Cape Town, Nairobi, London, and NY in next two months

I’ve hit the ground running here at African Alliance and published five macro & equity strategy reports in the past month. As a result the blog just hasn’t been a priority. I’m getting material together for upcoming roadshows to Cape Town, Nairobi, London and NY in the next two months. Our team has developed some good views , and we’ll be making some more big calls in the next few weeks as well. If you’re in any of these cities and would be keen to meet up for a drink or meeting, get in touch.

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AngloGold Ashanti predicted to perform well in mining efforts

By Guest Contributor

Fatalities in Africa’s gold mines have always been a problem. This is troubling but common news, with around 100 -120 casualties being reported every year. As for AngloGold Ashanti (NYSE: AU), 16 fatalities in 2009 happened in their mines in South Africa.

Since 2007, AngloGold Ashanti was able to reduce their operational casualties by around 70%, thanks to the efforts of a safety program spearheaded by the company’s very own CEO Mark Cutifani. With its new technology called Reef Boring, the company might even reduce its casualty to nothing in years ahead.

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I’m Joining African Alliance Securities As Lead Macroeconomic Strategist

Today I join African Alliance Securities as lead macroeconomic and equity strategist. African Alliance is an investment banking group operating in Africa, providing local and on-the-ground investment banking services across the African continent. African Alliance doesn’t have a commercial banking license in any country as far as I’m aware, but they have a massive presence on the ground in Africa with 11 offices scattered across the continent.

My time at ETM Analytics has been incredible, but as they say, all good things come to an end. It’s been amazing to work so closely with some of the brightest minds in SA economics, with the likes of Russell Lamberti and George Glynos never far away for an economic debate or discussion. I’ll miss having them and the rest of the team around, but I look forward to joining another excellent research team consisting purely of equity research analysts (rather than economists) – which means my research focus and final outputs will take on a slight tilt toward the listed equity market now – a new and refreshing change. African Alliance Research has just been voted Best Research House in Africa in the Euromoney Research Survey for the third consecutive year.

Bloomberg News ran the following story about my move: ETM Analytics Market Strategist Becker Joins African Alliance

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SA’s road repair bill estimated at R149 billion

This is according to Engineering News, following ‘acting transport director-general’ Mawethu Vilana’s comments in parliament’s transport portfolio committee yesterday. Watch this number inflate sharply in coming years as the cost of building materials, labour and government waste also gets added in (for more on this last point listen to this interview I did earlier this year on Moneyweb).

I would also point out that this is only the resources required to fix roads in the “poor and very-poor” category. When we consider that what government believes are ‘good’ roads are also well below original ‘spec’ and in need desperate need of maintenance and investment spending, this bill starts to ramp sharply higher.

The problems here are the same as elsewhere in the public sectors. As I wrote back in early 2012 regarding electricity infrastructure:

“The maintenance backlog of municipal electricity infrastructure is at about R35bn and rising by R2,5bn a year, Parliament heard yesterday. Municipalities are failing to invest in infrastructure because they need funds for operational expenses and because of uncertainty over the future ownership of the assets,” reports Business Day.

Back of the napkin calculation based on the above figures shows that maintenance of municipal electricity infrastructure has been neglected for about 14 years.

This is a problem underlying each and every service provided by government, including water utilities. Taxation, whether direct or indirect, is going to climb dramatically to pay for crisis management, ala Eskom tariff hikes.

A major reallocation of capital into these areas will be required that will be a huge drain on the private sector and the economy.

What all this means is that tax rates and indirect taxes can be expected to rise sharply in years ahead – it’s negative for the private sector and disposable incomes. I’ve also written lots about this trend in crumbling water infrastructure (here’s an article with several links to those water articles).

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Ridiculous attack on Austrian economics

…By the academic Noah Smith who – very obviously – has never read a chapter of Bohm-Bawerk, Mises, Hayek or Rothbard in his life.

Here’s Noah Smith trolling the Austrian economists on Bloomberg View.

Although I don’t believe Smith’s article is even worthy of a response as it’s so misguided on so many levels, Bob Murphy, Mish Shedlock, Gary North, and Peter Tenebrarum have all done a good job explaining exactly how far off base he is.

Professor Bob Murphy: “Noah Smith Boldly Goes Where Thousands of Austrian Critics Have Gone Before

Gary North: “Assistant Prof. Noah Smith’s Life on the Welfare Rolls. Will He Get Tenure?

Mish Shedlock: “Brain Worms – Bloomberg Writer Noah Smith Has Them

Peter Tenebrarum: “In Defense of Austrian Economics

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Presentation in Mauritius, and a short note about the place

Work and personal life’s been busy and there are some developments that have taken up my time and kept blogging to a minimum.

I spoke at the Mines and Money Access Africa conference in Mauritius two weeks ago, and then took some time off with the family at a nearby resort. The conference was good – was more mining focused than the conferences I usually attend, but my presentation was well received and I met some very interesting and smart people over there who I’ll definitely be in contact with going forward.


I spoke after this guy: Dr Fabio Scacciavillani, Chief Economist, Oman Investment Fund.

Here’s my daughter Lily playing on the beach. We got pretty lucky with the weather – my friends in Mauritius tell me it’s been grey and windy all week since we left.

Lily in Mauritius

It was the first time I’d been to Mauritius and it’s striking just how capitalised a country like South Africa is compared to the island nation. Infrastructure in Mauritius is decent and developing, but traffic jams into and out of Port Louis are quite severe (luckily I missed them though). Roads are very narrow (even the highways) and there’s no emergency lanes – so navigating them are quite a skill. It looks like the emergency lanes have been left out to allow space for sugar cane that grows right onto the edge of the roads.

Just about the entire island is covered in sugar-cane, making it a key commodity for the country. Of course, tourism is also a major foreign exchange earner and with a bottle of Libertas red wine or Excelsior red wine costing around $40 or R400 (Rs1200) at the resort we stayed at, there’s a big mark-up on prices and hence foreign currency flows nicely into the country on a net basis (at least they do through the resort). Lastly, the economy is seeing a big surge of foreign capital into trust, fund or corporate structures as Mauritius has positioned itself well to be a launch-pad for investment flows into Africa.

Hence the Mauritius rupee has been strengthening smartly since 2012, even against the US dollar. Price inflation is low, and so are interest rates. By the way, to everyone who said South Africa would be the gateway to Africa – it isn’t. Several South African companies (i.e. Afgri) has made Mauritius its gateway to Africa thanks to a reasonably sophisticated financial sector (there’s a high concentration of international banks dotted around Port Louis), very good tax rates (15% flat corporate tax), and of course a strengthening rupee provides a stable store of value for cash.

The purple line below shows that the Rand has lost 37% of its value against the Mauritian rupee since the start of 2011. It’s therefore costing South Africans a lot more to holiday in Mauritius today than just four years ago.


Source: Eikon

Of course, our good friends in government think this weakening rand is a good thing. Just a couple of days ago SA tourism minister Derek Hanekom said the weak rand could boost tourism to SA and boost the economy. It’s just a pity the weak rand and poor SA economy means it’s much more expensive and further out of reach for most South Africans to travel abroad, or even in the domestic economy.

And as I’ve been arguing for many, many months now, the weak rand is sending the cost of living for working class South Africans surging higher at a much faster rate than the official CPI indicates, fueling a major and more intense round of industrial action this year. I predicted more intense industrial action this year recently on this interview with Hilton Tarrant on Moneyweb radio (listen here). And I’m afraid this is only going to get worse in coming years unless the government and central bank lifts interest rates into positive real territory (as India has done with very good results) and oversees a strong rand policy. Copy the Mauritians who have a strengthening currency, and little to no social or labour unrest…


The presentation I delivered at the conference can be viewed here.


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