News24.com | STOCK TAKE | Struggling sugar industry eyes Godongwana nervously and Telkom seems to get speedier

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Struggling sugar industry eyes Godongwana nervously

A spoonful of sugar doesn't make taxes go down

The parlous state of government's finances is well documented, so it is no surprise it is constantly looking for new ways to tax long-suffering South Africans.

Both individuals and companies are subject to the vagaries of government taxation policy, which can spring some unpleasant changes when they can least afford them.

A good example of this is the controversial sugar tax or the Health Promotion Levy as it is officially known, which was ostensibly introduced in 2018 by the state to combat obesity by discouraging excessive consumption of sugar. You will, however, be hard pressed to find where the revenues earned from this tax have so far been spent.

If this money was being poured into a creaking healthcare system or being used to combat diabetes, the levy might be easier to digest. But it just seems to disappear into a bottomless pit.

Meanwhile, the sugar industry, which is the economic lifeblood of KwaZulu-Natal, is struggling as demand falls off a cliff thanks to beverage companies, the sugar sector's biggest clients, all reformulating their drinks in response to the tax.

The tax's main success then it seems has been in compounding the problems facing the sugar sector, which according to research conducted by the Bureau for Food and Agricultural Policy (BFAP), has been in steady decline for the last two decades as it faces "substantially higher production costs and increased uncertainty and competition". 

To its credit the industry has accepted the tax is here to stay and is now looking at ways to diversify its production into other areas such as sustainable aviation fuel and bioplastics as a way of ensuring its survival. It just needs time – at least three to five years - to come up with alternatives to ensure its long-term sustainability. It must have then breathed a collective sigh of relief last year when government agreed to delay the introduction of changes to the rate of the sugar tax, its threshold, or the products it affected by a year as it consulted with the industry.

This meant that any changes – such as the lowering of the threshold of the tax from the current 4g of sugar, as well as an increase in the actual tax rate and the extension to other products – that would have been implemented from April last year were postponed until April this year.

The problem now though is that precious little consulting – in fact zero - has taken place over the last year. And with Finance Minister Enoch Godongwana's budget speech just days away, anxiety levels in sugar circles are understandably elevated as they wonder whether they are getting some unpleasant surprises come budget day. The industry's position is that there should be no tax hikes, threshold changes or extension to other products for the next three to five years as it looks to plot a radically different path to future proof it.

The South African Sugar Association, which is the industry's largest representative body, has warned that up to 6 000 jobs and the livelihoods of 3 000 small-scale farmers are at risk, if government reduces the threshold or hikes the tax rate above inflation. Whether the government will listen and eschew the short-term gains of a tax hike in favour of the longer-term sustainability of the industry is unknown.

Perhaps it is an opportune time for the government to reacquaint itself with the popular Aesop's fable The Goose that Laid the Golden Eggs to get some inspiration. Killing the sugar industry for some short-term tax boosts to the fiscus will have leave untold devastation in its wake, both for the broader KwaZulu-Natal economy and the country itself.

Telkom moving swiftly to net some value from its assets

Swift nets

Telkom, potentially, may have been considering its worth since two interested suitors walked away, seemingly moving quickly to bulk up its net value as interested parties continue to circle.

This week, the partially state-owned firm confirmed it is sounding the market for its broadband Openserve business, deemed to be 'core', after receiving a number of unsolicited bids.

Openserve only became a standalone subsidiary of Telkom last year, but is already marking itself out as the star performer, growing homes passed by more than a quarter to end-December to above 1 million, which ensures that SA’s third-largest mobile operator is also SA’s number one fixed-line broadband operator. Speculation was rife that MTN’s offer for all of Telkom was mostly due to its fibre interests, which would help it compete with rival Vodacom, which has teamed up with CIVH.

Vodacom itself has indicated MTN may have been better off for going for the part, rather than the whole. 

Telkom is also moving quickly to realise value from Swiftnet, its masts and towers business (3 960 towers) and offers are expected to roll in March, following a decision to sell part of all of it.

Telkom is also planning to raise about R1 billion by selling its future revenue for handsets up front – experiencing a bit of cash flow pressure as it pushes mobile subscriber growth – with the costs felt upfront, but revenue only recaptured over two to three years (unless sold to others, likely with a very unfree haircut). 

And in more news, Telkom is once again in retrenchment talks, which could affect 15% of its workforce. The group, which is moving into the future (which doesn’t include telephone booths) has already seen its workforce decline to about 12 000 now, about half what it was a decade ago.

While Telkom has been pushing its value unlock strategy for a while, it’s also quite easy to imagine that having to sit in a board room discussing hostile takeovers, and considering the patience of its shareholders, would speed up things up a bit.

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Previously:

STOCK TAKE | Eskom's tough lessons for a zombie apocalypse

STOCK TAKE | Spar's flawed thinking

STOCK TAKE | Nampak is boxed in a corner

STOCK TAKE | Steinhoff's unsettling future for shareholders, and Telkom loses its suitors

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