INCE|Connect News

Capco confirms interest in Earls Court. The central London property owner says it will evaluate the terms of any proposed offer against the merits of a demerger and other options.

Capital & Counties Properties has confirmed speculation that it's making headway in its preparations for a possible demerger of its property assets. However, the central London property investor says it's also received a number of proposals in relation to its interests in Earls Court which it's considering. These include discussions talks with Hong Kong-based property developer CK Asset Holdings on a conditional proposal for the sale of most of its interests in Earls Court Properties, excluding its Lillie Square residential joint venture.

Earlier this year, Capco said it was considering separating into a real estate investment trust that would own the central London shopping district of Covent Garden and a development company focused on the Earls Court regeneration project.

Capco itself was formed in 2010 out of the demerger of Liberty International's UK assets, which separated its central London-focused investment and development division from its shopping centres business, which was renamed Capital Shopping Centres at the time and subsequently become intu properties. Liberty International was founded by Donald Gordon.

The company said it would evaluate the terms of any proposal against the merits of a demerger and other options.

At this stage there is no certainty that a transaction will proceed and any transaction would be expected to be subject to closing conditions," Capco said.

Its shares closed 4.4% up at R49.65. The announcement was made after the close of trade.

Billionaire Li Ka-Shing's CK Asset is in talks to buy into Capital & Counties Earls Court project. Scoop on @TheTerminal

-- Jack Sidders (@JackSidders) November 5, 2018

Capco: Like this one, a lot. Two-year consolidation continues. Possible sale of Earls Court may be the trigger for a break. Pre-demerger this is a one-time opportunity for a buyer. Capco ex EC with the blue-chip Covent Garden and low debt would be a very attractive investment. pic.twitter.com/a7SHaxPZWb

-- Karin Richards (@Richards_Karin) November 5, 2018

AngloGold plans more streamlining. The gold producer says costs are trending towards the lower end of guidance and production towards the upper end, while capital expenditure guidance has been revised downwards.

AngloGold Ashanti may sell off more assets even after it streamlined its operations to rid them of high-cost production.

Releasing a third-quarter update yesterday, new CEO Kelvin Dushnisky said the gold producer had initiated a process to identify third parties that may be interested in buying its stake in its Sadiola Sulphide Project in Mali. It owns an 82% interest together with IAMGOLD. However, it said the process was at a preliminary stage and there was no certainty of its outcome.

The company sold a number of low-margin SA mines last year, helping it return a profit for the six months to end-June. It used the proceeds to reduce debt and strengthen its balance sheet. It said it remained on track to complete the remaining restructuring of its SA cost base, to better match its support infrastructure to reduced production.

For the three months to end-September, it maintained production from its retained mines at 851 000 ounces, while all-in sustaining costs declined by 15% to $920 an ounce. It said full-year production was likely to come in at the top end of its guidance, while costs were trending towards the lower end. Non-sustaining capital expenditure was also revised downwards. Net debt decreased by 15% year-on-year to $1.75 billion.

It said its Mponeng mine in South Africa, Kibali in the Democratic Republic of Congo, Iduapriem in Ghana and Tropicana in Australia all reported strong production and cost improvements. This was offset by a weaker quarter from Siguiri in Guinea and AGA Minerao in Brazil.

The all-injury frequency rate for the quarter improved 41% year-on-year to 4.17 per million hours worked. It said that was the lowest in its history and demonstrated its ongoing focus on safety alongside fundamental operating improvements.

This is a strong operating result that shows our absolute focus on safety and margins," CEO Kelvin Dushnisky said. "While we continue to work on improving efficiencies right across our asset suite, we're also making steady progress on our projects, which are aimed at improving the overall quality and life of our portfolio."

Its shares closed 4% up at R146.67.

Adapt IT boosts mobile capabilities in R80m deal. The ICT group says the R80 million purchase of Conor will strengthen its telecommunications division.

Adapt IT has bought mobile specialist Conor Solutions in a deal that it says will strengthen its telecommunications offering. The R80 million acquisition will give it access to key proprietary software customers and markets

Conor operates in the information and communications technology (ICT) sector and focuses on providing mobile technologies to mobile operators, banks, enterprises and SMMEs in Africa and South America. The company was founded in 2007 and has 60 staff members. Its net assets were worth R13.2 million at the end of March and it generated R87.8 million in revenue last year. Attributable profit for the year was R17.7 million.

The company is controlled by Jed Holdings, whose ultimate beneficial shareholders are Edwin van Zyl, Jacob Oosthuizen and Duncan de Klerk.

Adapt IT said the acquisition would improve revenue and geographic diversification as the Conor customer base creates cross-selling opportunities in local and foreign markets for its telecommunications software solutions.

Adapt IT will pay R48 million for the company once the deal closes and will put the remaining R32 million into an escrow account, which will be paid to the vendors with any accrued interest after two years.

The acquisition will provide Adapt IT with access to key proprietary software, customers and markets in the telecommunications space in South Africa as well as key markets in Africa including DRC, Tanzania, Lesotho and Namibia," the company said.

The deal remains subject to a number of conditions, including the approval of the boards of both companies.

Adapt IT's shares declined 0.3% to R6.97 yesterday.

Breaking news! Adapt IT acquires Conor Group for R80 million. "The Adapt IT telecommunications division solution offering is strengthened by the Conor acquisition". concludes @SbuShabalala , CEO of Adapt IT. Read more here - ... ... pic.twitter.com/dr186QvvQk

-- Adapt IT (@AdaptITSA) November 5, 2018

MOTORING: Peugeot 208 GT Line AT: Sometimes, good enough just isn't enough. It's been around since 2012, so the 208 isn't a newcomer by any stretch. Even its revitalised GT Line flagship, released earlier this year, is a familiar sight by now.

In theory, it's a model that represents a strong challenge to the established favourites, given that it has a decent dose of power and good standard spec for the price. It still holds its own from a styling point of view, too.

The front end has been beefed up with a new bumper, revised headlight clusters with LED running lights, and repositioned fog lamps. Peugeot's unique grille treatment, with its red accents and chrome bits, gives the 208 GT Line welcome attitude.

The hatchback wears its compact dimensions very well, giving the impression of sporty sophistication and a good measure of individuality. The 17-inch alloy wheels and LED tail lights also add to its appeal.

Inside, it's a similar story. Slip into the driver's seat and you may think you've dropped into a serious pocket rocket because of the tiny steering wheel and supportive cloth-and-leather bucket seats.

The former is a particular highlight, not simply because of the way it feels when using it, but because of how it fits into a unique (and not always popular) cabin execution that Peugeot calls the i-Cockpit.

Instead of looking at the instrumentation through the steering wheel, the view of the compact instrument cluster is instead over the top of the wheel. It's a clever take on the standard set-up, and works well in practice -- even if taller folk won't agree.

To the left, a 7-inch touchscreen houses a vastly improved infotainment system. It used to be a clunky, user-hating set-up that was about as much fun to operate as a rusty bear trap.

Peugeot has done some serious coding though, and the result is a simplified and intuitive operating system that now looks better and works more smoothly. It includes Apple CarPlay and Android Auto, too -- and there's Bluetooth for the old school.

Other interior bits include cruise control, dual-zone climate control and rain-sensing wipers. For less money than a Polo 1.0TSI Comfortline or Ford Fiesta 1.0T Trend, you get these features as standard -- they cost extra in the aforementioned pair.

The mix of materials in the 208 GT Line includes leather and decent quality plastics. Space utilisation is good (including the boot), but there are some ergonomic concerns -- which have been around for a while.

The cupholders in front of the gear lever are small and awkwardly placed --retrieving a hot cappuccino is only mildly less awkward than slotting one in there in the first place. Similarly, the cubby is a tiny space that doesn't offer much in the way of storage.

That said, it is one of the few places you can keep a moderately-sized mobile phone, because every binnacle near the driver is either too small or not very conveniently designed. Or already taken by a hot cappuccino you then struggle to retrieve.

Even so, it's an interior that requires some adjustment on the driver's part, rather than providing a reason to avoid opting for a 208 GT Line. You see, once it's on the move, this little car's... foibles, shall we call them, are dissolved by the rest of the package.

Powered by a 1.2 litre three-cylinder turbo engine, the 208 GT Line puts out 81kW and 205Nm, and will deliver a sub-10sec 0-100km/h sprint time.

Like so many good engines of similar configuration, the power delivery is surprisingly strong and enjoyably linear, on top of which there's the fantastic three-cylinder soundtrack, which is reminiscent of a flat-six.

The test car's six-speed auto gearbox is smooth and unobtrusive, helping deliver an easy commute without missing a beat. It has a shifter-actuated manual mode, but it doesn't add any sort of sportiness to the drive: instead, it simply provides an operator override when you don't feel like letting the car make up its own mind.

Not fitting the GT Line with shift paddles would seem like a glaring omission, but it would have been a rather futile exercise. Applying a bootful of throttle does nothing to hurry up the shifts, and so the immediacy that paddles promise would have been wasted.

Under thrill-seeking circumstances, the 208 GT Line does display some skill, though: it has good grip through corners and doesn't lack abilities when it comes to braking and general composure.

But it also doesn't have any desire to drive in a way suited to a challenging road. It's much happier, and more enjoyable, when making its way through traffic, or cruising on the highway.

In those conditions, it delivers a driving experience that's comfortable in every sense: a good suspension setup manages rougher surfaces without complaint, the steering has just the right amount of weight to it, and interactions with all the car's controls are positive.

Similarly, the engine may be modest in size, but it's more than capable, and leaving it to work together with its auto 'box delivers pleasing motoring in everyday situations.

In short, there's lots to like and little to complain about. Yes, the ergonomics are occasionally frustrating, but the 208 GT Line's greatest downfall has nothing at all to do with the car itself.

Consider its case against the Ford Fiesta 1.0 Trend Auto and Volkswagen Polo 1.0 TSI Comfortline Auto.

The 208 GT Line offers a similar service plan and warranty. It has more power than both, and a price tag that's 10 grand lower, even though it has a higher level of standard spec.

It doesn't lack in safety terms either: Just like the other two, it has ABS, EBD, brake assist and six airbags. In theory, the Peugeot should have no problem competing for sales.

But the unfair, and frankly outdated, legacy of "French car inferiority" seems to have struck hard.

Also, let's not forget that unsatisfactory service levels remain the bugbear of many lower-volume brands. The product may be great, but it's only going to be as good as the service supporting it.

With the 208 GT Line being such a competent package, it's difficult to fathom another explanation for the fact that Ford sells 10 times as many Fiestas in a month than Peugeot sells 208s -- never mind Volkswagen selling over 10 times as many Polos as Fiestas...

However, for those prepared to throw convention to the wind, and opt for something a bit more individual than the top sellers, the Peugeot 208 GT Line makes perfect sense. And yes, it's certainly good enough. DM

PROS

Good standard spec, with individual style inside and out. Competent and enjoyable.

CONS

Some ergonomics aren't particularly well thought out.

VITAL STATS

Peugeot 208 GT Line Auto

Engine

In-line three-cylinder, 1,199cc, turbo petrol

Power

81kW @ 5,500rpm

Torque

205Nm @ 1,500rpm

Power-to-weight ratio

70.43 kW/ton

Gearbox

Six-speed automatic, FWD

Wheels/tyres

17-inch alloy, 205/45 R17 tyres

0-100km/h

9.6sec

Top speed

190km/h

Fuel tank capacity

50 litres

Fuel consumption (claimed)

4.7 litres/100km

Operating range (claimed)

1,064km

CO2 emissions

104g/km

Retail price

R 279,900.00

ANALYSIS: After a week of horror, Gigaba needs to rope-a-dope for survival. If President Cyril Ramaphosa wanted to, he could sack Home Affairs Minister Malusi Gigaba on the back of the public protector's determination. It would not be his first instance of linking a finding of a breach of executive ethics with removal from Cabinet.

In letters dated 1 March 2018 Ramaphosa informed National Assembly Speaker Baleka Mbete, under the heading of "Report of the public protector into alleged violations of the executive ethics code..." that he had "relieved of duties", respectively, former public enterprises minister Lynne Brown and former co-operative governance minister Des van Rooyen. The letters were tabled in the Announcements, Tablings and Committee Reports (ATC), or Parliament's record of work.

Both ministers lost their Cabinet jobs in the reshuffle at the end of February 2018. Van Rooyen stayed on in the ANC benches in Parliament. Brown, who maintained she had not misled Parliament as Eskom had lied to her when it said the power utility never paid the Gupta-linked Trillian, resigned as MP.

Ramaphosa has 14 days to make his decision on what action to take in line with Public Protector Busisiwe Mkhwebane's report that upheld DA Chief Whip John Steenhuisen's complaint that Gigaba had lied under oath and thus violated the Constitution, Executive Ethics Act and codes, that requires of members of the executive to "act in good faith and in the best interest of good governance" and also "consistent with the integrity of office or government".

Central was whether or not Gigaba had given permission for the Oppenheimer-owned Fireblade Aviation to operate a private terminal at OR Tambo International Airport. While the minister said he did not, the Oppenheimers said yes, he did - that's also what billionaire businessman Nicky Oppenheimer told Parliament's home affairs committee on Tuesday - and successfully took him to court. In December 2017 the Pretoria High Court found Gigaba had told "deliberate untruths", a ruling upheld by a full Bench of the Pretoria High Court in January 2018:

"The minister has committed a breach of the Constitution so serious that I could characterise it as a violation," that judgment said.

Gigaba's legal bid to appeal this was stopped once and for all when - after the Supreme Court of Appeal in late March having said there was no prospect of success - the Constitutional Court on Thursday found the same: "... the application for leave to appeal should be dismissed as it bears no prospect of success".

Fireblade Aviation in a statement on Thursday welcomed this.

"With this decision, these legal proceedings have now concluded. We are satisfied with the result and the manner in which the legal process has culminated in a just and fair outcome," it said in a statement.

The Presidency on Thursday confirmed that the public protector report was in Ramaphosa's in-tray.

"He will apply his mind to it and options available to him and decide appropriate course of action thereafter," said presidential spokesperson Khusela Diko.

The 14-day countdown has effectively started for Ramaphosa to take action as outlined in Mkhwebane's determination. Then the president has to inform Mbete, who as Speaker then has 14 days to refer the matter to Parliament's joint ethics committee as ministers, except for two, are also MPs and thus bound by the parliamentary code of conduct and ethics. Ramaphosa has all of 20 days to let Mkhwebane know what he's done.

There are lots of time lines, and Ramaphosa doesn't move fast, or directly.

It took seven months after first suspending tax boss Tom Moyane in March to sack him with immediate effect on Thursday. That happened on the back of the recommendation of Judge Robert Nugent in an interim report on inquiry into governance issues at the South African Revenue Service (SARS).

According to a statement by the Presidency, Ramaphosa wrote to Moyane that the Nugent Commission "paints a deeply concerning picture of the current state of SARS and the reckless mismanagement which characterised your tenure as Commissioner of SARS".

"Of further, and in many ways greater, concern is your (Moyane's) refusal to meaningfully participate in the SARS Commission in order to assist with identifying the root causes of the systemic failures at SARS and ways in which to arrest these."

And the process of finding a new National Director of Public Prosecutions following the August 2018 Constitutional Court ruling that Shaun Abrahams' appointment by former president Jacob Zuma was invalid, will take 90 days. A panel of legal organisations and independent public institutions chaired by Energy Minister Jeff Radebe was established on 14 October, and agreed to have recommendations for presidential considerations by 7 December. It's cutting it fine, but it will be done.

On Gigaba, Ramaphosa is unlikely to move rashly, given he has 14 days. As ANC president Ramaphosa would be keenly aware of the finely balanced factional interests; just because these are no longer up front in everyone's face doesn't mean they are not simmering on.

The politicking around Gigaba could be tricky: once firmly associated with the radical economic transformation grouping linked to Zuma, he's not part of the pushback against Ramaphosa, but also not quite enjoying the full trust of the other side.

Before the 14 days are up, there'll be a few other things happening. The ANC this weekend holds a special meeting of the National Executive Committee (NEC), its highest decision-making structure between national conferences. And on Monday the ANC Top Six officials have their regular meeting, with "the issues facing Gigaba" on the agenda, as the party Treasurer-General Paul Mashatile told the SABC.

"It's important as the officials of the ANC we are abled to consider this matter in detail...We may well even want to hear the affected comrade," Mashatile said.

Gigaba may well decide to fall on his own sword and resign from Cabinet. It remains to be seen how likely that is for a career politician who unlike, say, Nhlanhla Nene, whose resignation as finance minister and MP came quickly for having lied about meeting the Guptas, has few prospects of private sector professional opportunities. Gigaba grew up in the ANC, and led the ANC Youth League from 1996 to 2004, becoming its youngest president ever at age 25. And his career has revolved around the politics of the governing party and elected public office.

If he resigns from Cabinet, he can stay on as MP. It's a gamble, this close to elections, but the list processes can be kind and the ANC is forgiving to those who humble themselves, as the party language puts it.

Or he can stay on in the executive, arguing that the public protector was wrong and he's taking the report on review to court. The prospects of that remain an uphill, almost impossible battle given the Constitutional Court's rejection of the leave to appeal application.

Or he can take a gamble that the president of the country, aware as president of the governing party of the finely-balanced factional interests in the ANC, will take a step short of dismissal. For example, a written reprimand that may or may not amount to a significant censure.

In the cross-section of politics and governance often there are various options available. In late April 2016, in the wake of the Nkandla Constitutional Court judgment, the then president Zuma gave effect to the public protector's determination that he needed to reprimand the ministers of public works and police.

"The Constitutional Court has affirmed the direction by the Public Protector, among others, that I am required to reprimand the Ministers involved in the Nkandla project, for what the Public Protector termed 'the appalling manner in which the Nkandla Project was handled and state funds were abused'... Pursuant to the letter, I hereby deliver the reprimand required. I am doing so to each of the Ministers indicated by the report," said these letters of reprimand dated 20 April 2016 that were also tabled in Parliament's ATC.

But Gigaba got himself on the ropes. The official line from his office is the minister would study the public protector report and advise on his next step, while the Constitutional Court decision had been referred to the Home Affairs Department to study and announce further steps.

This has come amid calls for Gigaba's sacking from the opposition DA and Cope, but also from trade union federation Cosatu, one of the ANC tripartite alliance partners.

"The ANC has an image and credibility problem and if it is to rehabilitate its image in the eyes of South Africans it needs to be decisive in dealing with people of disreputable character," said Cosatu in a statement.

"President Cyril Ramaphosa needs to ensure that his Cabinet is full of properly adjusted people, who understand that they are not there to serve themselves and their friends but serve the nation. He cannot afford to continue to incubate people who are contemptuous of the rule of law."

What happens next in this Gigaba saga will be telling - for both the ANC and government. DM

New orders support Aveng’s recovery plan. McConnell Dowell has won a number of contracts in Australia and the Far East and says there's further potential.

Aveng has won contracts worth R3.8 billion through Australian subsidiary McConnell Dowell which it says show good progress in its Strategic Action Plan to turn the group around.

The contracts in Australia, New Zealand, Singapore and Thailand have lifted McConnell Dowell's order book to R8.7 billion. It says it has a further potential A$1 billion of work in Early Client Involvement process.

Aveng says a key priority in its plan is to improve its operational performance, deliver growth and unlock value from core assets. The plan was outlined earlier this year following a strategic review of its operations as a precursor to a capital restructuring to help it deal with unsustainable debt repayments. McConnell Dowell and local subsidiary Moolmans were singled out as key operating businesses as it sells off non-core assets. Last month, it announced the sale of Aveng Rail for R133 million to Matupha Capital.

McConnell Dowell is a specialist infrastructure contractor offering engineering and construction solutions to the infrastructure, building and resource sectors across Australia, New Zealand and the Pacific, Southeast Asia and the Middle East. Aveng said all four of its business units had recently secured new projects.

These contract awards provide a good start to the new financial year and reflect McConnell Dowell's improved operational state and diversified market offerings," Aveng said. "Moreover, the market sectors serviced by McConnell Dowell are expected to offer further growth opportunities with the continued roll-out of large- and medium-sized projects across its operating footprint."

Aveng's shares closed unchanged at 5c on Friday.

Aveng reported that its Australian subsidiary McConnell Dowell had secured recent contracts worth a combined R3.8-billion, boosting the business' overall order book to R8.7-billion.

-- Ronnie S Siphika (@RonnieSiphika1) November 4, 2018

Value Capital ploughs more into investments. The "engaged shareholder" lifted its stake in Altron above 20% last week and has also been buying more shares in other key investments.

Value Capital Partners has increased its interest in key investments including Altron, Sun International, PPC and Adcorp over the past six weeks. Purchases worth more than R500 million since mid-September indicate that the group, which describes itself as an "engaged shareholder", still sees value in those companies.

VCP is led by former Brait CEO Anthony Ball and former Brait financial director Sam Sithole. They use their private equity skills in the listed space to target troubled companies they can turn around - and profit from. Other companies that VCP has taken stakes in include Novus Holdings and African Phoenix. It says its portfolio of strategic investments includes businesses that are undervalued. It takes a position and works "collaboratively" with their boards of directors to improve profitability.

It raised its shareholding in Altron to over 20% last week after buying R36.5 million of the ICT company's shares at R16.50 each, R615 000 worth at R16.80 and a further R14.2 million worth at R17.43 each. Ball and Sithole are director on Altron's board.

Cement producer PPC, on whose board Ball sits, attracted purchases of stock worth about R247 million since mid-September. It bought the stock at between R5.50 and R6 per share.

VCP increased its position in gaming and hotels group Sun International in purchases totalling more than R207 million since mid-September when the share was trading between R57.50 and R60. It became a strategic shareholder in Sun International earlier this year when it partially underwrote the group's R1.5 billion rights offer.

Over the past two weeks, it bought shares worth more than R20 million in Adcorp in five transactions at between R18.85 and R19 per share. VCP's investment in Adcorp led to management shakeup last year and a restructuring of the group's operations. Sithole is a non-executive director of Adcorp, along with colleagues Paul Moeketsi and Monde Nkosi.

Altron closed 0.1% higher at R17.70 on Friday while PPC was unchanged at R5.94. Sun International closed 2% higher at R61.96 and Adcorp declined 6.7% to R19.91.

Another day, another small cap delisting. Interwaste says Sch' Environment's R1.20 per share offer represents a materialise opportunity for shareholders to realise value.

France's Sch Environment has made an offer to buy Interwaste in a move that could see the waste management company delisted from the JSE.

The French water recovery and treatment company has offered Interwaste shareholders R1.20 per share in cash. That's a 47.9% premium to the 30-day volume weighted average share price of Intercaste's shares as at 28 September, the trading day before it announced that it was in talks. Its shares closed at 80c that day.

Sch operates in 15 countries around the world and says buying Interwaste will help it expand its offering to a broader customer base, including the high value-added target segments of industrial, oil and gas and mining customers. It says the tie-up will also result in synergies that will benefit both companies. It's working with local subsidiary Sch SA on the deal.

Interwaste listed on the JSE in June 2007 and progressed to a Main Board listing in November 2014. It said its board's present view was that the offer represented a material opportunity for shareholders to realise value from their investment in the company.

Shareholders representing 47% of its shares and who will be eligible to vote those shares at a scheme meeting had already given irrevocable undertakings to vote in favour of the deal, it said. In the meantime, it's convened an independent board to evaluate the deal and advise the remaining shareholders on its merits.

Its shares closed unchanged at 97c on Friday. The offer was announced after the close of trade.

Interwaste offered 120cps in buy-out and delisting. Out late on Friday. Another day, another small cap delisting..

-- Keith McLachlan (@keithmclachlan) November 3, 2018

Tshilidzi Marwala: Are South African markets efficient? The English philosophers of the 19th Century, Jeremy Bentham and John Stuart Mill, formulated and advocated the utilitarian theory. The utilitarian theory is used to define rationality. In this regard, a rational agent maximises utility. Utility is the usefulness of a particular good or service. In this regard, rational market maximises the allocation and distribution of resources. A perfectly rational market is efficient, this is called the Efficient Market Hypothesis and was proposed by Economics Nobel Prize Winner Eugene Fama. If markets are not efficient, then they misallocate resources resulting in undeserving traders gaining from the markets and deserving traders losing in the market and, consequently, depressing the economy. Who are these deserving and undeserving traders? In simple terms, deserving traders are those that use the gain they derive from the markets to further expand the economy whereas undeserving traders are those that use the gains they derive from the markets to impair the economy.

Why do inefficient markets harm the economy? In 2000 the company Lastminute.com, which specialised on booking services such as airlines and restaurants in the last minute was making 330,000 profit. Lastminute.com was then floated in the London Stock Exchange and its valuation reached 768-million before it crashed. The market was irrational on its view of this company and, consequently, inefficiently allocated resources to this company and this was bad for the economy. This market inefficiency was due to inaccurate information on the value of the Lastminute.com Company.

Another market inefficiency due to limited information is the company Steinhoff International, which dropped from a market capitalisation of R104-billion in 2015 to R9-billion in 2018. It seems the management of Steinhoff International deliberately withheld information from the shareholders and this was costly to the South African economy.

Coming back to the topic, is the South African market efficient?

It is generally believed that markets are not efficient. There are several reasons why this is the case and one of these is because markets contain the behaviours of people who are participating in the markets and these behaviours are often erratic. In essence, markets reflect real information, such as the output of the mining sector which is rational, and imaginary factors, such as the attitude of traders towards mining which can be irrational. The mathematical field of Complex Analysis prescribes that nature can be represented in two forms, these are the imaginary and real axes. The behaviour of the market, going up and down because of the changes of Ministers for example, is because the market is also driven by imaginary factors emanating from human behaviours.

In his book Thinking Fast and Slow Nobel Prize Laureate Daniel Kahneman studies the behaviour of human beings when they make decisions. Some of the observations that he makes is that human beings truncate complex problems, solve simple ones and that when they make decisions, they focus on avoiding losses at the expense of making gains. This simply means that human beings do not make rational decisions as they never maximise utility. This also means that the markets which are populated by human beings are significantly influenced by human behaviours and, therefore, cannot be efficient.

The JSE used to be located in downtown Johannesburg. Trades were made by human beings who shouted for particular stocks at a particular prices. To succeed in that stock exchange, one needed to be tall and have a loud voice. The recruiters of people who traded on the stock exchange floor specifically looked for height and voice, which was discriminatory. The JSE then moved to Sandton and entered the electronic age. Heights and voices are no longer competitive advantages but digital literacy, data analytics and artificial intelligence (AI) have become competitive advantages. In this new JSE, proximity to Sandton is a competitive advantage, because if a person in Thohoyandou trades via the internet then his/her trade arrives at the JSE slower than the trade which is made from Sandton.

Today people are making these trades at a faster pace and this is called high frequency trading. In my book Computational Intelligence for Economic Modelling, I describe how AI is changing the practice of trading and ushering in intelligent high frequency trading. The effect of the confluence of faster computers, AI, high frequency trading and advanced data analytics is making markets more efficient than when markets were populated by just human beings. Markets that use AI and advanced data analytics are markets of the fourth industrial revolution.

Why are fourth industrial revolution markets becoming more efficient and what are the implications of this change on the economy and society? The first reason why markets are becoming more efficient is because we remove behavioural characteristics from the markets when we insert automation, AI and advanced data analytics into trading. The second reason is that we are now able to understand the character of financial data. For a long time, we reduced analysis of financial data to simple statistical concepts such as averages and variances. With advances in data analytics we can now break data into its various components and spectrum and, thus, make machines understand data much easier. With advances in deep learning we are able to analyse data in its entirety rather than in truncated and sampled forms. The third reason is advances in computer power, which makes it possible for financial companies to acquire supercomputing capabilities and be able to implement intelligent algorithms on big data more efficiently. The fourth reason is that we now have more information and technology to analyse both structured and unstructured data.

The rate at which markets are becoming efficient varies depending on the state of development of countries. In his book AI Super-Powers: China, Silicon Valley and the New World Order Kai-Fu Lee describes how the United States and China are becoming the only superpowers of the fourth industrial revolution. In this regard, if we do not invest heavily on AI and big data countries that do will exploit inefficiencies in our market to our detriment. Eleonore Pauwels studied the geopolitics of artificial intelligence and observed that the amount of money invested into AI start-ups between 2012 and 2016 was $17.9-billion by the US followed by $2.6-billion by China and then $800-million by Canada. Eleonore concluded that given this asymmetry of investments, countries that lag behind are going to be cyber-colonised. Coming back to the concept of market efficiency, countries that do not invest into the technologies of the fourth industrial revolution will have inefficient markets resulting in inefficient allocation and distribution of resources as well as impaired economy.

What kind of skills do we need to produce a workforce that creates efficient markets and, consequently, robust economy? First, we should produce a cadre of people who understand AI and big data and how these technologies interface with the economy. Second, we should develop leadership courses that re-skill existing workforces in industry, government and society so that they can better manage the fourth industrial revolution markets as well as craft the associated legislations and strategies.

Finally, the reason why there were movements of the markets during Ministers Mboweni and Nene's movements in the Ministry of Finance is because the South African markets are not efficient. DM

Corporate finance activity of the week. Weekly summary of corporate finance activity by South African exchange listed companies...