Standard Bank CEO Ben Kruger to step down

Following a carefully planned management succession process Standard Bank Group announces changes to its current joint-group chief executive structure. The board is satisfied that the structure, which was necessary in 2013, has met and in many respects exceeded expectations.


Crisis puts waste water treatment under the spotlight

There are many opportunities for the treatment of waste water in South Africa, but the uptake of these opportunities has been slow, according to Carl Haycock, managing director of Talbot & Talbot, which offers expertise in the provision of sustainable water and wastewater solutions across Africa.


Alarming acceleration in business decline

The Standard Bank Purchasing Managers’ Index (PMI) on Wednesday showed private sector business activity in South Africa declined for the third successive month in June, with the rate of contraction accelerating the fastest since April last year.


Beware the consequences of underinsurance in the current economic climate, warns Standard Bank.

The recent slide in the value of the rand and the resultant volatile economic climate could have serious consequences for South African businesses that are unaware that the insured values of their imported assets may have dropped substantially below the present replacement or repair costs, warns Standard Bank.

“Cutting across the entire spectrum of South African business from electronics to machinery, equipment and even yellow metal to retail outlets, the recent significant loss in the value of the rand – touching a low of almost R16 to the dollar, a decrease of 15% since November 2015 – has seen the replacement costs for imported assets spiralling upwards; creating potentially costly pitfalls for those who are unprepared,” says David Wedderburn, Regional Manager of Corporate and Business Insurance for Standard Bank Insurance Brokers.

Although fluctuations in the rand against key international currencies are nothing new, it is the magnitude of the latest change that is of concern.

”While the value of the rand has fluctuated in the last 20 years, these changes were not as severe as those most recently experienced. Clients have therefore until now been able to use the annual renewal cycle to compensate for any annual inflationary influences and changes in the value of the rand. 

“In addition, currency fluctuations were built into margins within the underlying insurance policy for clients who operated capital intensive businesses. This included clients who were importing high-value machinery and equipment for the construction and mining industries.  It was also possible in the past to deal with the specialised needs of clients on an ‘as-needed’ basis or provide for their needs by modelling a slow decline in forex values,” He says.

“The most recent drop in the value of the rand, however, has been far more sweeping in its implications. It has impacted on virtually all sectors within our client portfoliosand we therefore have to look at the impact of this change on a sector by sector level.

“The major impact has been on imported goods. The costs of maintenance have also not escaped the slide in the rand as the cost of spares has rocketed.

“Some industries, such as those relying on the importation of consignment goods using the dollar as a base, have seen their cash flows hit. These traders have had to exercise caution with sales to clients because of the dramatic increase in their stock acquisition prices.”

At a micro level, says Mr Wedderburn, even small to medium enterprises and shopkeepers in local malls have not been exempt from the insurance aspects of the rand’s slide.

“These days every business has computer equipment, office machinery or purpose-designed machinery.   For smaller business the potential for unexpected costs related to equipment failure or replacement could be critical.”

Although the impact on business needing imported equipment will vary according to the currency in which the purchase was negotiated, the businesses most likely to feel the pain of adverse forex levels (primarily the US dollar, Euro or British pound to most South African enterprises) are those who bought their equipment a few years ago.

Equipment bought four years ago in Europe for import needing to be replaced could cost up to 30% more.  Unfortunately, says Mr Wedderburn, the older the equipment the more likely that maintenance and purchase of spares will be required – something that also has to be catered for with appropriate financial planning.

“Potential losses could be exacerbated if the insurer applies the average, ” principle to a claim, warns Mr Wedderburn.

“If equipment is underinsured and the insurer applies ‘average’ to the level of underinsurance, this could result in a large financial loss being incurred in the event of a claim. To safeguard their own interests, companies seeking coverage should therefore ascertain how the ‘average’ clause can be removed from policies.”

“If income is dependent on imported equipment, the business interruption values will also have to be considered. Financial losses attributed to damaged equipment, theft or other causes could be significant when compared to when the equipment was originally acquired.  Finding profitability badly impacted on and then finding that the business is underinsured for business interruption would therefore be a double-blow.”

“With the situation regarding the international value of the rand unlikely to change in the near future, the emphasis should be on protecting assets and ensuring that the possible risk resultant with damaged equipment is minimised. A valuation of assets and discussions with a professional adviser are advisable.”


Hospital plan uptake on the increase as medical costs soars

As pressure on household incomes grow, interest rates increase and levels of discretionary income decline, more South Africans are looking at ways of trimming their monthly budgets. One of the first outlays examined is medical aid and the increasing chunk that the service is taking out of household income. Alternatives are now actively being examined and adopted, says Tetiwe Jawuna of Standard Bank Insurance Brokers.


Farmers view agriculture as an investment vehicle

It’s important to plan beyond the drought in a sector that will remain a driver of economic growth and social stability.

Although agriculture has always been the backbone of most rural economies, it can become a social and financial investment vehicle capable of driving positive change at national and regional levels.


Businesses need to apply innovative water saving strategies

“While some companies have realised the risks of an ongoing drought and are implementing water strategies into their planning, many companies have not yet adopted sufficient strategies,” says Standard Bank.

South Africa has been severely affected by an El Niño drought in the latter half of 2015 and the beginning of 2016, which has placed strain on water supplies and agricultural production in the country.

“With weather patterns set to remain increasingly unpredictable, commercial businesses should adopt water efficiency plans. While many have, for example, applied renewable solutions like solar, bought a generator or at least implemented energy efficiencies, both energy and water efficiency solutions need to be combined going forward,” says Karl Götte, head of Standard Bank Commercial Banking.

Götte says only about 20% of companies are likely to have adequate plans in place for managing water shortages.

The World Economic Forum’s Global Risks 2015 report says decision-makers will be forced to make tough choices about allocations of water in the future and even though all of the risks are well known, governments and businesses often remain “woefully underprepared.” Global water requirements are projected to exceed sustainable water supplies by 40% by 2030.

Götte says a basic usage plan should be the initial point of departure. Peaks and troughs can then be tracked, and alternative solutions with regards to renewable sources of water can be used to prevent major productivity disruptions. 

According to Götte it is possible to reduce demand from municipal water supplies by up to 50% if a plan is implemented properly.

“As an example Standard Bank’s Rosebank building conserves water by using water efficient fittings such as dual flush toilets, low flow shower heads and tap aerators. For external use, high ground water which infiltrates the basement is captured and in combination with rain water harvested from the roofs is used for irrigating the gardens. Combining energy efficient but water inefficient evaporative cooling systems with air cooled chiller systems, which are water efficient, also saves a substantial amount of water. There is a lot of room to improve,” he says.

Simply reducing levels of wastage can result in significant savings and highly innovative solutions are already being found by companies willing to think strategically. For example, China is the world’s largest potato producer but as their population increases and more production takes place, strain was being placed on the water system of an already arid country.

“So innovations were applied across the industry and among other solutions found, the water saved by using drip over centre pivot sprinklers was 40%,” says Götte.

Götte said that multinationals like PepsiCo have already seen the danger signs and are taking significant action. As a result of their manufacturing process being water intensive and one of their raw materials, namely potatoes, comprising of 80% water, they have started capturing and recycling their own water to use in their operations.

The Council for Scientific and Industrial Research in South Africa (CSIR) says temperatures over central tropical Africa have risen by more than twice the global rate over the last five decades. Moreover, further warming of between 4 – 6 ºC and 3 – 5 ºC, over the subtropics and tropics respectively, are projected to occur by the end of this century. December 2015 has been recorded as the driest December in South Africa in 15 years. 

The challenges also raise an opportunity for entrepreneurs.

“Similarly to the establishment of the solar industry, there is a business case to diversify and create a new industry to provide more water saving solutions,” says Götte.

The knock-on effects for businesses will be enormous if solutions are not found.

“Businesses can close down if they don’t have water,” says Götte.

He adds saying that companies need to work in partnership with sector and commercial specialists to begin the process of change.

Subscribe to this RSS feed


About us

Follow us

Follow us @BusinessNewsCT

BusinessNewsCT My week on Twitter 🎉: 1 Like. See yours with
BusinessNewsCT Look out for Kwatani 'Beast' at Electra... With added sweetener -