Founder: Turnaround Talk
There is plenty of volatility to go around in south Africa at the moment. The energy crisis is no nearer to as resolution and companies are strapping themselves in for a year where inflation and pressurized discretionary spending will have a significant impact on consumer demand.
This means that the efforts that companies haver put in to decreasing the country’s unemployment rate may be unceremoniously erased very soon. This means that the business rescue industry will be in for another busy year.
Return to sender
One company that is facing significant challenges is the South African Post Office.
In June 2022, Turnaround Talk published an article which detailed the company’s plans to turn the business around. Already then, there were calls for patience and significant funding as the company was (shockingly) cash-strapped.
Even before this plan was announced, the company had embarked on a significant retrenchment drive warning that there were more on the horizon. An article by News24 points out that this will now go ahead.
The Communications Worker Union (CWU) has claimed that the SA Post Office (SAPO) is going ahead with plans to retrench 6 000 workers.
The article points out that CWU general secretary Aubrey Tshabalala said SAPO “dropped a bombshell at the doorstep of the union by giving a notice in terms of Section 189 and 189(a), which means it intends to dismiss 6 000 workers.”
Section 189 of the Labour Relations Act allows an employer considering large-scale dismissals to undergo a consultative process to determine whether such dismissals are deemed necessary to keep its operations going.
The article adds that Tshabalala said this happened a week after the Post Office called a meeting with unions to discuss salary cuts of 40% and work-hour reductions.
“The company failed to adhere to its own processes where such matters should and can be discussed at the bargaining chambers with all the key stakeholders.”
SAPO spokesperson Johan Kruger told News24 they were in the midst of “a consultation process about this matter”.
Photo by: South African Post Office
“No final decision has been taken.”
The article points out that this is not the first time that this plan has been brought up. In November the CWU said SAPO had begun consultations on the Section 189 process. Kruger also said at the time that consultations with unions, employees and government were “under way”.
SAPO, which suffered a R2.3 billion loss in 2020/21, is facing several financial challenges, including around paying medical aid contributions and debts. It suffered a R2.3 billion loss in 2020/21, with its revenue rapidly declining.
The article adds that treasury previously projected that the number of SAPO employees would shrink from 16 275 in 2021/22 to a projected 10 254 in 2024/25.
Sugar tax woes
As the Tongaat Hulett business rescue continues, the sugar industry is left in a precarious situation. Tongaat’s financial distress doesn’t only impact the company itself, but smaller independent cane growers that the company sources produce from.
In January, Turnaround Talk published an article which pointed out that the South African Canegrowers Association has called for the suspension of the sugar tax or at least a reprieve on any increases in the tax as Tongaat tries to navigate its financial distress. However, a recently published article by News24 points out that these calls have seemingly fallen on deaf ears.
The News24 article points out that the sugar industry’s largest representative body has warned of catastrophic consequences if the government cuts the threshold for levying the controversial sugar tax or hikes its rate above inflation, saying this would put up to 6 000 jobs and the livelihoods of 3 000 small-scale farmers at risk.
South African Sugar Association (SASA) CEO Trix Trikam told journalists at a presentation in Durban on Monday that his organisation’s position was a “plea” to the government to place a moratorium on any changes to the thresholds of the Health Promotion Levy, or the sugar tax. The lobby group is looking for a break of at least three to five years to give the industry enough time to diversify production out of sugar and into other products such as sustainable aviation fuel and bioplastics.
“Give us the time to get to the end of our research and feasibility studies and hopefully we will come up with some products that will move from crystal sugar to something else,” said Trikam.
The article adds that SASA says the Health Promotion Levy or sugar tax, as it is commonly known, has already cost the industry more than 9 000 direct jobs since it was introduced in 2018.
News24 reported previously that a possible 4.5% inflationary increase of the sugar tax could be looming this April, with the government having also indicated to the industry it could extend the levy to cover more products and lower the threshold at which sugar is taxed.
At the moment, the threshold is 4g of sugar, which means the first four grams of sugar per 100ml does not attract any tax. Thereafter, tax applies at a rate of 2.21c per gram.
Finance Minister Enoch Godongwana first mentioned the possible increase in the sugar tax in his budget speech in February 2022, but after submissions from the sugar industry and other value chain players, the government had agreed to delay it for a year until April 2023 so it could consult with the industry.
Photo By: Canva
According to research conducted by Bureau for Food and Agricultural Policy (BFAP) on behalf of SASA, if there was a change made to the threshold at which the tax was applied – to 2g or below, for example – it could result in beverage companies, which are the biggest users of sugar in SA, reformulating their drinks to avoid sugar.
This would result in sugar producers having to move the production that would have gone to beverage producers to export markets, which were unprofitable because all sugar producing countries had tariffs in place to protect their industries. As a consequence, all sugar for export was sold at lower prices than it cost produce the product.
Sandy Jackson, who is head of agrisocio-economics at BFAP, said at the SASA presentation that if more sugar is exported at lower prices, the “viability becomes increasingly under threat.” She estimated the industry stood to lose almost 54 000 hectares of cane production over the next 10 years, with “the bulk of the hectares going out of cane production between 2023 and 2025”.
She said that with this reduction in cane production, it would put a total of 6 000 jobs, half of them permanent, at risk while up to 3 000 small-scale farmers could potentially lose their livelihoods and be forced out of the industry.
As it stands, Trikam says there are about 65 000 people directly employed by the sugar industry, which earns about R18 billion in annual revenues. An estimated 270 000 people are indirectly employed.
Impending retail storm
If the plans for the changes in the sugar tax go ahead, it will be another sign that there is an impending storm on the horizon for the retail industry. Whether it is a heavy downpour, or a maelstrom remains to be seen.
Obesity, like embracing Net Zero in the energy sector, is a movement towards a healthier lifestyle. Statistics show that, as countries become more digitised, the population becomes more sedentary, particularly among the youth. This is a concern in South Africa which was why the Sugar tax was implemented in the first place. Beverage companies have adjusted and now offer low kilojoule options on most of their brands and zero sugar options on flagship brands. However, profit margins are tight and the change in the sugar tax could see companies take evasive action. Whether this will be significant enough to impact the sugar industry remains to be seen.
Then there is the impact of loadshedding. Consumer demand has decreased and loadshedding has caused such a logistical nightmare that South Africa is dealing with supply chain challenges within the Global Supply Chain Crisis.
The retail industry may face major changes this year. Will this place the sugar industry into financial distress?
