SINK or SWIM By Brains Muchemwa.

Transcription

1 SINK or SWIM By Brains Muchemwa

2 CONTEXT THE STATE OF THE ECONOMY KEY CHALLENGES LIQUIDITY PRODUCTIVITY

3 STATE OF THE ECONOMY: MASSIVE SLOWDOWN KEY HIGHLIGHTS: The economy is slowing down 2014 GDP growth forecast 1.8% from the initial targets of 6.1% at the beginning of the year. GDP Growth rates 11.40% 11.90% 10.60% MTP Target Growth rate 7% 5.40% 3.40% 1.80% *

4 EVIDENCE OF BROAD GDP GROWTH SLOWDOWN 141.2% Y-o-Y Gvt revenue growth 24.8% 18.1% Revenue Bns % 10.8% Government revenue increasing at decreasing rate. FY FY FY FY FY 2014 Corporate revenues and private sector output increasing at a slow pace Monetary aggregates slowing down sharply

5 INFORMALISATION THE BIG THREAT Excise, 12% Customs, 11% Royalties, 4% VAT, 33% SA Tax Structure 2012: SA collected tax revenue R742 billion in 2012 consisting of VAT 25.7%, PAYE 33.7%, Corp Tax 20.4%, Customs 4.6% Corp Tax, 14% PAYE, 21% Current Account UK structure 2009: VAT 15%, Direct PAYE 29% Zambia Tax Structure 2012: VAT 24.5%, Corp Tax 17%, PAYE 22%, Customs 11% Imports Exports

6 The Economy On the move and its many Shadows.

7 STATE OF THE ECONOMY - MISPLACED GVT EXPENDITURE About 235,000 civil servants consumed $2.5 billion in wages TCTC at 892 per month The remainder of the population numbering 11.7 million were eligible to get $6 per month per individual in services from government Government no capacity to provide for adequate social services Government has no capacity to embark on significant infrastructure projects under these circumstances Impossible to use expenditure multiplier to create employment and ignite Pvt sector growth INEFFICIENT PUBLIC EXPENDITURES ALLOCATIONS 1% 99% 11.7 million people people

8 BUSINESS BLAME GAME INFLATION FOREX SHORTAGES PRICE CONTROLS GVT HEAVY HANDEDNESS LIQUIDITY GVT, GVT, GVT

9 A. B. C of running a business US$ ENVIRONMENT QUADRANT TOUCH IS A MOVE HYPER INFLATION QUADRANT GVT FOR US ALL Common Cents

10 LIQUIDITY What is liquidity? Accounting and economic definitions Importance of separating poor business models from liquidity challenges from both the private and public sector balance sheets There is abundant evidence to show that our liquidity has been improving significantly: pricing, term structure and growth in credit aggregates US$ Banking Sector Deposits (bns) Compound annual cost of credit 112% % 32% 22% 18% Sept. 04 Apr. 05 Mar. 06 Mar. 07 Apr. 08 Apr. 09 Oct. 09 Dec. 10 Dec. 11 Dec. 12 Dec. 13 Jul % -65% -100% -99%

11 WHAT CAUSED THE CRUNCH Causes of liquidity bottlenecks Reckless lending by bankers - unparalled optimism High NPL - Interfin, Renaissance, etc Unrepentant Corporates Globalisation double edged sword Perceived high country risk Effects Unsustainable gearing levels and high incidences of corporate bankruptcy.. Thuggery and creative financing via overtrading & destruction of SMEs in the value chain (creditors scheme of arrangement) Low levels of investment in infrastructure. No PPPs at public sector levels, its only 12% of gvt revenue into capital projects Fallacy on lines of credit National ignorance: DIMAF Low levels of physical capital formations Inability of shareholders to inject new cash : rights issues on the ZSE have been failing dismally. Hard to get underwriters!!

12 HOW TO SWIM Don t create debtors (expenses) Build up creditors (assets) Leverage responsibly Conserve cash Rationalise labour and other OP costs

13 LABOUR PRODUCTIVITY Average Monthly Wages US$ Declining productivity amid increasing wages Zero skills light bulb, iron, cellphone Head Count * 2009* 2012* 2014*

14 LABOUR PRODUCTIVITY ASIAN EXPERIENCE Foxconn Technology and Haier Li & Fung Labour costs now 40% and 60% lower in Vietnam and Bangladesh respectively. Mass relocation of plants to Asia from the West since 1995 Impact of robust consumer demand on the economy 30% of the world middle class consumption SA wage talks SWIM or SINK SWOT analysis: eg Labour Laws Literacy vs Productivity

15 OTHER COST CHALLENGES US$ monthly rentals per sq meter 25 Feb Jul-14 4 Office Retail Industrial Foolish occupancy