Clearing up franchise misperceptions

For any aspiring businessperson, franchising presents an opportunity to dip their toes into the business world. The industry itself is developing and growing at a rapid rate and it is apparent that this sector is a viable business option that can offer significant returns. 

However, some misperceptions need to be cleared up before franchisees begin their venture.

One of the most common notions is that buying a franchise with an established brand is a guarantee of financial triumph and therefore does not require consistent hands-on involvement. On the contrary, whilst a recognised franchise brand and system can increase chances of success, the prospects are ultimately determined by the franchisee's own competence and commitment to running the business practically.

Many franchise owners also tend to think that they now have the power to call all the shots, but decisions regarding the franchise group will be made by the franchisor and the franchisees will have to comply with these decisions.

It is important to remember that initial and ongoing training is vital, and the franchisee should understand the business system inside out, as this would prevent money from being wasted through unnecessary mistakes. Further, franchisees should take the lead in implementing marketing initiatives and not solely rely on the franchisor in this regard.

Potential franchisees should also be aware that the learning process within a franchise is on-going and it is of benefit to attend meeting and training sessions regularly and to ask for assistance from the franchisor if and when it is required.

Once franchisees have wrapped their head around these factors, they are ready to enter a world that offers valuable experience and provides a stepping-stone to a rewarding and sustainable business career.

bizcommunity

Suggestion: Emerging markets forecast to drive dairy industry boom

At a time when SA's dairy industry is losing milk producers because of the sector's limited viability, an international index has forecast growth for the industry from an expected rise in prosperity and buying power among consumers in emerging markets including Africa.

The index, conducted by global food processing and packaging company Tetra Pak, claimed that more people would increasingly consume packaged liquid dairy products, opening new business and job opportunities o n the continent.

However, according to the Milk Producers' Organisation there were 30000 dairy farmers in SA in the late 1980s, and only 2600 today. Its chairman, Dean Kleynhans, blamed big milk buyers in SA for holding farmers to ransom by paying less than R3/l for milk while the retail price was well above R10/l.

Last year, the Overberg and the George district recorded the highest number of dairy farmers quitting the industry, some branching into other sectors, a factor some saw as contributing to higher milk prices.

According to the index - a bi-annual report released on Friday, 4 May 2012 - the market for dairy products has the potential to grow by 2,7-billion people, largely from low-income consumers in developing countries.

It forecast consumption by these consumers to increase from about 70-billion litres last year to almost 80-billion litres in 2014.

Low-income consumers living on US$2 to $8 a day made up about 50% of developing countries' population, and consumed 38% in developing countries. Half of these consumers live in India and China.

However, the research also included consumers in Indonesia, Pakistan and Kenya whose populations were expected to grow in affluence, shifting from low to middle incomes by the end of this decade. Rae McGraw, communications cluster leader at Tetra Pak sub-Saharan Africa, told Business Day that statistic showed that there was no longer a reason for milk farmers "to bail out or quit".

Urban migration was driving the need for convenient and ready-to-drink packaged products.

Tetra Pak president and CEO Dennis Jönsson said low-income consumers represented one of the biggest growth opportunities for the dairy industry.

"The key to tomorrow's success is reaching these consumers today. They live in economies driving our industry's growth and they are growing more affluent," he said.

Source: Business Day

Avoid buyer's remorse this festive season

The festive season is again likely to bring on an increase of spending. The Spark Cash Index, which measures withdrawals across its ATMs throughout the country, reported a 2% year-on-year increase for the period 1 to 18 December last year, increasing from R436 in 2010 to R445 in 2011.


All too soon, January arrives and many are faced with maxed-out credit with the festive spirit replaced by buyer's remorse. With just under a month until Christmas arrives, careful planning and safer choices now becomes key to survive the season. Here are some tips to help you along the way.

Plan a Christmas budget

One of the biggest reasons people may panic during the festive season is due to a failure to plan. So rather than worry, look to establish a Christmas budget at the start of the holiday season. That way you know how much you have to spend and whom you will be spending it on. Remember to consider your usual expenses, as it is advisable to pay all those expenses first. More importantly, do not forget expected January's costs in your planning and budgets. So where do you start?

Straighten out your to do lists, whether they be work goals, personal goals or holiday/festive-related goals. Go on holiday knowing that you have completed as much things on the list as possible and that you have tied up all the loose ends. Nobody wants to worry about those things while on holiday. Ensure you 'standard' monthly bills are paid, holiday expenses have been accounted for and you understand what is needed to get through the January period.

Do not spend all your cash in one place. Your bonus or 13th cheque should not be finished by the end of December. Think of this extra cash as a financial buffer that is there to help you make it until January's pay cheque comes around. A portion of it could even be deposited into a savings account or used to pay back credit card debt will create a smooth financial transition into the New Year.

The holidays are times of excess in many arenas. There is nothing wrong with treating yourself, but do not over indulge. This goes for finances as well as food and alcohol. After the craziness of the year, you are definitely entitled to spoil yourself but don't do things that you will regret. Rather look to start the New Year knowing you will not have to struggle to get back on track with your goals.

Credit-wise

An example - credit is not always the most 'convenient' option, especially if you consider that the interest you may end up paying down the line on items like clothing and food bought today could hinder any future savings you may want to examine.

Don't get into debt - Unsecured lending in South Africa is at an all-time high due to our poor economic climate and this type of lending tends to increase during the festive season. Being able to delay immediate gratification has a direct impact on your success in life. Exercising self-control means you won't be so quick to buy things on credit cards.

Consumers may think that taking advantage of the credit payment terms associated with holiday specials makes immediate sense, but consider the long term effects or the so called fine print before committing to this to ensure you do not start the New Year with any buyer's 'remorse'.

Online bargains

Going Christmas shopping during the height of the season (about 10 days before Christmas) the festive shopping frenzy is a flurry of purchasing drama. In this case, the adage of 'the early bird catches the worm' is often true, so get to the shops early and avoid the drama of overpriced and marked up goods. Try to do all your shopping in one day, avoid browsing and stick to your list. An even better option - try shopping online this year which is less stressful and often more cost-effective because you can look for better deals and compare prices.

Travel well

Travel safely this festive season. We all know that the large traffic volumes that this time of year brings increases the risk of accidents on the roads. Statistics from 1Lifedirect indicate that 23% of all death claims result from accidents, while 45% of accidental deaths result from motor vehicle accidents. According to the Road Traffic Management Corporation, more than 1475 people died in motor-vehicle accidents between 1 December and 10 January 2012. So take it easy on the roads, rest often and do not be in a rush to get to your destination - keep a safe following distance and become a courteous driver, allowing others to pass while ensuring your keep your headlights on when it is dark.


bizcommunity

Repo rate unchanged at 5%

The repo rate is to remain unchanged at 5%, Reserve Bank Governor Gill Marcus said on Thursday following the Monetary Policy Committee's last meeting of the year.

"The MPC is of the view that the current accommodative stance remains appropriate and has therefore decided to keep the repurchase rate unchanged at 5% per annum.

"As always, the MPC will monitor developments closely and will not hesitate to act in a manner consistent with its mandate," said the governor, adding that the decision had been unanimous.

Market expectation was that the repo rate would remain unchanged.

According to an Absa Capital research note, the bank has previously been focused on growth but that developments on the inflation side since the last MPC meeting in September have been decidedly negative.

"We now believe that there is a material risk that inflation could print above the top end of the target range in early 2013. The SARB is now caught between a rock and a hard place, with the inflation trajectory deteriorating even as the outlook for growth remains fragile.

"We expect that the SARB will take the middle of the road scenario, keeping the emphasis on growth," said Absa earlier on Thursday.

The October Consumer Price Index (CPI), released by Stats SA on Wednesday, showed that inflation rose slightly more than it was anticipated at 5.6% up from 5.5% in September. The bank targets inflation between 3% and 6%. The October number had edged up closer to the upper limit of the target.

By edging up closer to the target, the number reduced the central bank's ability to cut interest rates to incentivise economic activity in an environment of slow growth.

The MPC said the balance of risks to the inflation outlook to be on the upside, given the continued pressure of food prices, uncertainty of the exchange rate movements and the reweighting and rebasing of the CPI. Stats SA has recently announced the reweighting of the CPI.

"The inflation forecast of the Bank reflects a deterioration in the inflation outlook for 2013 compared with the previous forecast," Marcus said, adding that inflation was now expected to average 5.6% in the last quarter of 2012 and 5.6% the year.

It is expected to peak at 5% in 2014, with a peak of 5.7% in the first quarter of 2013.

"This near-term deterioration is mainly due to higher expected food price inflation as well as the recent depreciation of the rand," said the Governor. These forecasts do not incorporate the new CPI weights and rebasing

Higher wage increases could exert upward pressure on inflation, while it could also have a negative effect on employment.

The bank expressed concern at recent wage settlements.

"The MPC is concerned about the recent trend in wage settlements and the potential negative impact on the economy, particularly on growth and investment. These developments could also result in lower growth in employment creation or an absolute decline in employment.

"Although the reported headline increases granted in some of the settlements are higher than the actual average increases, there is no doubt that the increases granted are well above inflation."

Meanwhile, the rand is expected to "remain sensitive" to unfolding domestic economic and political developments, in addition to global risk perceptions.

At the MPC meeting in September, the central bank cut its 2012 growth forecast to 2.6% from 2.7% due to the weak global growth.

Domestic economic growth, said the MPC on Thursday, has deteriorated largely due to the continued global slowdown and domestic events, including labour unrest.

The Bank's forecast of GDP growth has been revised downward from 2.6% cent to 2.5% in 2012.

Growth in 2013 is now expected to average 2.9 % 3.4% previously.

Is lowering interest rates really desirable?

Despite the biggest monetary and fiscal policy expansion in advanced countries in history, the post-recession recovery has been weak. Economists are now beginning to ask whether continued monetary easing - pushing interest rates towards 0% - is really desirable.

It makes sense when economic activity is depressed for central banks to ease monetary policy to boost investment and so create the jobs. But Chris Hamman, head of fixed interest at Sanlam Investment Management (SIM), argues that lowering interest rates even further is "tantamount to pushing on a piece of string".

Very low interest rates do affect the economy, he concedes, but in a different way to what people expect - the public sector is the main beneficiary and this comes at the expense of long-term economic performance.

The idea that lower interest rates will stimulate investment rests on two important assumptions, he explains. Firstly, that interest rates will remain low for a prolonged period, and secondly, that projects will generate sufficiently positive cash flows to meet financial obligations towards funders. Neither holds up.

SA 10-year government bonds are at 6,5%, roughly at their lowest level since the late 1960s. With inflation having averaged 5,3% over the past decade one can question whether this is sustainable.

"Investors in the real economy are investing over the lifetime of a project, 20 years or more, so they have to believe the current very low level of interest rates is sustainable or it will not trigger investment," says Hamman.

The cash flow assumption is equally troublesome. In lowering interest rates to multigenerational lows like in SA, or multicentury lows like in the US, the monetary authority is signalling that the economic outlook is bleak and profit expectations ought to be scaled right back.

"Rational investors will not fund projects when the potential returns are declining amid lower interest rates and, at the same time, the riskiness is rising amid increased economic uncertainty," says Hamman.

Faced with the alternative of risk-free government bonds, investors all over the world have been channelling their investments into sovereigns bonds. This is helping governments to finance debt at levels last seen during the 1940s.

US gross government debt breached 100% of GDP by end-2011 - a level last seen at the end of World War 2. In Japan, the UK and Italy, gross government debt in 2011 amounted to 230% of GDP, 82% of GDP and 120% of GDP respectively.

Given the size of this debt mountain, governments will at some point need to run primary budget surpluses to achieve a return to fiscal sustainability, notes SIM economist Arthur Kamp. This implies less spending and/or higher taxes - neither of which are politically palatable, especially at a time of low real GDP growth.

"Hence, governments will need to live with debt, which means they have a clear incentive to keep borrowing costs low and to channel available savings towards the purchase of government securities," says Kamp.

This strategy - dubbed financial repression - enables governments to finance their deficits and minimise their debt costs and so delay the implementation of fiscal austerity measures. Unfortunately, the cost is that of a declining long-run potential growth rate.

Of course, if a government uses the debt it raises to invest in infrastructure this would raise the long-run potential of the economy, Hamman concedes, but he argues that most SA government spending is not on infrastructure but on wages. Essentially, SA is borrowing to pay wages and the interest on existing debt.

The bottom line is that the very easy monetary policy being practised by the UK, the US and even SA is likely to have a limited effect on boosting growth while leaving these economies at the mercy of fickle foreign investors.

The lesson is that SA should be putting far less faith in fiscal and monetary policy to stimulate growth and much more weight on industrial, trade and labour policy.

FM

Consumer inflation rises faster than expected

INFLATION rose more than expected in October, cementing views that the Reserve Bank will leave interest rates unchanged on Thursday.

Statistics South Africa figures released on Wednesday showed that on average, prices increased 0.6% between September and October. Inflation was recorded at 5.6% year on year in October, from a 5.5% year-on-year increase in September. The market was expecting a 5.5% print.

"We still think the Reserve Bank will find it very difficult to cut rates when inflation is rising notably and the rand is at risk of further depreciation. The safest option at this juncture seems to be to stay put," RMB economist Carmen Nel said.

As expected, the food and nonalcoholic beverages index and the transport index were mainly responsible for the jump in inflation.

The food index alone recorded a monthly increase of 2.8%, its highest monthly jump since August 1994.

Investec Group economist Annabel Bishop said "higher grain prices at the agricultural level fed through into higher bread and cereal prices, while meat and dairy prices also experienced upward pressure due to higher feed prices".

A petrol price increase of 21c a litre during the month led to higher fuel costs, which fed into the increase in the transport index.

Absa Capital economists expected the latest inflation figure to weaken the rand as it came in higher than anticipated.

The Reserve Bank is now widely expected to revise upwards its current forecasts which are for inflation to average 5.3% in the final quarter of this year, 5.2% next year and 5% in 2014. The bank has already cited higher food costs as an upside risk to the inflation outlook.

Higher food price inflation is expected to lead to a continued rise in headline inflation for the rest of this year.

Business Day

Wheat down on import competition

South African maize prices closed the Tuesday session slightly lower due to the expectation of local rain soon‚ while wheat closed softer due to price competition with imports.

“Rain is expected soon and over the weekend‚ and it is dawning on the market that the maize crop will be bigger than previously expected‚ which has had a depressing effect on the maize price‚” Paul du Plessis‚ trader at Brisen Commodities in Pretoria said.

“Local wheat is too expensive when compared to imports. It is wheat harvesting season and silos are full of imported wheat‚ so local farmers are competing with that. If they want to sell their wheat now‚ the price has to drop‚” he said.

White maize for December delivery‚ the most active contract on the South African Futures Exchange‚ dipped R1 to close at R2‚441 a ton.

Yellow maize for December delivery‚ the most active contract for yellow maize‚ lost R7 to close at R2‚491 a ton. The grain is used mainly as animal feed in SA.

Wheat for December delivery closed R26 lower at R3‚629 a ton.

Meanwhile US corn futures rose on Monday‚ boosted by favourable outside markets and hopes for greater export demand for US corn‚ Dow Jones Newswires reported.

Chicago Board of Trade December corn futures settled up 11 3/4 cents or 1.6% at $7.38 3/4 a bushel.

Wheat futures rose on concerns about dry soil for wheat crops in the US southern Plains‚ and other signs of tighter world supplies. CBoT December wheat Friday settled at a four-month low for the front-month contract. CBoT December Monday wheat rose 3 3/4 cents or 0.4% to $8.41 3/4 a bushel. - I-Net Bridge

IOL

TOP 10 HOSPITALITY INDUSTRY TRENDS FOR 2013

The upcoming year is projected to be a better and brighter one for the hospitality industry, but what are the new factors driving the market in 2013?


The landscape is evolving quickly as content marketing replaces advertising campaigns, mobile merges even more with social networks and travelers are open to spending more on getaways that are worth it.

To understand the market and to help hoteliers capitalize on what’s to come, Robert Rauch, otherwise known as the HOTEL GURU and president of R.A. Rauch & Associates, the leading San Diego-based hospitality management company, has compiled his list of Top 10 Hospitality Industry Trends for 2013:

Increase in Travel’s Personal Value

Despite the recent years of a contentious and challenging economic climate, we’re seeing the revival of the most powerful motivation for traveling -- the emotional connection between vacations and quality of life. Leisure travelers are doing less of the things that characterized the economic hardship of recent years and are now adopting more behaviors that confirm the importance of travel in their emerging lifestyles, according to the newly released MMGY Global/Harrison Group 2012 Portrait of American Travelers, a nationally-representative survey of 2,527 U.S. households.

This annual survey shows that while the number of overnight leisure trips is almost equal to that of last year, the drivers of these vacations are changing. Cost-effective “staycations” and other money-saving getaways that emerged in the midst of the recession has weakened. This year, expect a boost in travel spending due to a renewed belief in quality experiences that are worth the splurge.

Expect More International Visitors

Average rates and occupancy levels in the US are likely to increase over the next few years for a very new reason. “Leisure demand from abroad, fueled in part by the new Discover America campaign, will stimulate new demand” according to Arne Sorenson, president and CEO of Marriott Hotels & Resorts during a GBTA panel discussion in Boston last month. Brand USA, the DMO behind Discover America, is the national marketing engine promoting US travel to international visitors.

The U.S. has about 5 million hotel rooms and almost no new supply in the construction pipeline, Sorenson noted. At the same time, China is ramping up to send about 100 million leisure tourists into the international market every year. If the U.S. gets its typical share, that will mean an additional 10 million visitors from China alone.

The average Chinese leisure traveler spends a week in the U.S., Sorenson said. That means an additional 70 million room nights in a market where prices are already rising due to growing domestic demand. And that doesn’t count growth from other inbound markets, such as Brazil and India, Sorenson said. “The globalization of travel is a massive force.”

A Second Look at Refinancing

When moving from your business plan to your actual budget, remember that while a zero-based budget is time consuming, it will save you tens of thousands of dollars on your bottom line. Each dollar on the bottom line increases the value of your asset by about $16 depending on capitalization rates. So a savings of $60,000 means an increase in value of about $1M!

If refinancing is an option, remember that interest rates are unbelievably low right now and that debt is actually available! As a matter of fact, though it is limited, there is even some new development activity in the pipeline. While there is still some economic uncertainty, this industry is cyclical and we are already in the fourth inning of the recovery. Look back and remember 1996-2000 and 2004-2008. Compare them to 2012-2016. The money is made in the middle innings and we are there.

Social Media and Mobile Will Be Inseparable

Social media and mobile already live in symbiosis and this year we will continue to see them merge. Now, people can create social media updates from their phone, while tagging friends or checking in. Mobile has allowed social media to truly become real time.

Smartphones represent more than 50 percent of new mobile devices being purchased. And, the growth of connected devices will only continue to soar throughout 2013. In fact, Ericsson estimates there will be over 50 billion connected devices in circulation by 2020, including laptops, tablets and smartphones. In North America, 2013 will mark the first year that online access is greater from mobile devices than desktop or laptop.

Smart hotel marketers will keep their eye out for authentic ways to make use of emerging social/mobile applications in 2013.

Photo-Sharing Will Dominate

Photo-sharing sites like Pinterest and Instagram saw their coming of age this year. By curating cool content through images, the Pinterest provides a powerful way to visually communicate lifestyle messages exuding from brands in the hospitality business. Pinterest is, at its core, a master of content curation. And with Pinterest API coming sooner rather than later, hotels will be presented a unique opportunity to curate, collect and highlight the very best of the pinning service through their own digital channels. Copycats are bound to arise, but 2013 will certainly provide us with new players on this field.

More Unrehearsed Marketing Videos

Video is one of the most effective ways to make an impact on web visitors and the opportunities to use videos are endless. In 2013, video is predicted to be an even more vital element in a hotel marketer’s arsenal with more and more people viewing and sharing videos online, including hundreds of thousands of consumers regularly streaming videos on their mobile devices. Did I also mention that videos can strengthen your organic SEO efforts? Contrary to what your boss might think, your video doesn’t have to “go viral”. More importantly, it doesn’t have to be a literal walk-through of your lobby and rooms. First and foremost, your social videos should showcase interesting and useful information. The content featured in your videos should highlight the uniqueness of your property, as well as the destination and area attractions. Plus, try different ways of presenting, including interviews, instructions, demos, reviews, or coverage of special events, activities or nearby attractions.

Content Marketing Will Replace Traditional Advertising

Traditional advertising is rapidly losing out as hotel marketing professionals begin to realize the advantages and effectiveness of content marketing. Marketing’s new mantra of “Brands must now acts as publishers,” has arrived in part because of social media and its potential to engage in meaningful conversations with their loyal fan base and potential clients alike. In short, content marketing is the new advertising. By investing in the sharpest media tools like blogs, social media, newsletters, webinars, ebooks, photo-sharing, or videos and shared media, you’ll drastically reduce the hefty investments in traditional paid media. Plus, your SEO efforts will be affected if you “opt out” of being a producer. Google is now weighing current content, social proof and author scores in their results ranking. Simply put, you need to create and share content, while being of interest to lots of people to even be a player going forward.

Renewed Focus on Property Websites

Direct bookings are king. And, finding ways of encouraging direct bookings will be one of the most important parts of a marketing director’s job in 2013. As travelers are increasingly taking their transactions online, the hotel’s own Website has grown into the most important avenue for them to gain the highest ROI. In 2010, American hotels spent an estimated $2.7 billion on OTA commissions. Now, as those rates rise and rate parity restrictions tighten, hotels are looking at any and all ways to increase direct bookings through their websites. To achieve this, hotel Web sites must find compelling ways to convey the advantages of going through them, rather than the OTA’s. Today’s hotel website needs fresh content, constantly updated promotions, and rich media. Then all of this content needs to be marketed across all channels, including desktop Web site, the mobile site and social media profiles.

Guests Will Crave Food, Not Celebrity Chefs

Foodies have driven hotel culinary offerings these past few years, with chefs creating meals like pieces of carefully crafted art. Plus, investments to woo celebrity chefs to helm hotel kitchens have skyrocketed because of the rise of big-name chefs emerging from Food Network shows. Hotel owners used these chef’s newfound celebrity status to bring in F&B business. However, now meeting planners and leisure guests aren’t focused so much on the chef in the kitchen, but the food on the table. What they’ll care about now are menus filled with healthy and organic options, and more options for diet restrictions. F&B directors should reevaluate where their ingredients are coming from, and highly consider procuring from local farmers and vendors if they’re not already. Showcasing where your food is coming from will allow guests to connect more with the property, the restaurant and their experience overall.

More Meeting Planner Via Social Networks

More and more, meeting planners are utilizing social media tools to research, compare and read reviews of hotels and conference centers. Plus, they are using social networks to strengthen professional relationships like the rest of us. Hotels should designate a sales team member to oversee the property’s LinkedIn profile and engage the entire sales team to actively connect with planners online on a daily basis. Some ways hotels can attract meeting planners with their own social media? Have a separate customer service-focused Twitter account to manage questions or issues during conferences. Use webinars to educate planners about things that matter to them. Share positive reviews from other planners on all your sites. Last but not least, make sure you’re monitoring and answering review sites like TripAdvisor. Use your hotel blog to write about meeting ideas. Planners are increasingly using former guests’ reviews to see if they want their attendees staying with you.

In Closing

Remember that our industry is now more of a science than an art…great stewardship of your properties will reward you in the millions over the next few years. This will include digital marketing, social media marketing, revenue management, distribution channel management and mobile web marketing. May the wind be at your back and the occupancy, rate, net income and values make you happy this coming year and for many years to come!

Robert Rauch is president of R. A. Rauch & Associates, Inc and is nationally recognized as the HOTEL GURU, a hotelier serving clients in all facets of the industry.

Source: HBR Eprop

BMR ECONOMIC GROWTH INDICATOR DECLINES

The BMR index‚ which points to trends in the economy six months in advance‚ declined to 108 points in September from 109 points in August


“This trend is expected to continue on the back of further anticipated labour activity‚ continuing dismissals and retrenchments up to the end of November 2012‚”.

Thousands of miners were sacked after a series of wildcat strikes across the industry in the past few months‚ which began with a violent uprising at Lonmin's platinum mine at Marikana.

Many have been taken back after negotiated wage settlements‚ but the unrest has undermined investor confidence in SA and led to two credit rating downgrades.

A spike in household consumption ahead of the year-end holidays was likely to provide some impetus to the indicator‚ which includes the JSE All Share Index‚ platinum prices and oil prices‚ the BMR said.

“This optimism could be enhanced or depressed depending on the policy decisions flowing from the ANC (African National Congress) conference in Mangaung‚” said BMR analyst Andries Masenge.

The ANC will hold its elective conference in Mangaung next month. It will decide whether President Jacob Zuma will remain head of the party and is expected to usher in changes to economic policy.

SA’s official leading indicator for the business cycle nudged higher for the second month in a row during August‚ but the pickup did nothing to dispel the view that economic growth is losing momentum.

Analysts have been revising down their growth forecasts to take account of the effects of the deepening global slowdown and widespread strikes in mining.

Consensus forecasts predict the economy will expand 2.5% this year after growth of 3.1% last year‚ but the risks of downward revisions are mounting.

Source: I-Net Bridge

SEEK EQUITY, PROPERTY TO EARN REAL RETURNS

In light of the pessimistic economic outlook, it is important to look for good quality equity and listed property shares that have strong dividend/distribution payment histories, attractive current yields and are going to grow the dividend/distribution income stream in the future

There have been two meaningful changes in the global investment landscape over the past six weeks. Firstly, various economic and corporate earnings data, both globally and in South Africa, have started to show signs of deterioration. Secondly, the labour unrest and violence-ravaged strikes in SA have raised the political temperature in the country ahead of the ANC's elective conference in Mangaung in December 2012. Pessimism about the future prospects for SA and the world abounds.

Notwithstanding these concerning facts, our investment outlook and asset allocation have not perceptibly changed at this stage. Investors may well ask why. Are we not being irresponsible and complacent by not adopting a more cautious or conservative approach for our clients' hard-earned cash? The answer is no.

We emphatically believe the larger risk to investors, particularly retirees, is inflation risk. To be clear, our starting point for portfolio construction is always to seek assets that can deliver returns in excess of inflation over the medium to long term. Yet when we look at asset classes globally, fewer and fewer of the mainstream asset classes are able to jump this basic hurdle rate for inclusion in the portfolio.

The policy aftermath of the global financial crisis drove short-term interest rates sharply lower and they have remained at record low levels since 2009. Importantly, they are likely to remain at these levels until sometime in 2015. In SA, the South African Reserve Bank (SARB) has adopted an aggressive monetary policy with the repo rate at 5%. In both instances, these interest rates are below the respective official inflation measures, meaning that negative real interest rates are on offer.

In the bond market, yields are not much more attractive. In the US, 10-year Treasury bond yields are below CPI and in SA bond yields are marginally above CPI. Corporate bond yields are slightly more attractive, but are still insufficient to offer a meaningful improvement in the outcome. Unless we see further declines in bond yields, investors are going to struggle to deliver CPI-matching returns from bonds, let alone the CPI + 5% return outcomes the liability profiles of many investors require.

Therefore, two important sources of positive real returns over the past 10 years will be the source of negative real returns for the next three to five years. Accordingly, investors are going to have to focus their attention on asset classes that at least have a fighting chance of beating CPI in the future. Investments in listed equity, listed property, private equity and hedge funds may provide the potential inflation-beating return solution.

The Grindrod Asset Management approach has been and will remain focused on looking for good quality equity and listed property shares that have strong dividend/distribution payment histories, attractive current yields and are going to grow the dividend/distribution income stream in the future.

We believe that while this approach may be somewhat more volatile in the short run, it is the only sensible course of action looking forward three years and beyond in a world starved of yield and increasingly exposed to unintended consequences of aggressive policy risks. Eprop

Further interest-rate cuts for South Africa?

Nov. 7 (Bloomberg) -- The case for further interest-rate cuts in South Africa is building as the global economy slows and recent labor disputes hurt output, according to the International Monetary Fund.

The central bank unexpectedly cut the benchmark interest rate by 0.5 percentage point to 5 percent in July to bolster the economy as the European debt crisis eroded demand for South African exports. On Oct. 25, Finance Minister Pravin Gordhan cut his growth outlook for this year to 2.5 percent from a February estimate of 2.7 percent, partly reflecting a loss of production at gold, platinum and coal mines because of strikes.

“The deterioration in the global economy, as well as the internal domestic strikes that you have in the mining sector, as well as other sectors of the economy, has without doubt had some impact on growth,” Calvin McDonald, the South African delegation chief in the IMF’s African department, told lawmakers in Cape Town today. These developments “strengthen the case” for South Africa to “rely increasingly on monetary policy to support economic recovery if conditions in the global environment continue to deteriorate.”

The central bank’s Monetary Policy Committee will make its next rate decision on Nov. 22.

Ratings Cut

The IMF regards the central bank’s 3 percent to 6 percent inflation target band as appropriate and allowing sufficient flexibility, and sees no need for it to be adjusted, McDonald said.

He urged the government to stick to its commitment to rein in borrowing to buoy investor confidence, contain growth in spending on civil servant salaries and reform labor laws to encourage hiring.

Standard & Poor’s and Moody’s Investor Services have lowered their ratings on South Africa’s sovereign debt since Sept. 27, citing an increased risk of the government missing its deficit targets. The downgrades have “taken a toll” on South Africa’s reputation, McDonald said.

The government is monitoring the effect of the downgrades, and taking steps to prevent a further decline in perceptions of South Africa, Gordhan said in a written reply to a parliamentary question today. This will include increased interaction with rating companies and investors to ensure they don’t have to rely on “sensationalist” media reports for information, he said.

‘Completely Sustainable’

The “government remains committed to taking the necessary measures to lift the growth potential and competitiveness of the South African economy,” Gordhan said. “The government has committed to a process of fiscal consolidation. Government debt is well controlled and completely sustainable.”

The IMF said on Oct. 9 that Africa’s largest economy will probably expand 2.6 percent this year and 3 percent in 2013, forecasts that were prepared before a wave of strikes broke out in August. The estimates have yet to be revised, McDonald said.

“We haven’t had any discussions with the government yet,’ he told reporters. “Things seem to have stabilized somewhat, which is good.”

Bloomberg News