I trust this finds you exceptionally well and that this year has started in an even better manner your wildest dreams could have hoped for. We’re already one month down and I trust that your memories of the golden Christmas break will endure till the next one. It is fiscal year-end this month, budget speech and tax year-end, the business of business will continue apace as we are out of the starting blocks and straining against the halters, eager to be underway. It promises to be an interesting year. Last year, at the time of Marikana disaster and the wage increases which resulted (for those not massacred) business analysts were advising that there would be labour fall-out as the mining industry is in straitened circumstances – costs are ever-increasing – electricity and labour, most notably, regulation is increasing and government oversight and interference is at, it would seem, an all-time high. As it turns out, Anglo and Harmony are threatening the retrenchments of some twenty thousand workers – due in no small part – to the strikes and the effects thereof. Government has now waded into the equation, threatening the security of mineral rights and dealing with the economic realities with all of the subtlety of an inebriated bull in a china shop. It never ceases to amaze me how many times one can shoot ones collective self in the foot and not learn. Whilst it may be said that those who do not learn from the past are doomed to repeat it, I have also heard it said that whilst history does not repeat itself, it certainly rhymes.
Before I continue, I must draw to your attention that around this time of year there seems to be a huge increase in “phishing” scams whereby nefarious individuals attempt to extort your banking details by purporting to be SARS/ FNB/ Standard Bank/ (Any Bank)/ Publishers House Sweepstakes etc. Be warned, be vigilant, be wise and don’t give out your banking details/ pin/ personal information to any source without double checking, irrespective of the purported validity of the source.
It is prediction time of the year again. What I have found, most notably, is that fewer and fewer people are willing to commit themselves as the world environment is so truly globalised that a drought in the American Mid-West has an inflationary impact on South African food prices. Having said all of that, please see below excerpts from Cees’ prediction (the entire article ran to too many pages to include here), for you to use/ lose or abuse. My position remains, on a macro level, that the rest of this decade is going to be subject to volatility and stagnation whilst the deleveraging continues after the Great Financial Crisis double whammy of the Anglo Saxon realities and the European Monetary (mis)adventure.
ByCees Bruggemans, Consulting Economist :
The shape of 2013 will be determined by many variants, important global ones and major domestic ones.
The most important domestic dimensions will probably be labour market, business confidence, private investment decisions, government decision-making and the political run-up to the 2014 general election.
The global backdrop to these domestic inputs will also be important in driving confidence and setting policy parameters, especially the economy’s two most important prices (the Rand exchange rate and interest rates).
Global prospects will likely be shaped by short-term forces (the industrial inventory cycle for the large continental-sized economies turning positive after the 2012 belt tightening and the trade cycle for many open economies influenced strongly by their exporting ability gaining renewed vigour), longer-term forces (the recovering building cycle, especially in the US), crisis conditions or their absence as repair proceeds and market anxiety keeps receding (Europe), fiscal policy restraint (US austerity this year being bigger than Europe’s, offering 1% headwind to growth this year and less so in Europe), massive fiscal infrastructure injections (Japan) and monetary policy support (generosity all around), with asset markets responding positively in varying degrees to growth, fiscal restraint and monetary support (suggesting strong global wealth effects).
The US fiscal cliff is being taken in stages, with the tax hurdle inadequately attempted last week (more will be needed eventually, inviting endless political warfare). Next looms the debt ceiling and arguments about budget cuts, with budget cutters likely digging in anew and creating another brinkmanship hurdle (replaying September 2008 and August 2011). The 2013 US cliff will probably offer GDP headwind of about 1% in an economy generating underlying GDP growth of 3%, for a net 2% growth gain this year. Not hot, but still positive.
The European situation will remain complex, with the next Greek crunch probably delayed for a year or more (well beyond German elections and new coalition-making), and the main focus in 1H2013 on Italy, to see how its elections will shape and how policy reform will fare.
The 2H2013 will likely be shaped by European economic recovery in tandem with German elections, resulting in a changing political coalition, and ending the year on a positive note with rising support for the Euro Project.
Japan will receive greater attention following the return of Prime Minster Shinzo Abe with a very large LDP majority, along with a much smaller partner giving him crucial capacity to rule, with big fiscal infrastructure injections promised and key personnel changes at the BoJ supposedly inviting a far more activist monetary policy seeking a weaker Yen (nearer 100:$), and pursuing 2% inflation and well over 3% nominal GDP growth.
China, too, is likely to see supportive policy stances, rising asset markets, recovering export growth, more domestic growth stimulus, faster infrastructure spending and rapid ongoing household consumption growth.
These many features should underpin global commodity prices and boost commodity demand (iron ore price again over $135/t compared to September 3yr low of $90/t), supporting commodity producer exports and allowing them to also again reaccelerate domestically.
Asset markets globally will likely keep reflating as growth prospects improve and monetary support remains generous, with equities the main focus.
Given extraordinary defensiveness observable worldwide during 2012 as crisis fears resurfaced and growth slowed down, causing confidence to retreat and investment and new job hiring to be more hesitant, these 2013 prospects as sketched should assist in engendering a more positive business and consumer outlook in important parts of the world, especially America, Asia and those parts of Europe benefitting most from trade (such as Germany).
The global economic prospect is thus a mildly positive one, with strong financial features, both aspects also favouring South Africa, giving an overall wider tailwind boost than in 2012.
When we turn to domestic prospects, the scenario changes somewhat, with substantial residual uncertainty held over from 2012 regarding labour unrest, business confidence and private fixed investment, and tantalising questions whether the newly elected ANC deputy-president can make a difference in policy implementation, and how quickly.
The real household income and spending trend won’t change quickly, with inflation set to rise a notch (averaging 6% in 2013 compared to 5.5% in 2012), even as nominal wage growth hesitates near 7%-8%, with private jobs gains minimal and public job gains probably slowing.
The main turnaround here has to come from a 1% fall in inflation (mainly from late 2013 into 2014′) and faster job gains on the back of fewer strike output losses, mildly better exports, recovering business confidence and faster private and public fixed investment spending, all of it probably off to a slow start into 2014. And that would be the optimistic scenario.
The big questions are how the labour issue gets defused and whether macro policy will be geared to regaining rating trust (if only by sending the right political policy signals and not putting a foot wrong budget wise).
Another round of monetary policy easing as the Rand recovers firmness on Dollar weakness once past the cliff would fit comfortably in that setting. Prime 8% in 2013′
The main Ramaphosa thrust will presumably be to establish a strong working rapport between government and business, persuade the main unions not to up the wage ante, let mining companies negotiate with their restless labour forces while within reason boost minimal wage rates for agriculture.
As to infrastructure, the plans exist, the needs are really monumental, but the technical capacity in the public sector is deficient. That needs fixing. Not clear yet how it will be done, with the delegation game to other Ministers probably not sufficient.
How much output are we still going to lose due to labour unrest’ What wage demands can we expect from Numsa, civil servants and mining unions (and others)’ How will the job situation play’ How will the Minister of Finance play his budget and the SARB its interest rate stance in an unnecessarily weak economy low on confidence, with inflation technically lifting through mid-year but thereafter subsiding anew, with the world unlikely catching fire or the Rand weakening precipitously, and further debt downratings perhaps prevented for now’
A lot of private skepticism will survive for very long, going by commentary, and that suggests a hard slog. Few will want to overreact to yet another round of promises, however promising in their intent. Proof will be in the eating of the pudding, something that is probably realistically expected, for which reason some early dramatic shifts are needed. Wiping nationalisation off the table and banishing populists was important. But now show you really can where it matters most. Get things flowing.
So I am a little hesitant where to pitch the decimal point for 2013. I sense that to stick to a 2% GDP view would be (far) too low. But already wanting to rise above 3% may be giving hostages to fortune.
The stock market will likely again be strong (offering further wealth boosts), but a large part of that will be the lifting global gloom, with vitamin boosts from the local promises becoming progressively discounted.
That will still make reading the tealeaves exceedingly difficult. The important part will presumably be that instead of trying to discern how quickly we will be coming apart at the seams as we hit the Great Yellow Brick Wall, the game will now presumably change to asking whether indeed the second half of the decade could offer a much better game reminiscent of the 2004-2007 boom (sans the credit leverage and speculative hubris).
Excerpt ends.
As has been previously mentioned, SARS have added a truly vicious and malevolent beast to their arsenal known as an IT14SD. This is a reconciliation which requires reconciliation between the payroll numbers on the financial statements to the payroll reports (IRP5s and EMP501s) and a reconciliation of the VAT inputs and outputs (to cost of sales). This is an incredibly labour intensive reconciliation which easily takes 40 man hours. It is a VERY VERY expensive and time-consuming submission (and seeing as SARS developed this without informing the software providers, as of August 2012, there wasn’t a software provider in South Africa that has set up their software to generate the inputs/ reports in the format required). I asked the question at the annual Southern Suburbs SAICA/ SARS meeting if we could not submit the document and rather invite SARS to audit. We are also finding that, quite literally, one in three tax returns are going for review or audit. It is absolutely ludicrous! Basically if one is receiving a refund or has ANYTHING other than a plain vanilla type of the tax return the documents are required to be submitted. It is chewing up time and costing money that is unnecessarily spent due to poor risk profiling. It is making us change the way that we approach tax on an annual basis as instead of aiming for a small refund, we are going to have to rather pay in. Even then, where clients are having to pay in, we are finding an inordinate amount of document requests/ audits. It really is a lose/ lose situation. Further thereto, to put another obstacle in the way of the small South African entrepreneur, SARS are now insisting that, where previously sole proprietors could use deemed costs for calculating their vehicle expenditure, now only actual costs multiplied by actual business mileage from the actual log-book may be used. That means that the poor sod (read backbone of the South African economy) has to now account for every kilometer travelled and keep every single piece of vehicle expenditure with military precision – or face reduced tax write-offs. This is also the poor sod who has to comply with FICA/ RICA/ tax law/ labour law/ etc etc etc. Well, if you can’t kick a man when he is down, when can you kick him’
We are also noticing that SARS are raping and pillaging bank accounts across the nation if they believe that you owe them money. It does also turn out that SARS aren’t always correct more often than you’d think – but try explaining that to your creditors! Kick him again SARS. (I don’t think that SARS can possibly comprehend the damage that they are doing to the business engines of the South African economy). It must be particularly special to be all-powerful and stupid.
Finally, with regards to SARS, they have now taken a position whereby interest free loan accounts between related parties are now the subject of scrutiny. This aspect of the legislation has been largely ignored by them but they are now taking the position that where a debit loan account exists e.g. a director has been loaned (say) R500,000 interest free by the company that this transaction is now a deemed dividend and STC or dividends tax is payable. It is thus vitally important that debit loan accounts are no longer run by related parties to entities.
We support True North which works with previously disadvantaged communities through the provision of education, primary care, research and technology sharing – any and all donations are welcomed. Contact Vicky on the above website. If you would like to make double bang for your buck, the Pearson Foundation (in the USA) has offered to donate a dollar to match every local dollar donated (so for every Dollar you donate the Pearson Foundation donates one as well – up to one hundred thousand dollars. Please see the website for details.
As always, please consider what you can do to ease pressure on our planet – if you have recycling of an electronic nature – old PCs/ equipment/ toasters/ televisions or anything electrical, please contact Ecycle for recycling of these items.
Oasis Recycling collects “normal” recycling – glass/ cans/ paper etc from the office (speak to them for details) and provides work for some 450
intellectually disabled men, women and children. Having a recycling bin at work is probably the most carbon-effective means of recycling as no “special trip” is necessitated.
To confirm our contact numbers and deal with increasing telephonic demand, we have three contact numbers, namely 021 701 4052, 021 701 4063 and 0861 378 881 (which is a share-call number). Please use the relevant persons cellular telephone if getting through to switch-board is taking some time.
Here is a little something to start the day with a smile:
- ‘ Love is grand; divorce is a hundred grand.
- ‘ I am in shape. Round is a shape.
- ‘ Conscience is what hurts when everything else feels so good.
- ‘ Talk is cheap because supply exceeds demand.
- ‘ Even if you are on the right track, you’ll get run over if you just sit there.
- ‘ Politicians and diapers have one thing in common. They should both be changed regularly and for the same reason.
- ‘ An optimist thinks that this is the best possible world. A pessimist fears that this is true.
- ‘ In just two days tomorrow will be yesterday.
- ‘ I am a nutritional overachiever.
- ‘ I am having an out of money experience.
- ‘ A day without sunshine is like night.
- ‘ If marriage were outlawed, only outlaws would have in-laws.
- ‘ It’s frustrating when you know all the answers, but nobody bothers to ask you the questions.
- ‘ The real art of conversation is not only to say the right thing at the right time, but also to leave unsaid the wrong thing at the tempting moment.
- ‘ I plan on living forever. So far, so good.
- ‘ Life not only begins at forty, it also begins to show.
- ‘ You don’t stop laughing when you grow old. You grow old because you stopped laughing.
- ‘ Age doesn’t always bring wisdom. Sometimes age comes alone.
February 21, 2013 By Mark Theron No comments yet Economic Commentary
I trust this finds you exceptionally well and that this year has started in an even better manner your wildest dreams could have hoped for. We’re already one month down and I trust that your memories of the golden Christmas break will endure till the next one. It is fiscal year-end this month, budget speech and tax year-end, the business of business will continue apace as we are out of the starting blocks and straining against the halters, eager to be underway. It promises to be an interesting year. Last year, at the time of Marikana disaster and the wage increases which resulted (for those not massacred) business analysts were advising that there would be labour fall-out as the mining industry is in straitened circumstances – costs are ever-increasing – electricity and labour, most notably, regulation is increasing and government oversight and interference is at, it would seem, an all-time high. As it turns out, Anglo and Harmony are threatening the retrenchments of some twenty thousand workers – due in no small part – to the strikes and the effects thereof. Government has now waded into the equation, threatening the security of mineral rights and dealing with the economic realities with all of the subtlety of an inebriated bull in a china shop. It never ceases to amaze me how many times one can shoot ones collective self in the foot and not learn. Whilst it may be said that those who do not learn from the past are doomed to repeat it, I have also heard it said that whilst history does not repeat itself, it certainly rhymes.
Before I continue, I must draw to your attention that around this time of year there seems to be a huge increase in “phishing” scams whereby nefarious individuals attempt to extort your banking details by purporting to be SARS/ FNB/ Standard Bank/ (Any Bank)/ Publishers House Sweepstakes etc. Be warned, be vigilant, be wise and don’t give out your banking details/ pin/ personal information to any source without double checking, irrespective of the purported validity of the source.
It is prediction time of the year again. What I have found, most notably, is that fewer and fewer people are willing to commit themselves as the world environment is so truly globalised that a drought in the American Mid-West has an inflationary impact on South African food prices. Having said all of that, please see below excerpts from Cees’ prediction (the entire article ran to too many pages to include here), for you to use/ lose or abuse. My position remains, on a macro level, that the rest of this decade is going to be subject to volatility and stagnation whilst the deleveraging continues after the Great Financial Crisis double whammy of the Anglo Saxon realities and the European Monetary (mis)adventure.
ByCees Bruggemans, Consulting Economist :
The shape of 2013 will be determined by many variants, important global ones and major domestic ones.
The most important domestic dimensions will probably be labour market, business confidence, private investment decisions, government decision-making and the political run-up to the 2014 general election.
The global backdrop to these domestic inputs will also be important in driving confidence and setting policy parameters, especially the economy’s two most important prices (the Rand exchange rate and interest rates).
Global prospects will likely be shaped by short-term forces (the industrial inventory cycle for the large continental-sized economies turning positive after the 2012 belt tightening and the trade cycle for many open economies influenced strongly by their exporting ability gaining renewed vigour), longer-term forces (the recovering building cycle, especially in the US), crisis conditions or their absence as repair proceeds and market anxiety keeps receding (Europe), fiscal policy restraint (US austerity this year being bigger than Europe’s, offering 1% headwind to growth this year and less so in Europe), massive fiscal infrastructure injections (Japan) and monetary policy support (generosity all around), with asset markets responding positively in varying degrees to growth, fiscal restraint and monetary support (suggesting strong global wealth effects).
The US fiscal cliff is being taken in stages, with the tax hurdle inadequately attempted last week (more will be needed eventually, inviting endless political warfare). Next looms the debt ceiling and arguments about budget cuts, with budget cutters likely digging in anew and creating another brinkmanship hurdle (replaying September 2008 and August 2011). The 2013 US cliff will probably offer GDP headwind of about 1% in an economy generating underlying GDP growth of 3%, for a net 2% growth gain this year. Not hot, but still positive.
The European situation will remain complex, with the next Greek crunch probably delayed for a year or more (well beyond German elections and new coalition-making), and the main focus in 1H2013 on Italy, to see how its elections will shape and how policy reform will fare.
The 2H2013 will likely be shaped by European economic recovery in tandem with German elections, resulting in a changing political coalition, and ending the year on a positive note with rising support for the Euro Project.
Japan will receive greater attention following the return of Prime Minster Shinzo Abe with a very large LDP majority, along with a much smaller partner giving him crucial capacity to rule, with big fiscal infrastructure injections promised and key personnel changes at the BoJ supposedly inviting a far more activist monetary policy seeking a weaker Yen (nearer 100:$), and pursuing 2% inflation and well over 3% nominal GDP growth.
China, too, is likely to see supportive policy stances, rising asset markets, recovering export growth, more domestic growth stimulus, faster infrastructure spending and rapid ongoing household consumption growth.
These many features should underpin global commodity prices and boost commodity demand (iron ore price again over $135/t compared to September 3yr low of $90/t), supporting commodity producer exports and allowing them to also again reaccelerate domestically.
Asset markets globally will likely keep reflating as growth prospects improve and monetary support remains generous, with equities the main focus.
Given extraordinary defensiveness observable worldwide during 2012 as crisis fears resurfaced and growth slowed down, causing confidence to retreat and investment and new job hiring to be more hesitant, these 2013 prospects as sketched should assist in engendering a more positive business and consumer outlook in important parts of the world, especially America, Asia and those parts of Europe benefitting most from trade (such as Germany).
The global economic prospect is thus a mildly positive one, with strong financial features, both aspects also favouring South Africa, giving an overall wider tailwind boost than in 2012.
When we turn to domestic prospects, the scenario changes somewhat, with substantial residual uncertainty held over from 2012 regarding labour unrest, business confidence and private fixed investment, and tantalising questions whether the newly elected ANC deputy-president can make a difference in policy implementation, and how quickly.
The real household income and spending trend won’t change quickly, with inflation set to rise a notch (averaging 6% in 2013 compared to 5.5% in 2012), even as nominal wage growth hesitates near 7%-8%, with private jobs gains minimal and public job gains probably slowing.
The main turnaround here has to come from a 1% fall in inflation (mainly from late 2013 into 2014′) and faster job gains on the back of fewer strike output losses, mildly better exports, recovering business confidence and faster private and public fixed investment spending, all of it probably off to a slow start into 2014. And that would be the optimistic scenario.
The big questions are how the labour issue gets defused and whether macro policy will be geared to regaining rating trust (if only by sending the right political policy signals and not putting a foot wrong budget wise).
Another round of monetary policy easing as the Rand recovers firmness on Dollar weakness once past the cliff would fit comfortably in that setting. Prime 8% in 2013′
The main Ramaphosa thrust will presumably be to establish a strong working rapport between government and business, persuade the main unions not to up the wage ante, let mining companies negotiate with their restless labour forces while within reason boost minimal wage rates for agriculture.
As to infrastructure, the plans exist, the needs are really monumental, but the technical capacity in the public sector is deficient. That needs fixing. Not clear yet how it will be done, with the delegation game to other Ministers probably not sufficient.
How much output are we still going to lose due to labour unrest’ What wage demands can we expect from Numsa, civil servants and mining unions (and others)’ How will the job situation play’ How will the Minister of Finance play his budget and the SARB its interest rate stance in an unnecessarily weak economy low on confidence, with inflation technically lifting through mid-year but thereafter subsiding anew, with the world unlikely catching fire or the Rand weakening precipitously, and further debt downratings perhaps prevented for now’
A lot of private skepticism will survive for very long, going by commentary, and that suggests a hard slog. Few will want to overreact to yet another round of promises, however promising in their intent. Proof will be in the eating of the pudding, something that is probably realistically expected, for which reason some early dramatic shifts are needed. Wiping nationalisation off the table and banishing populists was important. But now show you really can where it matters most. Get things flowing.
So I am a little hesitant where to pitch the decimal point for 2013. I sense that to stick to a 2% GDP view would be (far) too low. But already wanting to rise above 3% may be giving hostages to fortune.
The stock market will likely again be strong (offering further wealth boosts), but a large part of that will be the lifting global gloom, with vitamin boosts from the local promises becoming progressively discounted.
That will still make reading the tealeaves exceedingly difficult. The important part will presumably be that instead of trying to discern how quickly we will be coming apart at the seams as we hit the Great Yellow Brick Wall, the game will now presumably change to asking whether indeed the second half of the decade could offer a much better game reminiscent of the 2004-2007 boom (sans the credit leverage and speculative hubris).
Excerpt ends.
As has been previously mentioned, SARS have added a truly vicious and malevolent beast to their arsenal known as an IT14SD. This is a reconciliation which requires reconciliation between the payroll numbers on the financial statements to the payroll reports (IRP5s and EMP501s) and a reconciliation of the VAT inputs and outputs (to cost of sales). This is an incredibly labour intensive reconciliation which easily takes 40 man hours. It is a VERY VERY expensive and time-consuming submission (and seeing as SARS developed this without informing the software providers, as of August 2012, there wasn’t a software provider in South Africa that has set up their software to generate the inputs/ reports in the format required). I asked the question at the annual Southern Suburbs SAICA/ SARS meeting if we could not submit the document and rather invite SARS to audit. We are also finding that, quite literally, one in three tax returns are going for review or audit. It is absolutely ludicrous! Basically if one is receiving a refund or has ANYTHING other than a plain vanilla type of the tax return the documents are required to be submitted. It is chewing up time and costing money that is unnecessarily spent due to poor risk profiling. It is making us change the way that we approach tax on an annual basis as instead of aiming for a small refund, we are going to have to rather pay in. Even then, where clients are having to pay in, we are finding an inordinate amount of document requests/ audits. It really is a lose/ lose situation. Further thereto, to put another obstacle in the way of the small South African entrepreneur, SARS are now insisting that, where previously sole proprietors could use deemed costs for calculating their vehicle expenditure, now only actual costs multiplied by actual business mileage from the actual log-book may be used. That means that the poor sod (read backbone of the South African economy) has to now account for every kilometer travelled and keep every single piece of vehicle expenditure with military precision – or face reduced tax write-offs. This is also the poor sod who has to comply with FICA/ RICA/ tax law/ labour law/ etc etc etc. Well, if you can’t kick a man when he is down, when can you kick him’
We are also noticing that SARS are raping and pillaging bank accounts across the nation if they believe that you owe them money. It does also turn out that SARS aren’t always correct more often than you’d think – but try explaining that to your creditors! Kick him again SARS. (I don’t think that SARS can possibly comprehend the damage that they are doing to the business engines of the South African economy). It must be particularly special to be all-powerful and stupid.
Finally, with regards to SARS, they have now taken a position whereby interest free loan accounts between related parties are now the subject of scrutiny. This aspect of the legislation has been largely ignored by them but they are now taking the position that where a debit loan account exists e.g. a director has been loaned (say) R500,000 interest free by the company that this transaction is now a deemed dividend and STC or dividends tax is payable. It is thus vitally important that debit loan accounts are no longer run by related parties to entities.
We support True North which works with previously disadvantaged communities through the provision of education, primary care, research and technology sharing – any and all donations are welcomed. Contact Vicky on the above website. If you would like to make double bang for your buck, the Pearson Foundation (in the USA) has offered to donate a dollar to match every local dollar donated (so for every Dollar you donate the Pearson Foundation donates one as well – up to one hundred thousand dollars. Please see the website for details.
As always, please consider what you can do to ease pressure on our planet – if you have recycling of an electronic nature – old PCs/ equipment/ toasters/ televisions or anything electrical, please contact Ecycle for recycling of these items.
Oasis Recycling collects “normal” recycling – glass/ cans/ paper etc from the office (speak to them for details) and provides work for some 450
intellectually disabled men, women and children. Having a recycling bin at work is probably the most carbon-effective means of recycling as no “special trip” is necessitated.
To confirm our contact numbers and deal with increasing telephonic demand, we have three contact numbers, namely 021 701 4052, 021 701 4063 and 0861 378 881 (which is a share-call number). Please use the relevant persons cellular telephone if getting through to switch-board is taking some time.
Here is a little something to start the day with a smile: