Businesses must co-operate with government on NDP
By Humphrey Borkum, Chairman of JSE Limited
In July 2011 in a reply to Bobby Godsell's call for business leaders to raise their voices against the ANC Youth League's nationalisation plans I used this column to address the issue. I pointed out that the government had neither the money, capacity nor expertise to take over the mining and banking sectors. Moreover the government had enough on its plate trying to fulfil its mandate of providing service delivery. I argued that the League should rather be lobbying for the privatisation of our inefficient parastatals and a vastly improved education system. After a well aired debate the calls for nationalisation have seemingly withered away and the National Development Plan (NDP) has been endorsed as the way forward.
Now Godsell, Chairman of Business Leadership SA, has told us that the NDP is a golden opportunity for the private sector to engage with government and that in 40 years there's never been a time when business was so needed and recognised by politicians.
I have always believed that South Africa Inc must approach the NDP with a sense of co-operation going forward as neither the government, the unions or business will be able to do it alone. The future of the NDP depends on a real desire by these three groups to ensure the success of the plan.
The JSE, which already has a good relationship with the National Treasury, will do everything possible to support the NDP and in so doing heed Godsell's words. In the recent budget Finance Minister, Pravin Gordhan, stressed that government is aware of the need to make South Africa more competitive and announced reforms aimed at securing South Africa's position as a financial gateway into Africa. JSE listed companies would be allowed to establish one subsidiary to hold African and off shore operations which would not be subject to foreign exchange restrictions. This should also make it easier for our banks to operate off shore.
In this window of opportunity I'd like to support any moves by government to create a more business friendly climate in South Africa and to establish a quick and easy route to starting a new business. These two criteria as many capitalists have repeatedly pointed out will grow the economy and create jobs. Here I would simply highlight the difference between SA and two of its African competitors. In January this year the World Bank brought out an Ease of doing Business and Starting a Business ranking of 185 economies. In Ease of doing Business SA ranked 39 on the list and 53 in Starting a Business whereas Mauritius ranked 19 and 14 and Rwanda, a late starter, ranked 52 and 8 respectively.
I would suggest that the SA Revenue Service consider setting up a special division to deal with the registration and tax problems faced by entrepreneurs trying to start new companies. The last thing one needs amidst the enthusiasm of starting a new company is to be stalled by bureaucracy.
Our current account deficit shows that as a country we are spending more than we are earning and therefore it is imperative that we encourage foreign investment. The JSE has played its part in establishing and continuously seeking to improve a world class equity and bond market. Foreign investors feel secure with these markets and know that, unlike some other developing country bourses, they will be able to remit their investments at all times. The Treasury has encouraged further foreign flows into our market by enabling the JSE to accept dollar collateral as margin.
There are numerous areas which need to attract foreign investment. However because of its size the mining industry must recover its stability as soon as possible. Here, business, government and the unions should work together to good effect. Mining attracts over 50% of our foreign investment and contributes 18% of our country's GDP. It is responsible for 500 000 direct and 500 000 indirect jobs. The social multiplier of mining is very significant. Given a dependency ratio of about 10:1 this means that roughly 10 million people are directly dependent on mining for the daily food on their table. Measured by market capitalisation mining companies comprise 31% of the JSE's Top 40 index.
After the Marikana tragedy sorting out the labour problem is critical in the short term. However in the long term what SA needs even more than labour settlements is policy certainty. It is generally accepted that governments owe their citizens good governance which includes the creation and maintenance of a regulatory policy environment that is conducive to sound business decision making. This is particularly relevant in industries such as mining where it takes about fifteen to twenty years to get from exploration to operation stage and at the best of times is a risky business. Most projects fail. I'm informed that it takes 284 days in SA to review a mining right, Botswana aims for 60 days and Uganda will do it in weeks.
JSE Limited delivered a solid financial performance in 2012. In a challenging environment group revenue remained steady increasing by 1,1% and we maintained a dividend of 250c. Globally members of the World Federation of Exchanges (WFE) experienced a 14,3% downturn in equity trades last year. While our equity revenues declined by 9,4% volumes held steady and ended flat on 2011 thus outperforming WFE volumes. The drop in revenue was largely attributable to a 20% price reduction introduced early in 2012. We believe that our volumes would have more closely tracked the negative global trends if this price relief was absent. However this decline in equity revenue was offset by growth in other divisions notably Interest Rate Products and Market Data.
A number of positive developments were achieved in 2012. Among these:
- Safcom, our derivatives clearing house, became the first in the world to qualify for CPSS-IOSCO compliance. Our clients now enjoy maximum Basel lll relief when clearing exchange traded derivatives. (CPSS is the Committee on Payment and Settlements Systems and IOSCO the International Organisation of Securities Commissions, a global network of regulators for the securities and futures markets)
- Implemented the new MillenniumIT trading system on time and within budget and thereby brought our trading platform back to Johannesburg.
- Successfully upgraded the commodities and derivatives market technology to handle increased volumes
- In conjunction with the Treasury and market participants, found a way forward on securities transaction tax with which participants are comfortable
It is important to note that the JSE has a diversified revenue base with eight different divisions. One of our most successful in 2012 was Market Data where revenue rose 17% owing to international growth in professional indices users as well as algorithmic players. We now have over 53 000 terminals displaying JSE data worldwide. These will be of particular value for attracting foreign investment as international investors continue to seek yield from emerging markets.This article first appeared in Business Report