Bruce Whitfield  00:02

To Siboniso Nxumalo. Siboniso is the Chief Investment Officer at the Old Mutual Investment Group. We could get into a long ideological discussion about expansion versus cutting versus borrowing versus spending from the national piggy bank, but let's not do that, Siboniso. Let's focus on markets this evening. Quite interesting to see a little bit of a recovery in the Rand, commodities holding up okay, and a small gain for the JSE on the day.

Siboniso Nxumalo  00:27

Yes, good evening, Bruce. Good evening to you and your listeners. But Bruce, I do want to weigh in, I've got some numbers for you on what the government should do and should not do, and what's going to come up in the medium-term budget. So, can I go into it?

Bruce Whitfield  00:41

Please!

Siboniso Nxumalo  00:43

So, Bruce, one of the things South Africa has is what's called PGMs, platinum group metals. These are the companies that obviously produce platinum, rhodium, and palladium. We use some of these commodities in jewelry, people who are proposing, they use this, buy platinum rings. But we also use them more importantly in what's called catalytic converters, which they put in your car. And obviously, it prevents the pollution from coming out of your car. So, today in the market, we saw that Northern Platinum is up almost 5%. Amplats is up almost 3% or so. But Bruce, the key about the PGMs, is that if we take the 13 biggest commodity producers in South Africa, and we look at their earnings, and what they have done, given what has been relatively very high prices in the PGM space and the commodity space, when we look at that, we say well, in 2021, the top 13 commodity producers paid in terms of income tax and royalties in South Africa, they paid around 110/111 billion to the fiscus. So, in 2023, given what commodity prices have done, which especially the platinum group metals, those have come down. So, we've gone from about 113 billion, we are good, those companies are going to pay in taxes and royalties, around 46 billion. So, Bruce, we've lost a material amount of money in our fiscus, just simply by correcting commodity prices. Now, what's interesting about this is that actually, the last time we saw Treasury, this was in the February budget, they spoke about this. They said, hey, corporate income tax collections from high commodity prices are temporary, and those are going to decline. And so, Bruce, now this is the chickens are coming home to roost. And so therefore, now to tie that all up together, is that if we look at the total corporate income tax in South Africa, it's about... in February, it was about 336 billion. Now, 100 billion of that came from the resources sector. So, the resources sector is losing 60-70 of that. Our taxes are not going to come in. Those are the facts, Bruce. We can have all the opinions in the world, the facts are, actually our sectors are struggling.

Bruce Whitfield  03:03

Again, there's this belief that money comes out of fresh air. And it doesn't. It comes from the hard sweat and labour of those who produce value in an economy. And if you're not inspiring those people to produce the value in the economy, unfortunately, you get a very quick tapering off in expansion investments and growth. And that is where we are at the moment, a lack of confidence in the economy. And without confidence, you don't get investment, without investment, you don't get growth, without growth, you don't get the higher revenues that countries need to help all of the people who need the help in the economy. It's exhausting. But that is the brutal reality.

Siboniso Nxumalo  03:36

That is definitely the brutal reality. So, from our fiscus, from corporate income tax, I think we're going to be under pressure. From personal income tax, we should also be under pressure. And we can see that in the retailer's results. The retailers that have come out, this is the Truworths, the Foschini's, they're telling us, hey, even Pick n Pay. These companies are telling us that, hey, we're not - this country's not growing, we're not making revenue.

Siboniso Nxumalo  04:00

But Bruce, I want to talk about two companies that seem to be growing. Yes, so Raubex is a company that the Old Mutual Investment Group, we own a very significant portion of this business, over 20% on behalf of our shareholders. So, they've come out, Bruce, and they've said, hey, we're gonna grow our headline earnings by 15 to 20% for the six months at 31. Tough economy, a business that actually is exceptionally well run. They are growing despite a tough economy, which means there are projects out there, they're constructing them, and they're very good at renewables, which is a new space for us to grow into. They're also very good in road building. That's their traditional business. And so, despite all of this what's going on, Bruce, there are companies out there who are exceptionally run, who are leading to opportunities.

Bruce Whitfield  04:48

And the second one?

Siboniso Nxumalo  04:49

The second one is Adcorp. So, Adcorp came up with a trading statement again. I think actually you and I, when Adcorp last reported, we spoke about Adcorp. But Adcorp is telling us, hey, South African operations are tough, but they've got a business in Africa. And actually, they're telling us that their headline earnings are going to increase between 25 and 45%. Again, well run business, Bruce. So, despite all the noise, every now and then we find some capable businesses, and we invest in those.

Bruce Whitfield  05:17

There we go. Siboniso, thank you very much indeed Siboniso Nxumalo is the Old Mutual Investment Group Chief Investment Officer this evening.