Displaying items by tag: South Africa

The role of “white monopoly capital” in post-apartheid South Africa has been in the news lately. In the South African context, it can be understood as the white population’s extensive control over the country’s economy.

The debate reflects a recanting view against the rainbow nation dream sold when the country gained political freedom 22 years ago. The idea is that white monopoly capital is the source of the problem of multiple failures of the South African political economy.

The response has been a rising chorus of white monopoly capitalism deniers who argue that the governing African National Congress (ANC) is using the concept as a shield against criticism. Instead of addressing its failings such as a faltering economy, widening inequality, unemployment, corruption and incompetence, the argument goes, the ANC is deflecting attention for the country’s difficulties by blaming white monopoly capital.

Some in this camp add that South Africa has recorded significant progress in redistributing the country’s wealth, mainly via the allocation of equity in formerly white companies to black economic empowerment groups. They quote figures that they say reflects rising levels of black ownership on the Johannesburg Stock Exchange.

But by relying on a single indicator, they ignore other key pointers which are critical to understanding the stranglehold that white capital has over the South African economy. The exclusive focus on the JSE ignores the fact that the stock market is just one of many forms of capital. Others include land – probably one of the most contentious of all forms of capital in South Africa’s history – home ownership and human capital, in the forms of knowledge, skills and education.

A multifaceted enquiry into the state of South African economy that includes all these forms of capital leaves no doubt that white capital continues to dominate the economy.

To reject this reality shows a clear lack of understanding of “capital” and the link between historic and contemporary forms of “capital accumulation”. This is because the historical legacies of colonialism and apartheid – which saw the transfer of a vast amount of the country’s resources into the hands of white European migrants – continue to shape the political, economic and social life of the country.

Persistence of white privilege

Legacies of white privilege still persist. High levels of poverty and rampant unemployment still haunt black communities.

This inequity is also evident in patterns of ownership. Despite claims to the contrary, a study of black ownership on the Johannesburg Stock Exchange shows clearly that black South Africans remain small time players. According to a recent study, only 23% of the shares traded on the exchange are held – directly and indirectly – by black South Africans.

On top of this, capital, in its varied forms such as the land, property and human capital, remains heavily skewed to white ownership. The land is particularly important in the South African context as it carries most colonial scars. The country’s colonial and apartheid regime (both white minority) used expropriation to remove people from their land. They then used this stolen land to accumulate capital in the forms of mining and agriculture.

At the time of apartheid in 1994, more than 80% of the land was in the hands of white minority. Data from the Institute of Poverty, Land and Agrarian Studies suggest that just under 60,000 white-owned farms accounted for about 70% of the total area of the country in early 1990s. Land reforms programme has been slow. Some suggest that less than 10 % of the total land has been redistributed from white to black ownership since 1994.

Another cornerstone of the colonial as well as apartheid designers was to deny all black people access to economic opportunities as well as to limit their scope in both education and jobs. These developments have had sequential implications and generational effects. The result is that racial inequalities continue to be reproduced.

There are a great many examples that can be cited to show this. For example, white people continue to be more skilled and attain higher education levels than their black counterparts. They are, therefore, more likely to attain higher positions in the labour market and, on average, earn higher wages.

Black South Africans remain heavily under-represented in the skilled jobs market because they are largely unskilled and hence most affected by the country’s high unemployment.

The colonial and apartheid legacy can also be seen in asset ownership. White people own houses, hotels, resorts, shops, restaurants, savings, cash, foreign assets and other forms of complex financial products. They leverage their ownership and control to extract rents and increase their wealth, while majority of the blacks are still poor.

Capital accumulation and wealth creation

The adoption of the market-based reforms in post-apartheid South Africa meant that the already skewed distribution of wealth in the country got worse. Whites continued to reap the rewards of their previous privilege under the new economic system.

There’s no doubt that the country’s new ruling party elite has also benefited from the political system, many through black economic empowerment deals. The alliance between the white monopoly capital and corrupt ANC government afflicts devastating consequence on the poor.

The South African government needs to do more to address widening inequality, rampant unemployment and deliver on the promises of development for all and not just few. It needs to prove its detractors wrong – that it’s pursuit of what it terms “radical economic transformation” fulfils the promise of addressing the country’s skewed economic ownership patterns.

Mohammad Amir Anwar, Post-doctoral Research Fellow, University of Oxford

This article was originally published on The Conversation. Read the original article.

Published in Business

South Africa's Deputy President Cyril Ramaphosa tells BBC dinner this has to happen and it is going to happen whether people like it or not. The transformation of South Africa's economy is inevitable.

He was speaking at the Black Business Council dinner under the theme Economic Recovery. "I would say to those who are dismissing this term, sit down, listen, smell the coffee... realise that the transformation of our economy is non-negotiable," said Ramaphosa.

He said the government had hoped to create more sustainable growth, higher investment, increased employment, reduced inequality and to deradicalise the economy. CYRIL RAMAPHOSA

The deputy president said radical economic transformation was essentially about building an inclusive and more collective economy in the country. As South Africa moves closer to the ANC's National elective conference in December and its policy conference in June many are paying even closer attention to its leaders, particularly Ramaphosa who said he was available for the role of becoming the ANC's president when the incumbent Jacob Zuma steps down in December.

Ramaphosa is facing fierce competition for the role from former African Union chairperson Nkosazana Dlamini Zuma, who has herself made strong remarks regarding the need for radical economic transformation. Sharing similar views Ramaphosa said transformation is what leaders in the country have been called to do.

"It is in the end about building a more equal society, drawing one third of the working age South Africans into the mainstream," said Ramaphosa. Ramaphosa, who received a warm reception from various business leaders in the room, also received rapturous applause when he was mistakenly called "Mr President" twice by the programme director George Sebulela, Secretary General of the BBC.
He said the government needed to increase the level of interventions that often leave some without getting assistance.

"Our political life at the moment is fractious, with public sentiments appearing to be more polarised and public discourse more charged and shriller than any other time since 1994," he said.


Source: News24

Published in Economy

South Africa’s competition watchdog ruled that Kawasaki Kisen Kaisha Ltd’s (K-Line), one of Japan’s biggest transport companies, had conspired to rig bids for shipping cars.

The Competition Commission said it had recommended a fine equivalent to 10 percent of Kawasaki Kisen Kaisha Ltd’s (K-Line) local turnover. A K-Line representative in South Africa declined to comment on the case or to estimate the value of the fine.

The Commission said K-Line rigged bids with rivals between 2002 and 2013 to fix prices and divide the market for shipping from South Africa. The Commission said K-Line was working with Mitsui O.S.K Lines Ltd, Nippon Yusen Kabushiki Kaisha Ltd and Wallenius Wilhelmsen Logistics AS.

Nippon and Walleneus, a Norwegian company, admitted to colluding. Nippon paid 103 million rand and Walleneus paid 95.6 million rand in penalties, the Commission said. Mitsui was not fined because it was first to approach the Commission with information, the watchdog said. “South Africa is a strategic hub for the trade of goods in and out of the Southern African region,” the Commission’s head Tembinkosi Bonakele said in a statement.

“Cartels of this nature increase the costs of trading … and render the region uncompetitive in the world market.”

The Commission has passed its findings to the Competition Tribunal, which holds hearings on antitrust cases before giving a final ruling.


Source: shipsandports.com.ng

Published in Business

The world’s leading legal tender bullion gold coin, the Krugerrand, this year celebrates its 50th anniversary, marking a critical milestone in South Africa’s beneficiation of its precious metals since gold was first discovered on a Transvaal farm, Langlaagte, on the Witwatersrand in 1886.

The Krugerrand is the most widely held and actively traded bullion coin in the world. It was developed as a gold investment coin and its face value is denominated in ounces of pure gold.

“The Krugerrand has come a long way, and actually tells a beautiful story about South Africa’s endeavours to add more value to its precious metals for the export markets,” says Richard Collocott, Executive Head of Marketing at Rand Refinery, the sole supplier of bullion Krugerrands to primary distributors in South Africa and internationally.

“Since its launch in 1967, more than 53 million ounces of gold have been sold in the form of Krugerrands. Legitimately so, the Krugerrand has been credited as being the trailblazer in the gold bullion coin industry.”

The Krugerrand was the first gold coin in the world to be denominated in ounces of pure gold. It was first only produced as a 1oz gold coin. Recognising an opportunity in the market, fractionals of a ½oz, ¼oz Krugerrand2and 1/10oz were added in 1980. Krugerrands are 22 carat coins, containing 11/12 24 carat gold and 1/12 copper. As a traditional alloy used in gold coins that serve as currency, copper hardens the coins, enhancing their durability and strength.

“The success of the Krugerrand shows it is possible to add value to our precious metals if we develop local capabilities and channel resources towards achieving these goals. It will take time and huge investment but it is something worth pursuing,” says Praveen Baijnath, the Chief Executive of Rand Refinery.

In the early days of South Africa’s gold mining, the crude bullion produced had to be shipped to London for refining. The concept of a local refinery had been considered for several years but only in 1920 were concrete steps taken with the launch of Rand Refinery. Now the largest integrated single-site precious metals refining and smelting complex in the world, Rand Refinery has since 1920 refined nearly 50 000 tons of gold – almost a third of all the gold mined worldwide. The Krugerrand, which it manufactures in partnership with the South African Mint, is one of the most precious products it’s ever produced.

As part of its socio-economic upliftment and sustainable development initiatives, Rand Refinery has established three key projects that seek to benefit communities: the Gold Zone, Intsika Skills Beneficiation Project and Ekurhuleni Jewellery Project.

The Gold Zone, located within Rand Refinery’s Germiston precinct, aims to become a major hub for precious metals fabrication in South Africa for global export, while at the same time assisting local communities with skills development. The Intsika Skills Beneficiation Project provides jewellery design and manufacturing training to formerly unemployed young black women over an 18 month period.

The Ekurhuleni Jewellery Project is a Small to Medium Manufacturing Enterprise / Black Economic Empowerment incubator for qualified young black jewellery manufacturers. In partnership with government, Rand Refinery provides funding, workshops as well as access to precious metals to enable these young entrepreneurs to start their own businesses in a secure and enabling environment.

South Africa is home to precious metals such as gold, silver and platinum, and since the 1990s government has been pushing hard for the beneficiation of these metals in the country in order to extract more value. Mineral beneficiation involves the transformation of a primary material to a more finished product, which has a higher export sales value. The Krugerrand is the most visible form of beneficiation of South Africa’s gold.

Beneficiation has become one of the major drivers in advancing the empowerment of historically disadvantaged communities in South Africa. Government has also used beneficiation as an opportunity for the development of new entrepreneurs in big and small mining industries.

Published in Bank & Finance

After investigating the “massacre” (as termed by both the opposition Democratic Alliance and African National Congress Youth League) of more than 100 mental health patients under the guise of cutting costs, South Africa’s Health Ombudsman Malegapuru Makgoba advised that a “sufficient budget should be allocated for the implementation” of proper care.

Last year’s national budget imposed real cuts of 5.4% to the health budget and 13% to provincial hospitals – assuming the healthcare inflation rate, according to the Medical Aid schemes, was 11%.

The battle between Finance Minister Pravin Gordhan’s fiscal prudence and the forces bent on fiscal patronage in the country can be won.

But this can only happen if there’s a rethink of the budget. That would mean rejecting the demand by credit ratings agencies like Standard & Poor’s for “fiscal improvement” through lower budget deficits – down to a targeted 2.4% of GDP next year. In simple terms this means lower state spending.

South Africa has been down this road before. Threatened with a potential downgrade to junk status last year, Gordhan cut the 2016 size of inflation-adjusted social grants and state budgets for housing, municipal services (even before elections) and water (amid a drought).

Poor South Africans are facing increasing cost pressures. The official January 2016-17 inflation rate was 6.8% but a standard food basket for low-income families rose 16.5%. This is far higher than last year’s average 7.8% rise in the monthly child support grant to R350 and the measly 3.5% rise in the foster care grant to R890 per month.

A higher road of fair taxation

To do something about these paltry increases, one option the finance minister has is to raise more revenue. But who should pay higher taxes – poor people or rich people and big corporations?

One option is to raise the rate of Value Added Tax (VAT). But this would hit poor people the hardest because it’s a higher share of their income than it is for the non-poor. Leading lawyers and tax consultants are lobbying for Gordhan to raise VAT by at least 1 percentage point.

In fact rich people should bear a higher burden of taxes, because the “1%” ultra-wealthy have done extremely well since 1994. Their share of national income was, thanks to apartheid, an impressive 12% in 1994 but by 2008 this had risen to 20%, the highest in a 2016 World Bank database. And in many ways, the state keeps donating to the wealthiest citizens. Last year each time a passenger boarded a South African Airways (SAA) flight taxpayers donated R600 towards their ticket. That’s because the state provided SAA with a R5.6 billion subsidy while the airline carried nine million passengers.

When a passenger boarded the Gautrain – the fast speed service between Johannesburg, Pretoria and the OR Tambo airport – there was another R90 gift – a R1.5 billion subsidy covering 17 million trips.

In contrast, operating subsidies were less than R5 per trip for the 2.4 million working-class and poor commuters who use Metrorail every day.

The case for higher corporate taxes

And big corporates should contribute more towards the country’s tax revenue. In an economy that produced R4.4 trillion worth of Gross Domestic Product (GDP) last year, business taxes accounted for a paltry R200 billion: just 4.5% of GDP, down from 7% a decade ago and 9% in 2008.

All along, Treasury has lowered corporate taxes: from 56% of distributed profits in 1994 to 43% in 1997 to 39% in 2000 to 35% in 2009 and then down to 28% by 2013. Restoring corporate taxes back to 7% of GDP would raise R110 billion (five times more than the proposed 1 percentage point rise in VAT).

By comparison, the #FeesMustFall-to-zero demand would cost R30 billion annually, about six times more than Gordhan added to last year’s budget after national protests.

Can local firms afford higher taxes? A typical rebuttal is that the current 28% rate (before loopholes) is higher than the world average, and that those rates have dropped substantially the last two decades. But among peer emerging market economies the profitability of South African firms has usually been second or third highest. According to last July’s International Monetary Fund review local corporations claimed a 23% return on equity in 2015 – a year of the worst mining sector collapse in history.

An end to white elephants

Then there are Treasury guarantees worth R683 billion that undergird borrowing by the country’s state-owned enterprise. These include the power utility Eskom’s R350 billion exposure for the long-delayed Medupi and Kusile power plants which incorporate dubious coal-supply contracts. Other state owned enterprises given guarantees include the road agency Sanral, South African Airways and Transnet, the state’s rail, port and pipeline company.

Transnet’s self-destructive expansion is based on the mining industry’s R803 billion investment strategy to export “coal (18 billion tons), chromite (5,5 tons), platinum (6,3 tons) and palladium (3,6 tons)” through Richards Bay, the large industrial port on the country’s east coast. These plans were made before the price of coal crashed and with no regard to climate change.

Another white elephant is the R250 billion expansion of the coastal city Durban’s port-petrochemical complex. The project is a planner’s fantasy. The white elephant list also includes the wasteful R6.4 billion 2022 Commonwealth Games.

In the battle between the forces of fiscal patronage and fiscal prudence, the fiscal prudence brigade has been extremist in imposing austerity – except when it comes to dubious mega-projects favoured by the patronage network. In the most unequal country in the world, the budget offers an opportunity to move away from both the extremes and instead embrace the majority of the society, and environmental sanity.


- By Patrick Bond, Professor of Political Economy, University of the Witwatersrand

This article was originally published on The Conversation. Read the original article.

Published in Economy

Citigroup Inc. agreed to pay a penalty of almost 70 million rand ($5.4 million) to settle a South African antitrust investigation that said it participated in an alleged cartel to manipulate the value of the rand.

Citigroup will make witnesses available to help prosecute other banks that participated in price fixing and market allocation in the trading of foreign-currency pairs involving the rand, the Pretoria-based commission said in an e-mailed statement on Monday. The agreement “was done to encourage speedy settlement and full disclosure to strengthen the evidence for prosecution of the other banks,” Commissioner Tembinkosi Bonakele said.

The South African probe is the latest investigation into alleged rigging by the world’s biggest banks of the $5.1 trillion-a-day market for products tied to foreign exchange, which has resulted in more than $10 billion of penalties since Bloomberg first revealed manipulation in 2013. Former Citigroup trader Christopher Cummins and ex-BNP Paribas SA employee Jason Katz have pleaded guilty to allegations in the U.S. for rigging emerging-market currencies. Both were identified in the Competition Commission investigation.

“There could well be other settlements now that it seems the parties are prepared to come forward,” Patrice Rassou, head of equities at Sanlam Investment Management in Cape Town, said in an e-mailed response to questions on Monday.

‘Monitoring Processes’

“Citi is pleased that the matter has been settled,” the bank said in an e-mailed statement. “We will continue building upon the changes that we have already made to our systems, controls, and monitoring processes.”

Barclays Plc and its units that were named in the investigation may get the same sort of deal as Citigroup from South African antitrust authorities. It won’t be targeted for prosecution because the U.K. bank co-operated with regulators, three people familiar with the matter said last week. Citigroup and Barclays were both named as part of the rand-rigging probe when it started in 2015.

Barclays Africa Group Ltd., the U.K. bank’s South African unit, has been granted conditional immunity from prosecution in return for its continued cooperation in the rand-rigging investigation, Bonakele said in an interview in Cape Town on Tuesday. “I expect more banks to pay admission of guilt fines and to cooperate with the investigation as they seek to avoid reputational damage. The culture and the morality of trading by local and international banks has to change.”

‘Affected Revenue’

The commission, which investigates cases, on Feb. 15 referred the matter to the country’s Competition Tribunal, which will hold hearings before deciding what penalties should be imposed. The commission said that Bank of America Merrill Lynch, HSBC Holdings Plc, BNP Paribas SA, Credit Suisse Group AG, JPMorgan Chase & Co., Nomura International Plc, Commerzbank AG, Macquarie Group Ltd., Australia & New Zealand Banking Group Ltd., Investec Ltd., Standard Chartered Plc and Standard Bank Group Ltd. should be fined.

The administrative penalty paid by Citigroup does not exceed 10 percent of the lender’s annual turnover, the commission said. While the commission recommended the banks be fined 10 percent of their turnover, the maximum allowed, the tribunal will determine the penalty based on “affected revenue” from their foreign exchange units and the period over which the transgressions took place, Simon Roberts, a director of the University of Johannesburg’s Centre for Competition, Regulation and Economic Development, said last week.
“Telling on mates and getting away easy is always a tough one, but it does promote whistle blowing,” Simon Brown, Johannesburg-based chief executive officer of trading company JustOneLap, said by e-mail. “The fine does seem small. We will probably see other banks settle, especially the local banks. If for nothing else, they will settle to remove the pressure.”


Source: Bloomberg

Published in Bank & Finance

Over the last three decades there’s been some progress towards institutionalising multiparty democracy in sub-Saharan Africa. Despite this elections in the region rarely result in changes of government.

A recent survey by Afrobarometer – a non-partisan African research network – sheds some light on why this is the case. The survey, which involved 9 500 interviews conducted in 2014/2015 in Botswana, Mozambique, Namibia, South Africa and Zimbabwe, found widespread support for multiparty politics.

But the results also show that opposition parties face major obstacles to winning majority support. These include the fact that they aren’t trusted as much as governing parties and that very often they aren’t seen as a viable alternative to the dominant ruling party.

All five countries are governed by parties that emerged from liberation movements and have been in power for decades since independence. Although some of these incumbents have lost some electoral support in recent years, opposition support has not been high enough to unseat them.

The trust question

The latest findings mirror the results of a survey in 36 African countries in 2014/2015 which found that opposition parties had the lowest levels of popular trust among 12 types of institutions and leaders. While trust in ruling parties was 46%, it was only 35% for opposition parties.

This was an improvement over the situation more than a decade earlier when trust levels in opposition parties was much lower.

Figure 1: Trust in opposition political parties| 5 countries in Southern Africa | 2014/2015

Respondents were asked: How much do you trust each of the following, or haven’t you heard enough about them to say: Opposition political parties? (Percentage who say ‘somewhat’ or ‘a lot’) Afrobarometer

In Namibia and Mozambique levels of trust in opposition parties were found to be at the highest levels ever. But in Zimbabwe trust in the political opposition declined sharply after 2008/2009. Similarly, the proportion of Zimbabweans who said they felt “close to” an opposition party dropped from 45% in 2009 to 19% in 2014.

This dramatic reversal of fortune provides an important lesson for opposition parties in the other four countries. First, the opposition Movement for Democratic Change, led by Morgan Tsvangirai, was unable to leverage its role in stabilising the country when it was part of the Government of National Unity (GNU).

Secondly, infighting and increasing fractionalisation may have further shaped public opinion about its viability as a party.


There’s a much more lopsided distribution of power and resources for opposition parties in countries with dominant governing parties than for those in competitive party systems. This, coupled with a lack of governance experience, makes it difficult for opposition parties to be seen as credible alternatives.

Take the example of Botswana. The Botswana Democratic Party, in power since independence in 1966, is the region’s most enduring dominant party. It has even adopted the slogan There is still no alternative. Although the party has been able to maintain a majority of parliamentary seats, its share of the popular vote declined to 46.7% in 2014, the lowest level of any of the dominant parties in the region.

Afrobarometer’s 2014 survey, which took place a few months before the election, showed that 44% of Batswana agreed that the political opposition presented a viable alternative vision and plan for the country (Table 1, below).

Table 1: Perceptions of opposition viability | 10 countries in southern African | 2014/2015

Respondents were asked: Please tell me whether you agree or disagree with the following statement: The political opposition in [your country] presents a viable alternative vision and plan for the country? (Note: This question was not asked in Swaziland.) Afrobarometer

In Botswana’s “winner-takes-all” electoral system, a large part of the opposition’s success in the 2014 election was due to three parties forming a coalition - the Umbrella for Democratic Change (UDC). This reduced vote splitting. A recent decision to expand the coalition to include the country’s remaining major opposition party, the Botswana Congress Party, has led to speculation about the chance of an opposition electoral victory in 2019.

Similarly, in South Africa, the opposition’s strong showing in the 2016 local elections has bolstered its optimism about its prospects in the 2019 national and provincial polls.

This success suggests that confidence in the political opposition may have grown since the 2015 Afrobarometer survey. It could also reflect widespread dissatisfaction with the governing African National Congress and political institutions, leaders and performance on a range of key policy areas.

But public dissatisfaction with government performance doesn’t necessarily translate into perceptions that opposition parties could do a better job, as Figure 2 shows. This is particularly so in South Africa and Zimbabwe. While eight in 10 citizens in the two countries report poor government performance on their top policy priority (unemployment, only 37% say that another political party could solve the problem.

Figure 2: Poor government performance on most important problem and opposition ability to solve problem | 5 countries in southern Africa | 2014/2015

Respondents were asked: In your opinion, what are the most important problems facing this country that government should address? - Thinking of the problem you mentioned first, in your opinion, how well or badly would you say the current government is handling this problem, or haven’t you heard enough to say? (Percentage who say ‘very badly’ or ‘fairly badly’) - Thinking of the problem you mentioned first, in your opinion, is there any other political party that could do a better job in solving this problem? (% who say ‘yes’) Afrobarometer

Role of opposition parties

What role should opposition parties play?

Only a minority of citizens in the five southern African countries with dominant parties agree that the opposition’s primary role should be to

monitor and criticise the government in order to hold it accountable.

This is true even among respondents who are opposition party supporters (Figure 3, below). In South Africa there’s even been a decline since 2008/2009 in support for opposition parties playing a “watchdog” role.

Figure 3: Support for opposition ‘watchdog’ role| 5 countries in southern African countries | 2008-2015

Respondents were asked: Which of the following statements is closest to your view? Statement 1: After losing an election, opposition parties should monitor and criticise the government in order to hold it accountable. Statement 2: Once an election is over, opposition parties and politicians should accept defeat and cooperate with the government to help it develop the country. (Percentage who ‘agree’ or ‘agree very strongly’ with Statement 1) Afrobarometer

This suggests that opposition parties might put off potential voters if they are seen to be constantly criticising the ruling party rather than contributing to the country’s development. Opposition parties might do better if they highlight their policy platforms and gain citizen confidence in their plans and capabilities.

This is a crucial insight for opposition parties in the region as it runs counter to the opposition’s conventional role in Western democracies.

Rorisang Lekalake, Research Fellow at the Centre for Social Sciences Research (CSSR)/Afrobarometer Assistant Project Manager for Southern Africa, University of Cape Town

This article was originally published on The Conversation. Read the original article.

Published in Opinion & Analysis
-This article is part of a series of studies titled “barriers to entry”, specifically looking at the expansion of regional supermarket chains in southern Africa. The article draws from studies that look at the spread of supermarkets in the region and how the market power of large firms in different sectors can hold back economic development.

Supermarkets are a key route to market for many suppliers of food and household consumable products. The growth of supermarket chains in southern Africa presents important opportunities for suppliers, as it potentially opens up much larger regional markets for them. Supermarkets can therefore be a strong catalyst to stimulate suppliers in food processing and light manufacturing industries in southern Africa.

But even the most efficient suppliers with competitively priced, high-quality products are unlikely to succeed if they can’t get their products to consumers. Here, large supermarkets play a key role. Onerous requirements and exertion of buyer power by large supermarket chains can result in small- and medium-sized suppliers and entrepreneurs failing to enter and participate in the economy.

We examined the obstacles to accessing shelf space in supermarkets in Botswana, South Africa, Zambia and Zimbabwe. The research revealed a range of costs that suppliers incur even before a single unit of their product is sold off supermarket shelves in each country.

Supplier development initiatives have been put in place by supermarkets and governments. But these have had limited success because they are restricted in scale and scope, are largely ad hoc, and don’t have a regional development perspective in mind.

There is a need for more co-ordinated, sustainable and regionally focused interventions to increase the participation of suppliers in supermarket supply chains. These should aim to reduce barriers to entry by, for example, curbing supermarket buyer power and building capabilities of suppliers.

Supermarket buyer power

Pick n PayThe formal South African supermarket industry is concentrated, with only a handful of large chains holding more than 70% of the national market share. South African supermarket chains also have a strong and growing presence in each of the other countries assessed, although recent years have seen the emergence of other African and global chains too.

Large supermarket chains therefore have considerable buyer power, and are often able to control pricing and trading terms with suppliers. This can include a range of fees such as listing or support fees paid by suppliers to get their products listed in supermarket books. These fees can be prohibitive for small suppliers. Estimates of listing fees in South Africa range from US$350 to $3,500 per year for a single product line of a basic food item on the shelf. They can go as high as $17,000 to $20,000 for prime till positions for products like sweets and lollipops for a limited time period.

In Zimbabwe, listing fees can be up to $2,500 per product line, with $50 to $100 for the introduction of additional new product lines by the same supplier. Suppliers are also often required to offer supermarkets settlement discounts for paying them within the number of days stipulated in the trading terms. This varies depending on the supplier.

Long payment periods put considerable pressure on suppliers’ cash flow and working capital which is problematic particularly for small suppliers. Local suppliers in Zambia raised this as a key reason for non-participation in supermarket value chains although it was a concern in all the countries studied.

Over and above the advertising costs faced by suppliers themselves in creating brand awareness for their products, supermarkets require them to make a host of additional payments. These can include:

  • discounts off the purchase price for indirect advertising;

  • contributing towards promotions. Our research showed that it can cost anything from $2,500 to $7,000 to promote a single product line as a contribution to the costs of the supermarket advertising through TV, newspapers and flyers; and

  • paying to participate in different promotions held by supermarkets such as Easter and Christmas promotions.

A range of other fees also apply, varying by supplier and according to industry. These include general discounts, fixed or variable rebates based on sales volumes, transport discounts and swell or wastage allowances.

Cumulatively, the various fees can add up to at least 10-15% off the price of the product sold to supermarkets, placing considerable strain on supplier margins.

Other obstacles to accessing shelf space

General access to good shelf space often comes at further costs. It is critical for successful sales that products are displayed where shoppers can easily see them. Eye-level shelf space is often taken up by Spardominant suppliers.

Similarly, access to refrigeration space is important for suppliers of cold products such as soft drinks, ice creams and frozen food. There have been competition cases [globally]

((http://ec.europa.eu/competition/antitrust/cases/dec_docs/39116/39116_258_4.pdf; http://www.ccm.mu/English/Documents/Investigations/INV019-Final%20Report%20of%20Undertaking-NC.pdf) and in South Africa that have recognised the harm to competition of dominant suppliers imposing exclusivity requirements on fridge space.

Over and above legal requirements such as compliance with national standards, food safety, labelling and packaging requirements, suppliers also have to adhere to private standards imposed by supermarkets. These can include barcoding and specific packaging requirements as well as sustainability criteria and religious requirements (such as halal and kosher certicfications).

These can also include higher accreditation standards which often involve on-going audits at the supplier’s cost.

Helping emerging suppliers

Codes of conduct between suppliers and supermarkets can be a useful way to control the exertion of buyer power.

In the UK, for example, the Groceries Supply Code of Practice was set up specifically to oversee the relationship between supermarkets and their suppliers following an inquiry by the former Office of Fair Trading.

Similarly, in Ireland and Spain, there are plans to institute voluntary or mandatory codes of conduct in the grocery sector to govern commercial relations between suppliers and supermarkets in the food chain. We recommend that such codes also be set up in southern Africa. Given the multinational nature of supermarkets in the region, these codes can be harmonised across the region.

Supermarkets can also play an active role in building the capabilities of suppliers. Almost all supermarkets in South Africa have some form of voluntary supplier development program in place. In some instances, large supermarkets have been mandated to set up supplier development programs. For example, as part of the merger between Walmart and Massmart, the merged entity was required to set up a supplier development fund. Around $16.7 million was allocated to be spent over five years to develop suppliers.

Some aspects of the program involving farmers were unsuccessful. But there have been positive outcomes for some black entrepreneurs in food processing. One beneficiary, Lethabo Milling, a new entrant producing maize meal, received around $110,000 towards refurbishing his plant. And the company was able to secure a loan from a commercial bank on the back of a guaranteed route to market through supplying Massmart stores in South Africa. Lethabo Milling also received additional support through training, waived listing fees and fast-track payments.

Successfully developing supplier capabilities in the region requires a much larger, long-term and commercially oriented approach by supermarkets in partnership with governments. This can be done through the creation of supplier development funds similar to the Massmart/Walmart programme. Funding can also come from fines levied by the competition authorities in abuse of dominance or cartel matters in each country.

Reena das Nair, Senior Researcher, Centre for Competition, Regulation and Economic Development, University of Johannesburg

This article was originally published on The Conversation. Read the original article.

Published in Business

A total of 5 504 022 people travelled across South Africa’s borders between 9 December 2016 and 14 January 2017, says Home Affairs Minister Malusi Gigaba.

SA thumbs upThis marks an increase of 200 467 movements, or 3.78 percent, at the ports of entry nationally when compared to the corresponding period over the previous holiday season. “The 2016/17 festive season was marked by increased movement of people and goods across borders for different reasons varying from cross-border employment and business to academic and educational endeavours.

“We also observed a high number of travellers crossing borders for holiday and tourist purposes, which is one of the important priorities for the country,” said the Minister at a media briefing on the latest festive season traveller statistics in Pretoria on Wednesday.

Minister Gigaba said South Africa remains an attractive tourist destination. The top 10 nationalities that arrived in South Africa during the period were from Lesotho, Zimbabwe, Mozambique, Swaziland, Botswana, United Kingdom, United States, Namibia, Germany and Zambia.

The top 10 ports of entry used by travellers between 9 December 2016 and 14 January 2017 were Oliver Tambo International Airport, Beit Bridge, Lebombo, Maseru Bridge, Ficksburg, Cape Town International Airport, Oshoek, Kopfontein, Ramatlabama and Groblers Bridge.

Published in Travel & Tourism
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