The USD/ZAR currency pair (US Dollar/South African rand) is closely correlated with the EUR/ZAR (Euro/South African rand) with an 83.9% correlation. Simply put, the performance of the USD and the EUR with respect to the ZAR are one and the same. When the USD or the EUR appreciates, we are likely to see similar trends taking place with respect to the USD/ZAR and the EUR/ZAR currency pairs.
As of Thursday, 17 August 2017, the USD/ZAR exchange rate was 13.169. The 52-week trading range for this currency pair is 12.298 on the low end and 14.748 on the high-end. 10 years ago, at the height of the global financial crisis (August 21, 2007), $1 was trading at R13.17040. The USD appreciated sharply against emerging market currencies, notably the ZAR, in the years following the crisis. Between 2007 and January 2016, the USD gained on the ZAR. It reached a high of R16.44437 on 14 January 2016, before retreating sharply to R12.43849 on 24 March 2017.
Unbeknownst to many millennials in South Africa, the ZAR was not always trading at its current levels. Before Jacob Zuma assumed the presidency, and gross malfeasance engulfed the South African economic system, the Rand was a force to be reckoned with in global financial markets.
South Africa was considered the bright star of emerging market economies in Africa. Gold, platinum, coal, iron ore, tourism and other factors helped to create a positive image of the South African economy.
Economic Malfeasance Impacts Credit Ratings
Enter the Gupta scandal, Nkandla, multiple successive votes of no-confidence in the president, and ongoing fears about nationalization, the exodus of multinational corporations, and a crumbling infrastructure – the result is evident in the Rand. The South African economy continues to absorb swelling numbers of illegal immigrants, many of whom are living in squatter camps where rising levels of ethnocentrism are brewing. A flare-up is imminent.
International credit ratings agencies have downgraded South Africa’s rating over time, with the following ratings and outlooks from major agencies:
- Moody’s assigned a Baa3 rating to South Africa with a negative outlook – June 9, 2017
- S&P assigned a BB + rating to South Africa with a negative outlook – April 3, 2017
- Fitch assigned a BB + rating with a stable outlook – April 7, 2017.
These credit ratings are extremely important to international investors says Weiss Finance professional, Sal Caputo, ‘They determine capital flows into South Africa. Investors, pension funds and sovereign wealth funds look towards credit ratings for their investment decisions in foreign countries. If we wind the clocks back to 1994, Fitch assigned a BB rating, Moody’s a Baa3 rating and S&P a BB rating to South Africa’s economy. While the ratings appear similar today, the sentiment (the outlook) is decidedly negative this time around.’
Pre-Global crisis, in 2006 the USD/ZAR was trading at 6.1392. Put into perspective, R100,000 would buy you $16,288.76, 11 years ago, and that same R100,000 is the equivalent of $7,588.17 today. These figures do not take into account the real money depreciation, or how much more you could have earned by investing that $16,288.76 over 11 years. The differences are dramatic. Inflation in South Africa is currently recorded at 5.1% year on year (June 2017).
This is good news in that it means the real purchasing power of the South African rand is not being adversely affected by rising prices. This is the lowest inflation rate for South Africa in 1.5 years. Conversely, the inflation rate in the United States for the 12 months ending July 2017 was measured at 1.7% – 3 times less than South Africa’s rate.
Clearly the value of the South African currency is being eroded away every year. The current interest rate at South African banks was measured at 6.75% on July 20, 2017. This means that investments in SA banks yield real money growth to capital. Provided inflation is kept in check, and the SA infrastructure is renovated, upgraded and maintained, good governance can help the SA economy to get back on track.
A Thought: In the 1960s, the South African rand was grand, as it traded at a mere R0.72 to the USD. Things have certainly reversed since then, but the Rainbow Nation has the ability to turn a new page and make the Rand proudly South African once again.
How Schindlers Attorneys Became Involved In The Landmark Cannabis Case
Everything you accomplish accumulates and eventually comes back to assist you further along in your career. This is how a final year LLB assignment became the basis for a Constitutional Court case.
Schindlers Attorneys are the law firm that represented Prince and Acton et al’s in the landmark Constitutional Court judgement on cannabis use within a private space. Paul-Michael Keichel, Partner at Schindlers Attorneys shares how they came to be the foremost legal experts on cannabis and how they became involved in the Constitutional Court case:
How the journey began
“In 2005, my first year at Rhodes University, whilst studying for Intro to Law, it occurred to me that there were strong constitutional points that could be raised to objectively justify the decriminalisation of cannabis in South Africa,” explains Paul-Michael Keichel.
“In my final year LLB, 2009, I took Constitutional Litigation as an elective (largely motivated by the creation of a timetable clash, which meant that I’d not have to sit another semester of lectures for a module that I had failed the previous year). This provided me with the opportunity to write an assignment titled “A Critical Analysis of Prince and an Objective Justification for the Decriminalisation of Marijuana in South Africa”, in which I composed my argument (based on the right to equality in our Constitution).”
The start of the partnership
“Fast forward to 2013 and the Dagga Couple find themselves at Schindlers (where I am a first-year associate) to register their NPC, “Fields of Green for All”. The attorney handling the registration (who I’d also bored with my argument) suggests to the Dagga Couple that they speak to me. It turns out that they already knew of me, because my assignment had (unbeknownst to me) done the rounds on the underground cannabis networks. We get chatting and I rope-in my brother, Maurice Crespi, the managing partner of Schindlers,” explains Keichel.
“We are the only firm out of many approached by the Couple who are willing to take on their trial action against 7 state departments and Doctors for Life to push for a declaration of constitutional invalidity of the laws prohibiting cannabis use/possession/dealing in South Africa. We decide to run the challenge for them pro bono.”
The Cape ruling that started it all
“Prince and Acton et al have their matter heard in the Cape, which resulted in the 2017 Judgment. We run a portion of our trial (including expert evidence from international scientists and doctors – the best in field), but it is rendered part-heard. We then hear that Prince and Acton et al’s matter will be heard by the Constitutional Court in November 2017 and we decide, with the Dagga Couple, to intervene in that matter, upon which it is confirmed that my 2009 assignment forms the on-record basis of a major chunk of Prince and Acton et al’s arguments in support of legalisation.”
“Our involvement in the Constitutional Court was such that we provided clear legal argument and authority to support and expand upon what Prince and Acton et al were trying to say to the Court. Ultimately, much of what we submitted has found its way into the judgment of the Constitutional Court.”
How a final assignment became the foundation for a Constitutional Court case
“So, an idea (bolstered by wanting to create a timetable clash) resulted in an assignment, which provided certain credibility and impetus to cannabis activists. Two of these activists ended up being our clients, which, despite being handled pro bono, has brought Schindlers immeasurable positive publicity, and which, ultimately, contributed to the decriminalisation (and potential future legalisation and commercialisation) of cannabis in our country.”
“Schindlers now has a dedicated “Medicinal and Recreational Cannabis Law” department, through which we will continue to make submissions to parliament, apply for licenses on behalf of our clients, support those who have been arrested and charged.”
6 Ways To Win A Better Deal
Be proactive not reactive by working through these six critical elements of your strategy.
By far, the majority of our clients start the journey of selling their business by working on a very reactive basis. Most business owners going to market say they just want to ‘see what happens’. But this means you are starting the process on the back foot.
This approach automatically takes the control of the business sale out of your hands and puts it into the hands of the market. Keeping control is a critical element in selling your business for maximum value.
Letting the market tell you what they think about your business and what they want from you means that straight away the acquirers set the hoops that you need to jump through.
They tell you what they want. Any engagement is on their terms.
You have not defined terms or standards to use as a yardstick for what the market is saying. So you are much more likely to find yourself boxed into a corner, forced into the role of price taker rather than price maker.
Taking the time to define your ‘go to market’ strategy is a critical factor in achieving success for yourself, what you want for your business and how the market aligns to this.
Be proactive not reactive by working through these six critical elements of your strategy:
1. Define your non-negotiables
We all have certain non-negotiables in our lives and you must think through those that you want to apply to the sale of your business.
Spend quality time working out what your personal and business non-negotiables are. Then make sure that they feature prominently in your deal strategy. Examples could be:
- I am prepared to stay on for only 18 months after the sale conclusion.
- My staff need to be looked after as they have been with me for 20 years and are like family.
- I want to sell 100% of my shareholding on Day 1.
- I am not prepared to warrant future profits.
When you start out on the selling journey, this list will probably be a lot longer. Usually, it will reduce as you travel further and further down this road but you may even add new non-negotiables once you climb into the trenches and take control of the process.
Don’t be shy about presenting your list of non-negotiables to prospective buyers. They will certainly be putting forward their own list as well.
Related: Savvy Business Sale Spells New Life
2. How ready and committed are you to sell your business?
Selling your business is one of the biggest decisions that you will take in your life. It is an emotional rollercoaster. You will face more questions than answers as you progress down this road. Nobody can ever be 100% ready but you can help yourself prepare as much as possible by asking yourself the following questions:
- Do I know what my business is worth?
- Is my business ready for acquirers to see?
- Am I ready to let go of my business?
- Can my business run without me?
- What makes my business attractive and enticing to an acquirer?
- Do I have the time and skills to embark on selling my business myself?
As you work through these questions, a whole host of other questions will probably occur to you. Be decisive, objective and critical in asking and answering all these questions.
3. Put a plan together
Like any other business or strategy implementation, selling your business is a project. All projects need a plan of the objectives, timing, resources and risks required to succeed.
Selling your business is by far one of the most important projects that you will ever drive and also one with the least room for error. Your planning cannot control the biggest variable of all – how the market will react to your business. But being as well prepared as possible will help you cope with this.
4. The market wants a serious seller
The way that your business and personal brands show up in the exit process is critical. Buying or selling a business is a very time-consuming process, with both seller and acquirer committing quantities of effort, energy and resources.
The market therefore wants to deal with a committed and serious seller. Any business owner just dipping his/her toe into the water to see what happens will frustrate them and potentially damage future transactions if that toe is removed from that water.
5. Be ready for the experts
You are brilliant at running your own business, which is why you are considering selling it for maximum value. The acquirers on the other side of the table are, of course, also experts at what they do and how they do it.
Expect them to speak a different corporate language, exude negotiation and transaction skills and have mastered the ability to control the transaction. If you do not have a strategy or blueprint to default to when the heat gets too high, you will lose your way and could be blindsided into the wrong transaction.
6. Bring it all together
Work through the various steps identified above and craft your deal strategy. Let this framework be your compass during the transaction.
Always lean on it when there are too many variables being thrown at you. Having your strategy is the first step. Sticking to it will be your biggest test when the pressure is on.
Hooked On Ethics
The business that puts ethics at the forefront of its culture is the one that will shine in a landscape littered with dishonest behaviour.
There is significant research into how the work environment influences ethical behaviour. Study after study has shown how the ethical values upheld by management filter down to all employees, affecting behaviour and business practice. The biggest influence on a person’s ethics is their environment. In South Africa, the after effects of the recent political regime continue to shake both country and citizen. Corruption has seeped into almost every part of the government and in some of the country’s most prominent private organisations.
The old saying that the ‘fish rots from the head’ has never been truer, nor more obvious.
The ethical dilemma
The reality is that the government’s flagrant disregard for ethics saw corruption become a part of everyday life. This makes almost everyone ask themselves questions like – why should I pay X utility bill? Why should I pay my TV license? The money is being clearly used fraudulently. Sure, it is the law, but leadership has proven that ethical behaviour isn’t rewarded or recognised.
But it is. The value of building an ethical business and upholding a culture that promotes honesty and integrity cannot be understated.
Here are five reasons why…
- Those who skirt the edges of ethics almost always get caught. There has been a steady shift in the country’s moral compass as leadership has taken a far stronger stance on rooting out corruption and already some of the country’s biggest names have been found guilty. KPMG, McKinsey, Bell Pottinger and SAP have all had their names tarnished by the scandals that have rocked the country.
- Employees are more engaged and better behaved. A weak ethical culture filters down from the top, influencing behaviour and attitudes. If employees feel that they can get away with bad behaviour that benefits them, or if they feel that their environment encourages this, then they will.
- A strong ethical influence will dictate how employees treat customers and one another. If your company enforces and rewards honesty and integrity, then these will be the qualities that clients will perceive. Their lack may also see you lose market share and your reputation.
- Like attracts like. If you create a culture that rewards employees that work all hours, deliver the goods and commit themselves then you will attract more people with these qualities. The same applies in reverse – reward bad behaviour and the results will rapidly speak for themselves.
- Your business reputation. Trust can’t be bought. It is hard won and easily lost. If you lose your reputation then it is very unlikely you will win it back and it will follow you for the rest of your life. The same applies to your staff. If their behaviour is questionable it could damage your company. Make sure you set the rules of what is or is not tolerated by your company culture and consider investing into ethics courses that allow your teams to stay ahead of the curve.
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