was a timeframe provided for how long such bidders would have to achieve financial close.

Transnet is, however, under pressure to open up its network to third-party operators owing to the underperformance of Transnet Freight Rail (TFR), particularly on the Container Corridor, and the fact that the reform has been prioritised for implementation under Operation Vulindlela.

The 714-km Container Corridor links the Port of Durban to Gauteng both through Transnet’s inland terminals at City Deep, Kascon, Pretcon and Kaalfontein, and several accredited private sidings.

Transnet again confirmed that the slot-sale system would operate by means of temporary occupation of sections of the network to enable end-to-end passage of a train, TFR retaining ownership of the network.

“The sale of these slots to third-party operators expands the access that Transnet already grants to PRASA, approved Branch Line Operators, the luxury hospitality services provided by Rovos Rail and the Blue Train and Steam Train Operators to the rail network.

“In terms of this phase of the project, third party slot access will be valid for a two-year period with a contracting period of 24 months in terms of which the parties will enter into a Third-Party Access Agreement for the period.”

Transnet said the first phase will also provide key insights as inputs to the development of a robust policy implementation framework.

JSE-listed Telkom on Wednesday reported a double-digit decline in earnings and flat revenue for the six months ended September 30 amid a tough operating environment characterised by constrained consumer spending and rising operating costs.

A sluggish economy, increasing electricity and fuel prices, rising interest rates cycle and high unemployment, which constrained and impacted levels of consumer spending, negatively impacted the group’s performance during the half-year under review.

Earnings before interest, taxes, depreciation and amortisation (Ebitda) declined 17.3% to R4.9-billion, with a 4.7 percentage point Ebitda margin decline to 23.4%, during the first six months of the year, owing to flat revenues, changes in the consumer product mix and increased operating expenses, including costs related to loadshedding.

A 31.4% increase in the cost of handsets, equipment, software and directories, following higher mobile handset sales of 19.7% and the increase of 73.1% in information technology (IT) hardware and software revenue, contributed to the lower Ebitda.

“Total operating expenses increased by 5%. The increase stayed well below inflation. The main contributor to the rise in service costs is expenses to ensure uninterrupted service during loadshedding,” said Telkom Group CEO Serame Taukobong.

Service fees increased 21%, driven by a significant increase in diesel expenses, owing to increased loadshedding, and higher advisory fees incurred, mainly attributable to mergers and acquisition-related transactions and key strategic projects.

Headline earnings a share contracted 51.9% to 137.2c and basic earnings a share declined 52.5% to 131.6c during the six months to September 30.

Telkom reported a 0.7% decline in revenue to R21.2-billion, driven by good traffic growth and an increase in mobile handset and IT hardware and software sales, offset by the impact of legacy product migration and a decrease in fixed, mobile and IT service revenue owing to the strained economic conditions.

Telkom’s Consumer division reported a 10.9% increase in mobile customers to 18-million subscribers, with 61.1% of customers using broadband services.

Despite a 14.1% increase in mobile data traffic, mobile revenue from external customers remained flat at 2.3%, owing to the changes in the product mix to ensure Telkom retains and grows mobile subscribers, while also retaining its value positioning of providing affordable services.

“The plan to stabilise Openserve continues positively, with 65% of revenue now coming from next-generation products and services. The growth in high-capacity links for carriers, an increase in demand for fibre services and growth in enterprise connectivity is also pleasing,” Taukobong continued, noting, however, that despite a 10.8% growth in next-generation revenue, Openserve’s total revenue declined by 4.3%.

Openserve continued with its growth trajectory in the fibre market, increasing homes passed with fibre by 35.8% and homes connected with fibre by 33.7%.

Openserve currently has the highest homes connected ratio in the country at 46.2%.

BCX, meanwhile, reported a 0.8% growth, boosted by a satisfactory 13.7% growth in IT business revenue.

This segment was muted for the past two-and-half years as corporates reduced IT spend.

Swiftnet experienced a 2.1% decrease in revenue to R660-million, driven by the impact of continued focus on modernisation from mobile network operator (MNO) customers.

“We expect modernisation to continue over the next year, coupled with the deployment of new base station sites as the MNOs deploy their respective newly acquired permanent spectrum allocations,” says Taukobong.

Management is continuing to explore various options of realising the value of the mast and towers business and will update the market in due course.

“During the period under review, capital investment increased by 2.2% to about R3.7-billion, as we continue to focus on investing in fibre and mobile, our key growth areas. We are co...

Altman Advisory director, economist and National Planning Commission (NPC) commissioner Miriam Altman has emphasised the importance of public infrastructure in light of South Africa’s transformation agenda and getting people in houses and closer to transport networks and services, in addition to its role in stimulating the economy.

She was participating in the Business Day Dialogues, held in partnership with building materials manufacturer AfriSam, on November 22, with speakers debating whether infrastructure spend can still be a saving grace for South Africa’s economy, given the headwinds facing the industry.

The parties unpacked the value chain factors that should be well thought out and managed to achieve a prosperous South Africa and the National Development Plan objectives.

Continuing to drive spend with real impact had been a challenge, panel moderator and BASE Media Communications director Alishia Seckam said, in leading the panel discussion.

Altman highlighted the single-most important factor in realising impactful infrastructure spend was a capable State and it being a reliable partner. “So much capacity was destroyed during State capture. When you destroy the procurement function, which is vital in infrastructure delivery, you decimate institutions and performance management.

“Procurement has to be made a transparent and serious function, with technically capable people at the helm of these processes and decisions,” she stated, adding that the NPC was trying to embed these principles into its suggestions, from how leaders were appointed to how administration was undertaken.

She said that, as the procurement functions of national, provincial and municipal governments are strengthened, more structural reforms and infrastructure spend can get in the range of the State’s capability.

For Cement and Concrete SA CEO Bryan Perrie, a fundamental problem in the infrastructure sector was that of a lack of accurate statistics and information from the National Regulator for Compulsory Specifications, as well as the dumping of building materials in the country.

He explained that, although South Africa had a cement production capacity of 20-million tonnes, it was producing only about 12-million tonnes, according to demand, and yet imports continue coming in.

“We have managed to get anti-dumping tariffs for Pakistan imports, but what we need is a general import tariff through International Trade Administration Commission.

“We believe that many of these foreign cement suppliers are competing on an unfair basis, since they often do not have to comply with social and labour plans, for example,” Perrie noted, adding that the regulator does not always test all the necessary tonnages, certainly does not share information and ignores complaints lodged.

Business Day writer Denene Erasmus noted a common problem in the South African government was that of not implementing what were “excellently drafted” plans.

She said that if renewable energy projects, for example, were to fill the 22 000 MW electricity gap from Eskom decommissioning half of its coal-fired fleet by 2035, and spur vital infrastructure development, the State needed to set its own ideologies aside and relax some restrictive rules to allow the private sector to unlock development.

To this, Altman responded that it was not ideal to “relax” procurement rules, owing to the country’s localisation and transformation imperatives, and that the State would always be needed in infrastructure developments. She believed the private sector could not effectively undertake all of the country’s necessary development on its own, despite the regular requests for this to happen.

AfriSam sales and marketing executive Richard Tomes said the infrastructure sector was plagued by a lack of skills, hence the awarding of contracts to foreign companies by the only entity that was still regularly spending on infrastructure – the South African National Roads Agency Limited (Sanral).

He questioned whethe...

Forestry, Fisheries and the Environment Minister Barbara Creecy reports that public consultations on the country’s Just Energy Transition Investment Plan (JET-IP), which was unveiled only days before the start of COP27, should be concluded by mid-February.

In a briefing following the conclusion of the climate negotiations that took place in Sharm el-Sheikh, Egypt, Creecy said that the Presidential Climate Commission would help facilitate the consultations, which she said would “fundamentally assist us in shaping the implementation plan”.

Responding to criticism over the lack of domestic consultation ahead of the plan’s presentation, in Egypt, by President Cyril Ramaphosa to the Just Energy Transition Partnership (JETP) countries of Germany, France, the European Union, the US and the UK, she stressed the JET-IP required Cabinet approval before it could be released for consultation.

She also stressed that the Cabinet had also endorsed the Just Transition Framework, which committed government to refrain from “making decisions around transitions without involving workers and communities in vulnerable sectors”.

“On the Friday [November 4] before the opening of COP27, the President handed the JET-IP over to the Presidential Climate Commission to facilitate engagements and we are discussing a process that would probably conclude mid-February,” Creecy said.

The JET-IP outlines investments valued at a combined R1.5-trillion that should be made in the electricity, electric vehicle and green hydrogen sectors over the five years from 2023 to 2027 to enable South Africa to meet its climate commitments, stabilise energy supply and cushion vulnerable workers and communities.

The plan has been endorsed by all the leaders of the JETP countries, which pledged $8.5-billion to support South Africa’s JET-IP at COP26, which was held in Glasgow, Scotland in 2021.

Besides emphasising that South Africa required far more than the $8.5-billion on offer, Creecy reported that Ramaphosa also used his meetings in Egypt to reinforce that South Africa required highly concessional loans and grants to support its transition.

“He also indicated that the government of South Africa will now employ a project manager who will be responsible to implement the JET-IP as soon as the Presidential Climate Commission concludes its work on stakeholder consultations.”

Hitherto, the Presidential Climate Finance Task Team, headed by Daniel Mminele, had overseen the drafting of the JET-IP, which had already resulted in France’s Agence Française de Développement (AFD) and Germany’s Kreditanstalt für Wiederaufbau (KfW) advancing loans of €300-million apiece to the National Treasury.

Both loans had a 20-year maturity, with the AFD loan carrying an interest rate of 3.6%, and the KfW loan 3%. In a recent statement the National Treasury estimated that raising an equivalent loan in the market would have attracted an interest rate of 8.9%.

Asked whether any progress had been made on the side-lines of COP27 in attracting additional members to the JETP and expanding the funding pool for the JET-IP, Creecy confirmed that she had held several bilateral meetings with other prospective partners.

“I'm not in a position at this stage to announce anything concrete, but I can say there is interest and we do expect, in due course, that we will be able to announce the inclusion of further partners.”

The JET-IP would also feature as part of Ramaphosa’s State visit to the United Kingdom of Great Britain and Northern Ireland; the first to be hosted by King Charles III and a visit that includes official bilateral talks with Prime Minister Rishi Sunak.

In her overview of COP27, meanwhile, Creecy indicated that South Africa viewed the agreement on the establishment of a fund on loss and damage as a key milestone in light of 30 years of disagreement on the issue.

She said a transitional committee had been set up to work on the modalities of the fund with a view to taking a decision at COP28 in 2023.

“...

Heavy-duty equipment multinational Barloworld says it will unbundle and separately list Zeda, the group’s integrated vehicle mobility solutions provider.

Zeda trades under the Avis and Budget brands in South Africa, as well as ten other sub-Saharan African countries.

The unbundling will be implemented by way of listing 189-million ordinary Zeda shares on the main board of the JSE, effective December 13, as well as a pro rata distribution in specie of such JSE-listed Zeda distribution shares for no consideration to holders of Barloworld ordinary shares entitled to receive this distribution on December 19.

Moreover, the unbundling will be implemented on the basis that Barloworld ordinary shareholders recorded on the Barloworld share register at 17:00 on December 15 will receive one Zeda distribution share for every one Barloworld ordinary share held.

Barloworld explains the pro rata distribution in specie of the Zeda distribution shares will be paid from sources other than 'contributed tax capital' as contemplated in the Income Tax Act and shall accordingly constitute a 'dividend' for purposes of the Income Tax Act.

RATIONALE

Barloworld is actively pivoting its portfolio towards defensive, relatively asset-light and cash generative industrial sectors, based on a business-to-business operating model.

To this end, Barloworld has divested several businesses identified as noncore to its strategic ambition.

The board believes that, to separate the business of Zeda through an unbundling will enable Zeda to execute on its own strategy and allow it to operate in a more focused and efficient manner, unshackled by the umbrella of Barloworld’s capital allocation framework.

Additionally, the Barloworld board says Zeda will benefit from a fully dedicated executive management team and its own dedicated board of directors.

It is expected that the unbundling of Zeda will position it as a distinct sub-Saharan Africa-focused integrated mobility solutions providers and provide enhanced governance, cost of capital and ability to drive a market-leading return profile.

For Barloworld, the unbundling marks the completion of its noncore divestiture programme, allows the group to focus on its consumer industries and industrial equipment pillars, and delivers deleveraging of the balance sheet.

FINANCIAL RESULTS

Barloworld has posted an increase of 48.2% in headline earnings a share to R17.71 for the year ended September 30, from R11.95 (restated) in the prior financial year.

Basic earnings per share (EPS) amounted to R10.51 in the reporting year, compared with basic EPS of R13.90 (restated) posted in the prior year.

The group’s operating profit from core trading activities increased by 12.8% in the year under review to R3.7-billion, from R3.2-billion in the prior year.

Barloworld has declared an ordinary final dividend of 295c apiece for the second half of the year, bringing the total dividend to 460c apiece, and a special dividend of 550c apiece.

This compares with total ordinary and special dividends of 437c and R13.50 declared in the prior year, respectively.

CEO Dominic Sewala says the group delivered improved results despite some key challenges in the prevailing operating environment,

He anticipates headwinds in the short term resulting from the effects of high inflation; however, the Equipment Southern Africa business is well positioned to achieve sustainable growth in the long term, driven by the need for infrastructure development and increased mining activity to support the energy transition to zero-carbon emissions.

Barloworld says it continues to manage exposures and risks to its Equipment Eurasia business including a strong focus on addressing the needs of employees through a very uncertain and challenging period, while remaining agile and adaptable to ensure compliance with an ever-changing regulatory environment.

Sewala confirms the company has started with cost-reducing measures and right-sizing working capital, in line with some expect...

Cement producer PPC says it is well positioned to benefit from any uptick in South African cement demand given that it has immediate capacity on standby that will require no additional capital expenditure to reintroduce.

However, CEO Roland van Wijnen stresses that without a significant increase in infrastructure investments, South African demand is anticipated to remain subdued.

“We have two kiln lines – one at Dwaalboom and the other at Slurry – that are literally on standby,” Van Wijnen told Engineering News in an interview.

Should these be reintroduced, at least two-million tons could be brought on within weeks, as the group demonstrated was feasible when there was a rebound in demand following South Africa’s Covid lockdowns.

Given that cement demand is highly sensitive to fixed capital formation, any recovery is likely to hinge, however, on the implementation of large infrastructure projects.

Such large projects had already proved key to supporting a growth in sales for Cimerwa, in Rwanda, in which PPC has a 51% interest.

Despite sustained general demand from both Rwanda and from the eastern Democratic Republic of Congo, Van Wijnen said demand had been buoyed further by two large projects, in the form of an airport and a stadium.

During the six months to the end of September, Cimerwa delivered its best-ever result, contributing revenue of R771-million, a rise of 43%, and earnings before interest, taxes, depreciation, and amortisation (Ebitda) of R249-million, a 63% increase.

Therefore, Van Wijnen described the recent award of large contracts by the South African National Roads Agency Limited as “encouraging”. He also saw the infrastructure-related announcements made by Finance Minister Enoch Godongwana in his Medium-term Budget Policy Statement as a signal of a possible recovery.

That said, the group was continuing to pursue protection from cement imports, which it said would continue to "disrupt" the market even should their be a recovery in demand.

“We are well placed to supply any increase in demand as the roll-out of the South African government’s infrastructure development plans gain momentum.

“At the same time, PPC has a strong financial position to weather the current economic cycle.”

During the six months to the end of September, PPC reduced net debt in South Africa and Botswana by R140-million to R935-million. Overall, including PPC Zimbabwe, group net debt reduced to R677-million from R1-billion at the end of March.

Stripping out discontinued operations and hyperinflation-afflicted PPC Zimbabwe, revenue rose 9% to R4.2-billion during the period, but Ebitda decreased by 12% to R580-million with margins impacted by significant increases in fuel and other energy costs.

Loadshedding in South Africa had a marginal effect on PPC’s cement business, owing to close cooperation with Eskom in managing the cuts, but placed pressure on its aggregates business.

Nevertheless, the group continued to pursue its renewable-energy options and Van Wijnen reported that it was likely to conclude a power purchase agreement for wheeled electricity supplied by an independent power producer in the coming four to six months.

Engineering News editor Terence Creamer discusses Eskom's latest updates on loadshedding and its diesel use, as well as Eskom's plans for the recovery of some of its power stations and whether it will be able to deliver on those plans.